Good Faith in Commercial Law: Insurance Contracts in

Bangladesh

Prepared for
Barrister Ishtiaque Ahmed
Lecturer
Department of Management
North South University

Prepared by
Fariha Shafi

112 0217 030

Kashfia Kamal 112 0096 030

Rejwana Hoque- 103 0033 530

Course
Law 200, Section: 4
Date of Submission
December 09, 2014

ACKNOWLEDGEMENT

In order to complete our research paper we had to encounter many hurdles that inevitably
made us dubious of finishing it on time. However, in the end we were able to complete this
research paper due to the presence and support of a lot of people around us. We would like to
take this opportunity to express our profound gratitude and deep regards to our faculty
Barrister Ishtiaque Ahmed for his exemplary guidance, monitoring and constant
encouragement throughout the course of this research paper. We would also like to thank the
North South University Library authorities for their assistance and cooperation that helped us
to acquire the necessary secondary data for our research paper. We are also very grateful to
all the twenty respondents to our survey for their time.

ABSTRACT

In recent years the popularity of good faith in insurance policies has grown rapidly with many
companies across the world providing this service. Consequently English law has to be
applied in good faith taken in all the country. However, in many aspects of good faith
principles of European commercial law contradict English insurance law. This thesis aims to
discover how they contradict and recommend how the insurance policies can be applied in
Bangladesh without breaking good faith principles.

INTRODUCTION

Since Carter v Boehm in 1766, insurance has been understood as a contract uberrimae fidei;
that is, each party carries a duty to act in the utmost good faith toward the other. The duty
recognizes the special nature of the insurance relationship, which at different stages places
one party in a vulnerable position, and the other in a position of power. The duty of utmost
good faith is intended to even the playing field at these stages.
The claims process demonstrates the inherent power imbalances in the insurance relationship.
The insured is likely to be economically and emotionally vulnerable, and relies upon the
insurer to assess its claim in a fair and reasonable manner. Conversely, the insurer has
significant discretion in its assessment of claims, and financial incentives to limit its liability
to the insured. The claims process, then, is a classic example of a situation where the duty of
utmost good faith could intervene. Therefore, this dissertation asks what such a duty would
require of insurers during claims-handling, and whether it should be enforceable by the
insured. It is largely concerned with first-party insurance arrangements, rather than liability
insurance.

"Good faith" in the case of a merchant means honesty in fact and the observance of
reasonable commercial standards of fair dealing. Good faith and English law historically, the
English courts have tended to be hostile to the concept of good faith. However, a duty of
good faith has long been implied into contracts of partnership, agency and other agreements
involving fiduciary obligations. More recently, the English courts have shown themselves
willing to give effect to express obligations to act in good faith in a wider range of
commercial contracts. In some instances, they may even be prepared to imply such a duty.
For example, in Yam Seng v International Trade Corporation (2013), the judge suggested
that, in some cases, a duty of good faith might need to be implied into other commercial
contracts, such as franchise, joint venture and long term distribution agreements where a
high degree of communication and co-operation is required to make the relationship work.

WHAT DOES GOOD FAITH MEAN?

There is as yet no widely accepted definition of good faith in a contractual context, although
the courts have often emphasized honesty and fair dealing and, in several cases, fidelity to the
parties bargain. Its meaning and effect are therefore likely to vary considerably depending on
the context.
In practice, good faith has generally had less of an impact where the contract clearly sets out
the terms of the bargain struck between the parties.
In Gold Group v BDW (2010), which concerned a property development agreement, the
court rejected arguments that an express obligation to act in good faith required the owner of
the land to adjust the financial terms in the light of a significant fall in property prices. The
judge noted that good faith "does not require a party to give up a freely negotiated advantage
clearly embedded in the contract." However, where contracts are less clearly drafted and/or
there is evidence of dishonesty or unfair dealing, good faith may have a more significant
impact.
To make it work effectively, the judge considered that a broad duty to act in good faith
needed to be implied. By knowingly providing misleading information, the supplier had
breached the good faith obligation, entitling the attempt to define good faith.

