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rather than breach of good faith, failed to shed much light on the matter, by not expressing a final view on
it. 1
Whilst this decision was subsequently followed in Aldrich v Norwich Union Life Insurance Co. Ltd., 2
where the Court of Appeal held that there was no duty on the insurer to disclose facts that could induce a
proposer to enter into an insurance contract, 3 there has been much academic criticism against the legal
justification given by the Court of Appeal and the House of Lords in Banque Financiere v Westgate
Insurance Co. Ltd. 4 for such a stand, 5 with Steyn J’s view being the preferred choice. The criticisms
validly question the purported equitable origin of the relief for failure to exercise good faith, when the
Marine Insurance Act 1906 is in fact a codification of the common law position as enunciated by Lord
Mansfield in Carter v Boehm. 6 With respect to the argument that Parliament’s intention is that which is
reflected in ss 17 and 18 of the Marine Insurance Act 1906 , this would not hold water either, especially in
light of the House of Lord’s 7 reading the element of ‘the particular insurer having to be induced’ as being
implied into the prudent insurers’ test in s 18 (2), even though such a requirement is nowhere to be found
in the words of s 18 (2) itself.
Lastly, the suggestion of hardship to the insured owing to the reciprocity of damages as a remedy is also
questionable, as the same applies to a breach of contract situation that also does not require any element
of fault or blame. Instead, the reciprocity of damages as a remedy would do justice to the insured, as
avoidance of contract upon the insurer’s breach of good faith in no way provides adequate redress to the
insured for the loss suffered or exposure to risk. On the flipside, a claim for damages by the insurer in the
event of the insured’s breach of utmost good faith should in no way unduly jeopardize the insured’s
position, as rarely if ever would the insurer be able to show substantial loss suffered as a result, apart from
opportunity cost.
Tort of Bad Faith
It is worth noting at this juncture, that the concept of good faith on the part of the insurer has in the United
States been taken further and developed into a tort. The tort of bad faith in the United States has been
explained by Parkes and Heil8 as follows:
In every contract (not just insurance policies) there is implied by law a covenant of good faith and fair
dealing which provides that neither party will do anything
1 It may be worth noting that Rix J in HIH Casualty and General Insurance Ltd. v Chase Manhattan Bank [2001] Lloyd’s Rep. I.R. 702 left
open a point that in exceptional circumstances, an insurer may owe a duty of care where he took it upon himself to advise the insured as to
the nature of cover required by him.2 [2000] Lloyd’s Rep. I. R. 1.
3 Albeit Evans LJ having clearly arrived at the decision reluctantly.
4 [1988] 2 Lloyd’s Rep. 513 and [1990] 2 All E.R. 947.
5 J Birds and NJ Hird „Birds‟ Modern Insurance Law‟ (5th ed, Sweet & Maxwell, London, 2001) pp 131 & 132; Kelly, „The Insured‟s Rights
in Relation to the Provision of Information by the Insurer‟ (1989) 2 Ins. L. J. 45.6 (1766) 3 Burr 1905.
7 Pan Atlantic Insurance Co. Ltd. v Pine Top Insurance Co. [1994] 3 All E.R. 581.
8 „Insurers Beware: “Bad Faith” is in Full Bloom‟ (1973) 9 Forum 63.