AILA past presidents at APIC17, from left, Michael Gill, Steve Knight, Chris Rodd, David McKenna, David Lee, Sue Vidler and incumbent Angus Kench.

Good faith imported from England

The concept of utmost good faith has been imported into many ASEAN nations because English common law is the basis of their legal systems, Simon Goh, head of the insurance & reinsurance practice group with Rajah & Tann Singapore LLP, told APIC17.

Mr Goh chaired a panel session on the changing regulatory landscape in Asia.

He said the concept of good faith was developed by Lord Mansfield in the landmark 1766 case Carter v Boehm, when he said: "Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact and his believing the contrary."

Associate Professor Hwee-Ying Yeo, from the National University of Singapore, said Singapore had inherited the English Marine Act, so historically it had "a low threshold for the test of materiality". Singapore had followed English case law "warts and all". The city-state had been faithful to the test of inducement, so it was not possible for underwriters to make "bold assertions" that they would not have written a risk had they been aware of all the facts.

Professor Yeo said Singapore must now "move on from archaic law".

Brisbane barrister Roger Traves QC said Australia’s Insurance Contracts Act had codified the common law and reformed it, improving the position for insureds. Utmost good faith was a statutory obligation and an implied term for both parties, with contractual remedies for breach.

The Contracts Act compelled insurers to notify insureds of "unusual terms" and an insured could be entitled to cover if not told of any unusual terms. Insurers had to give insureds fair and reasonable claims treatment, "but what is the remedy for something taking longer than it should?"

Sakate Khaitan, senior partner with Khaitan Legal Associates, in Mumbai, India, said India was "stuck 250 years back". There were four options with nondisclosure. Would the insurer not have written the risk or written it on different terms and conditions, in which case disclosure was required. If the insurer would have written the risk anyway, disclosure was not required because it had no bearing on the risk. A grey area was when the insurer may or may not have written the risk.

Rob Merkin, Professor of Commercial Law at the University of Exeter, UK, said the initial concept was good faith, rather than utmost good faith, which was adopted from the Latin, uberrima fides. "We break into Latin when we get scared," he said.

England had made the utmost good faith concept apply to insurance contracts but with no stated remedies. Australia had "abolished the duty of utmost good faith for consumers without admitting it has", Prof Merkin said.

He detailed the New Zealand case, Young v Tower 2016 NZHC 2956, which was a dispute over whether an earthquake-damaged home would be rebuilt or repaired. The insured discovered an initial loss adjuster’s report recommending a rebuild, which Tower had not been disclosed. The court agreed it was an act of bad faith and awarded Young $5,000.

In Sudesh Sharma v Insurance Australia Ltd 2017 NSWSC 55, the insured claimed for damages arising from personal injuries allegedly suffered because of NRMA’s breach of contract, including a breach of its duty of good faith.

Mr Sharma’s carport was damaged in a storm.  An adjuster said the structure was not "built to standard" and he had explained to the insured the policy did not "pay for structures that are not built to standard". On 14 January 2010, Mr Sharma allegedly fell from a ladder while attempting to repair damage to the carport. He subsequently alleged he sustained significant injuries to his hands and wrists from the fall.

Prof Merkin said the case was "dismissed only because the injury had occurred 10 years prior". But potentially there could have been a remedy because utmost good faith was an implied term in Australia.