Utmost Good Faith, What the Insurer and Insured should expect.

1. Utmost Good Faith, What the Insurer and Insured should expect. David Curran & Bill Holohan

2. The insurer must act in Good Faith, the contract is one of “utmost good faith”. Sections 17 & 18 of the Marine Insurance Act 1906. Sec 17 Insurance is uberrimæ fidei.

3. A contract of (marine) insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party.

4. Utmost Good Faith. “…the phrase encompasses notions of fairness, and reasonableness and community standards of decency and fair dealing” Emphasis on “Utmost”. Utmost Good Faith.

5. … Acting with utmost good faith, involves more than merely acting honestly: otherwise, the word utmost would have no effect. Failure to make a timely decision or accept or reject the claim by an insured for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith, even if the failure results not from an attempt to achieve an ulterior purpose of results merely from the failure to proceed reasonably promptly on all relevant material is at hand, sufficient to enable a decision of the claim to be made and communicated to the insured”. Good Faith

6. “The Insurer knows nothing and the man who comes to him to ask to insure knows everything.” Consequently, the proposal for insurance must disclose every relevant factor. Duty of Disclosure:

7. Section 18 of the 1906 act provides: “the proposal for a policy of insurance is a duty to disclose all material facts which would influence the judgement of a prudent insurer in fixing the premium, or determining whether he will take the risk.” Disclosure

8. Carter v Boehm (1766) 3 Bur. 1905 “Good Faith forbids either party from concealing what he privately knows, to draw the other into the bargain, from his ignorance of the fact, and his belief in the contrary.”

9. Carter v Boehm (1776) : “The reason of the rule which obliges one party to disclose is to prevent fraud and encourage good faith. It is adapted to such facts as varied the nature of the contract; which one privately knows and the other is ignorant of, and has no reason to suspect.” Actions & Reactions

10. The question therefore must always be whether there was under all the circumstances at the time the policy was underwritten a fair representation or a concealment; fraudulent if designed; or, though not designed varying materially the object of the policy, and changing the risque understood to be run.” Actions & Reactions

11. Failure to disclose material issues. “Breach of this duty by the assured entitles the insurer to avoid the contract of insurance, so long as he can show that the nondisclosure induced the making of the contract on the relevant terms”. MacGillivray on Insurance Law Actions & Reactions

12. Generally, in the event of a dispute as to whether something has been disclosed, adequately or otherwise, the court favours the proposer rather than the Insurer. Where the Insurer’s position was upheld, the Insured succeeded against the broker. Actions & Reactions

13. Good Faith applies both pre and post the formation of the insurance contract. It must be shown by and afforded to Insurers and Insurance brokers equally. Each branch of the profession have reflexive obligations to each other and the policyholder.

14. Good faith of the insurance proposer and their insurance agent: • Who is the duty of care owed to, Insured or the Insurer? • Depends on arrangement with insurer. If a tied or exclusivity arrangement, a “package” so to speak, Broker is agent of the insurer if no such arrangement , as a matter of contract broker is agent of the insured. • Café de Lecq Limited v RA Rossborough Limited (2012)JRC

15. Cover arranged for operation of a beach café. Deep Fat Fryer overheated and caused a fire. AXA UK refused the claim for breach of warranty as no thermostat on the appliance. Broker sued, case defended on basis insured was a person experienced in insurance matters. Broker Lost! Held: Telling insured “here is your policy, be sure to read it and check that it meets your requirements” is not good enough irrespective of an insured’s experience in insurance matters Duty on broker to make insured aware of onerous policy terms.

16. Insurers entitled to expect that placing brokers: • Know their client and their insurance requirements and levels of insurance. • Will make full inquiry of insured of risks the broker feels will be relevant to the underwriter. • Has an expertise and knowledge of the policies of insurance that they purchase for an insured. • - Will provide full disclosure of all material matters to the underwriting insurer.

17. John Gaughan v Tony McDonagh & Co Ltd 2005 EWHC 739 Failure to disclose the true nature of the risk to insurers lead to a claim under a property policy being declined. It was never disclosed that the risk “a Hotel” was in poor condition and was loosely classed as an hotel, it was a halfway house for refugees Kotku Bread Pty Ltd v Vero Insurance & Another 2012 Australian case were it was held that a broker must make inquiries as to the risk that they know will be relevant to an underwriter.

18. Post Contract Good Faith, Insurers obligations: • Insurance Company must act in good faith towards it policyholders and consider the policyholders interests equal to their own. • Must honour the promise given in exchange for the risk purchased. • How is such a duty discharged to the insured & the placing broker?

19. Insurer’s obligations when dealing with a claim - Must: • not make an unreasonable • interpretation of their policy. • provide adequate investigation. • No undue delay in claim handling. • Confirm coverage in a timely manner • & not refuse to defend a lawsuit. • Make reasonable settlement proposals • if warranted.

20. Consumer Protection Code 2012: Central Bank obligations to treat customers and third parties fairly in all dealings. Chapter 2 defines what a financial institution, Insurer is included in this definition, must adhere to in dealings with customers. Sections 2.1, 2.2, 2.3, 2& 2.11 being the most relevant. The insurer must act honestly, fairly and professionally in the best interests of the customer and the integrity of the market. Section 4 Data Access Request Data Protection Act 1988 & 2003

21. Consumer Protection Code 2012: The insurer must act honestly, fairly and professionally in the best interests of the customer and the integrity of the market. Section 4 Data Access Request Data Protection Act 1988 & 2003

22. Insurers have the right to look at coverage and determine their position under their policy. Several successful cases brought before the courts where the insurer’s position has been upheld. • McAleenan V AIG 2010 IEHC 128. • Kelleher v Irish Life Insurance Company 1988 Unrep. Costello J.

23. In McAleenan v AIG (Europe) Ireland Limited, the Insurer was entitled to avoid a policy where the plaintiff (an assistant solicitor) signed a proposal form, holding herself out as a partner/principal/director. Actions & Reactions

24. In Kelleher v Irish Life, Finlay J. seemed to accept the test was that of the reasonable insured and not the reasonable insurer saying: “… The true and acid test must be as to whether a reasonable man reading the proposal form would conclude that the information over and above it which is in issue was not required.” Actions & Reactions

25. In Flynn & Mahon v Financial Services Ombudsman & Allianz plc., it was held that failure to disclose a criminal offence entitled the insurer to repudiate under a household policy. Actions & Reactions

26. An insured must submit a full and proper claim, furnishing all relevant information and cooperate fully within the terms of the policy and fulfill all conditions precedent. Proper claim

27. Insurers have the right to look at coverage and determine their position under their policy. In others they have not been so successful: • Aro Road & Land Vehicles Limited, v ICI [1986] IR. • Manorpark Homes Limited v AIG, Europe 2008 IEHC. • J.

28. As a result of the decision in Aro Road & Land Vehicles it has been suggested by Buckley that the test should be stated as: “Every circumstance is material which would influence the judgement of what the courts would consider a reasonable and prudent insurer in fixing the premium or determining whether he will take the risk.” Actions & Reactions

29. Manor Park Homebuilders Ltd v AIG (Europe) Ireland Limited, (McMahon J.) “whether a fact is material or not, however, depends on the particular circumstances of the case and accordingly, it must be determined from the particular factual matrix in question.” Actions & Reactions

30. “God Ted, I've heard about those cults. Everyone dressing in black and saying our Lord's going to come back and judge us all”.