In CPC v Qatari Diar (2010), the court concluded that an obligation in a property joint
venture to act in utmost good faith did not require one party to subordinate its interests to
those of the other party, but was likely to require it to:
avoid cynical resort to the black letter of the law;
observe reasonable commercial standards of fair dealing;
be faithful to the agreed purpose of the agreement; and
act consistently with the justified expectations of the other party.

For the good faith in commercial contracts

The courts will generally enforce an express obligation to act in good faith but the impact
of such a term will vary, depending on context.
Inserting a good faith obligation can be useful but the courts are reluctant to give it a wide
meaning unless it is clear that this is what the parties intended (and it is always better to spell
out what the other party has to do rather than rely on good faith).

Specifically excluding good faith altogether is not advisable because it arguably seeks to
exclude any duty to act honestly.
If you want to minimize the impact of any implied good faith obligation, make sure the
contract is sufficiently detailed, so that there is no need for the courts to imply such a duty in
order to "fill in the gaps."

DUTY OF UTMOST GOOD FAITH

The unique treatment of insurance policies is justified by the special and dynamic nature of
the relationship. Each party, at different stages, may be placed in a position of vulnerability to
the other, and depends on that other to exercise its discretion in a proper manner. Insurers
must decide whether to accept another persons personal risk, and on what premium, with
little knowledge of that particular risk. It relies upon the insured to disclose pertinent
information at this stage, and to not misrepresent claims later on. If that loss occurs, the
insured also depends on the insurer to evaluate the claim fairly. Because of this, the law does
not see the parties as operating at arms length from each other as in other contracts. The law
must rectify power imbalances produced by the relationship, and promote the reasonable
expectations of customers. At the same time, it must preserve the insurance industrys
viability: the costs of doing business must be reasonable and insurers must be able to know
where they stand before acting. Mutual obligations of the utmost good faith seek to balance
these interests and reduce the parties vulnerability.
Insurance is one of a small number of contracts based upon the principle of utmost good
faith. Section 17 of the Marine Insurance Act 1906 states this principle and goes on to
provide that if the utmost good faith be not observed by either party, the contract may be
avoided by the other party. It thus appears indirectly to impose on the parties a duty to act in
good faith in their mutual dealings. The principle governs all contracts of insurance and
reinsurance, and it applies both before a contract is concluded (the pre-formation period) and
during the performance of the contract (the post-formation period). In the pre-formation
period the principle of utmost good faith creates well-established duties owed by the assured
and by his agent affecting the insurance to disclose material facts and to refrain from making
untrue statements when negotiating the contract. The law is summarized in ss.1820 of the
1906 Act, which again apply to all classes of insurance.

The Insureds Duties of Utmost Good Faith

Insurance is a contract upon speculation. With those words in Carter v Boehm, a precontractual duty of good faith was created to respond to a perceived imbalance between the
bargaining parties. The prospective insured is uniquely placed to know of matters which
affect the nature, scope and probability of the risk to be transferred. In contrast, the insurer is
largely ignorant of such matters and must rely on the insureds disclosures when deciding
whether to accept the risk and on what premium.
This vulnerability necessitates a requirement for positive disclosures by the prospective
insured. Therefore, an absence of misrepresentation is insufficient; an insured must volunteer
all past or present facts within his or her personal knowledge, which materially change the
relevant risk. It is inconsequential that the insurer did not specifically seek the information,
although specific questions may modify or waive the duty. Further, the materiality of nondisclosures and misrepresentations is judged from the perspective of a prudent insurer, not the
(reasonable) insured. Breach can therefore occur innocently. So, this rule sees the duty of
utmost good faith requiring much more than honesty, and perhaps more than reasonableness
as well. It allows an insurer to avoid policies where a misrepresentation or nondisclosure
induced its entry into the policy or influenced its terms.
The duty of good faith also responds to information imbalances when an insured claims
against the policy, but applies less harshly. It is essentially an obligation of honesty, and is
only breached where the insured party dishonestly omits or misrepresents material
information. Breach will allow the insurer to deny the claim.
The differing requirements at these stages reflect the change in the insurers vulnerability.
The information imbalance is reduced at the claims stage because insurers can investigate
particular losses more thoroughly than particular risks. Because of this, it is unnecessary to
impose such an onerous duty when an insured makes a claim. It is sufficient that wrongful
recovery in cases of fraud is prevented. This demonstrates that the dutys requirements are
very much context-dependent and must change as the insurance relationship does.

The Insurers Present and Potential Duties of Utmost Good Faith

Whilst it is accepted that insurers owe good faith obligations, they apply to insurers with less
certainty. The essential question here is whether this apparently mutual duty, which applies
so harshly in relation to the insured, can be employed to protect a vulnerable insured as the
balance of power in the relationship changes. There is also anecdotal evidence of insurers
treating policy-holders unfairly and offering far less than the true value of their claims. In
some of these instances, policy-holders have felt forced into accepting such offers because of
financial need. Whilst these cases may not necessarily constitute bad faith, they demonstrate
the inherent power imbalances in the insurance relationship and the insureds dependence on
the insurer.
In light of the insurers financial incentives to act in bad faith, market forces are an
insufficient check on this power imbalance. It would require time and many well-publicized
incidents of bad faith to produce a sufficiently poor reputation among potential customers to
affect an insurers profitability. So, another check is required to ensure that insurers are
accountable.
The insurers good faith obligations could address this power imbalance and protect the
insured in the claims process. However, the ability to enforce a claims-handling duty in
Bangladesh remains uncertain. Because of this under-development, this report will examine
what the utmost good faith requires in other jurisdictions before proposing an appropriate
duty for Bangladesh.

Limitations on the Obligation of Good Faith

Scholarship addressed to the good faith provisions' of the Uniform Commercial Code
primarily discusses the intractable difficulty of defining the scope of the obligation to
perform and enforce one's contract in good faith.
Many scholars advocate an expansive interpretation of good faith, currently defined in the
Code as "honesty in fact in the conduct or transaction concerned. One writer proposes that
good faith be defined to require commercial actors to forbear from declaring technical
breaches. Another proposes that good faith requires disclosure of advantageous information
withheld to attain a superior bargain rather than to deceive or cheat.

At least one court has adopted an expansive interpretation of good faith to prevent
commercial actors from taking advantage of changed circumstances that adversely affect
other contracting parties.

Another court has been asked to rule that a seller's denial of a buyer's request for modification
of a contract constitutes bad faith conduct. In these instances the obligation becomes less of a
duty not to create undue risks to others and more of a duty to assist others confronted with
risks not created by the obligor. An expansive good faith obligation is appealing. It suggests
that commercial law be guided by ethical considerations such as promise keeping,
benevolence, and equality of interested parties in addition to traditional prohibitions of fraud
or deceit.
Moreover, the phrase "good faith" connotes altruism and creative remedies against
selfishness or egotism. Nevertheless, this article questions the propriety of an expansive
interpretation of the good faith obligation. The article concludes that, notwithstanding a
drafting history that partially supports the use of a good faith obligation to transform altruistic
behavior into a legal duty, and subsequent scholarly development of that interpretation, courts
justifiably have restricted the scope of the obligation.
This conclusion is predicated on arguments that an expansive obligation ex-tends the
responsibilities of commercial actors beyond bargained-for risk allocations, subjects bargains
to inconsistent and uncertain enforcement, and does not produce offsetting benefits in
commercial conduct. Implicit in these conclusions is the belief that the nebulous scope of
good faith may be clarified by focusing on the availability of an appropriate remedy within
each proffered definition. To define an obligation in terms of the remedies available for its
violation may appear to go about the rights-remedies process backwards. Once a right is
determined to exist, one may argue, judicial latitude must be permitted in order to structure a
remedy appropriate to the situation.
The Code, however, is a tool for businessmen and their attorneys to predict the legal
consequences of voluntary transactions. Realization of that goal requires precision of
definition and certainty of the effects of performance and nonperformance. Perhaps
predictability sometimes can be achieved by relatively vague standards." Nevertheless,
vagueness of the good faith language raises suspicions about the scope and force of the
obligation. Investigation into potential remedies may reveal whether the consequences of
violating the good faith obligation are sufficiently clear to state that the obligation provides
the predictability promised by the Code. The existence of a certain remedy for a violation of a

statutory obligation of good faith takes on additional significance in light of Professor

Powell's observation that the success of such a provision depends on its independent force.
He explains the degree of vitality of similar provisions in European legal systems as a
function of the remedies provided for their violation.
Responding nearly a decade ago to Powell's work, Professors Kessler and Gilmore were
uncertain whether the good faith obligation would become a substantial, enforceable
requirement of commercial behavior or little more than statutory surplus age.
The conclusions of this article suggest that, thus far, courts largely have resisted the entreaties
of commentators to invigorate the good faith obligation. The question is whether that
outcome is desirable or inevitable.

What should the Utmost Good Faith require?

So far, no Bangladesh cases have necessitated a definitive statement of a claims-handling

duty of good faith. Insureds have argued that insurers have breached their good faith
obligations by delaying claims and engaging in poor quality decision-making processes
involving elements of pre-determination. It has also been argued that an insurer acted in bad
faith in identifying the nature and cause of damage, and the extent of consequential losses. As
in Australia and Canada, the duty of utmost good faith should be applicable in all of these
instances. This is because insurers have significant discretion throughout the process,
especially when investigating claims. So, the duty of utmost good faith should have a broad
role across all stages of claims-handling, including the investigation, assessment and
settlement of claims.

The content of this obligation could be conceptualized in two ways. The first view is that the
duty should entail broad and flexible requirements of reasonableness and fairness. This is the
prevailing law in Australia and Canada, and the duty has not required an unreasonably high
standard of conduct from insurers in those jurisdictions. The Law Commission for England
and Wales and the Scottish Law Commission have advocated a similar duty, and this view is
also supported by obiter statements in Bangladesh. In State Insurance Ltd v Cedenco Foods
Ltd, Salmon J in the High Court favored a wide duty requiring fairness, reasonableness,
decency and fair dealing. In the Court of Appeal, the main judgment did not consider the

dutys content, but Thomas J assumed it would require insurers to act conscientiously,
fairly and reasonably.
This standard reflects the spirit of the concept of utmost good faith and could capture a wide
range of blameworthy conduct. It would also have useful similarity to the duties of liability
insurers. The standard is flexible but in light of the Canadian and Australian law, insurers
could be required to:
(i) Investigate claims fairly and reasonably quickly;
(ii) Assess claims fairly, objectively and even-handedly, with consideration of all relevant
circumstances but no irrelevant matters;
(iii) Decide whether to accept the claim within a reasonable time, and only deny claims on
reasonable grounds;
(iv) Reach settlements fairly, without taking advantage of the insurers economic weight or
the insureds vulnerability; and
(v) Pay valid claims within a reasonable period.

The second view is that good faith should only require honesty. Insurers have advanced this
view in Cedenco Foods and in Pegasus Group Ltd v QBE Insurance (International) Ltd. This
would provide parity in the parties post-formation obligations. However, as the duty of
utmost good faith is only expressed through specific, independent obligations, these duties
need not have the same content.

A touchstone of honesty could provide useful certainty for insurance practice and litigation.
However, the insurer in Pegasus conceded that enough capriciousness or unreasonableness
could conceivably amount to dishonesty. Although Winkelmann J did not decide this point,
this concession was rightly made. The main difference between the two conceptions of good
faith would be the threshold for conduct to be acceptable, with honesty comprising a lower
standard than reasonableness or fairness.
An honesty standard could be too restrictive and difficult to prove. Insurers have monetary
incentives to take advantage of the insureds vulnerability, and sufficient discretion and
economic weight to do so. Conversely, the insured party may be economically and
emotionally vulnerable, and relies on the insurer to protect its interests. Because of this, it is
justifiable to expect more of insurers than honesty. A standard of reasonableness and fairness
strikes an appropriate balance between protecting the insured and promoting an efficient
insurance industry. Insurers would be required to consider the insureds interests, but they

need not expend excessive costs or time in investigating claims. They must follow due
process in handling claims, but are still free to deny or delay claims on a reasonable basis.
Therefore, the remainder of this paper considers a good faith duty of fairness and
reasonableness in clams-handling.

Duties of Good Faith in Eastern and Western Region

FRANCE
Insurance contracts may be rescinded where there has been misrepresentation by the insured,
in accordance with the general rules provided in the Civil Code. Some specific rules applying
to insurance contracts are provided by the Insurance Code (art. L.113-8 and L.113-9). In
terms of disclosure obligations, the insured is only required to respond to specific questions
regarding the risk that are set out in the underwriting questionnaire; the insured cannot be
sanctioned for having failed to volunteer some information, albeit relevant, that was not
expressly requested by the insurer or for having provided an ambiguous response to a
question that was itself drafted in vague or ambiguous terms. Avoidance of the contract is
only available where the insured/policyholder acted in bad faith, with the knowledge that the
information provided was false or misleading (art. L.113-8 IC). Good faith is always
presumed and the burden of proof lies with the insurer. Where false information deliberately
provided by the insured is discovered in connection with a loss, avoidance is available even if
that false information bears no relation to that loss. The insurer is entitled to keep all the
premiums already collected and claim payment of all further premiums which have fallen due
and payable as damages (except in relation to life insurance).

Third-Party Rights Against Insurers

A third-party victim who has suffered damage is entitled to bring a direct action against the
liability insurer of the party liable for that damage (art. L.124-3 IC) by showing that (i) the
insured is liable to compensate his loss and (ii) the damage suffered is covered by the policy.
While the direct action in essence depends on the insurance contract, there are specific rules
applying to how such actions may be both pursued and defended, making it to some extent
autonomous from the underlying insurance contract. Thus, the insurer may defend the

direct action by raising all the defenses that it would be entitled to raise against the insured,
except (i) the statutory two-year limitation period applying to the insureds action, or (ii) any
forfeiture of the policy based on the insureds conduct after the damage occurred.

Criminal fines/penalties
Criminal fines are uninsurable under French law as a matter of public policy (art.6 CC), the
rationale being that passing the burden of criminal sanctions on to an insurer would frustrate
the deterrent purpose of criminal law. This also applies to pecuniary sanctions imposed by
criminal courts in customs or taxation matters.

Civil fines/penalties
It is also generally considered that no insurance coverage may be validly taken out in respect
of civil fines, namely pecuniary sanctions imposed by civil courts in the event of violations
of some civil statutes (chiefly rules of civil procedure, for example, failing to give assistance
in establishing the truth in a civil action; the failure of a witness to appear in a civil court;
abuse of civil process; abusing the right to appeal; wrongly challenging a magistrate or a
court-appointed expert; etc.).

ITALY

Under section 1892 of the Civil Code, if the insured willfully or with gross negligence
presents the insurer with incorrect or false declarations, or fails to disclose circumstances
affecting the risk, the insurer is entitled to terminate the insurance contract within three
months from the date the insurer first becomes aware of the false representations or
omissions.

If, before the expiry of this three-month period, the insurer fails to inform the insured in
writing that he intends to terminate the insurance contract, then the insurers rights to
terminate for nondisclosure or misrepresentation will be time-barred.
However, if the event triggering coverage (i.e. the notification of a claim in case of a claimsmade

policy)

occurs

before

the

insurer

gains

knowledge

of

the

non-

disclosure/misrepresentation or before the three-month deadline expires, then the insurer is

entitled to decline indemnity, and is not required to terminate the policy.
Third-Party Rights against Insurers
There is no general right afforded to a third party, who has suffered damage as a consequence
of the insureds errors or omissions, to pursue any remedy or claim for indemnity against the
insurer.
However, the insurer may decide to compensate the damaged party/claimant directly, and
must do so if required by the insured.
Criminal and administrative fines/penalties
There is a general principle in Italian law that losses arising from criminal and administrative
fines and penalties cannot be validly insured, as this would imply an assignment of the
punishment from the party committing the wrong to a third party, the insurer. Any
insurance contract purporting to cover criminal and administrative fines and penalties would
be therefore void and ineffective.
There is a general principle in Italian law that losses arising from criminal and administrative
fines and penalties cannot be validly insured, as this would imply an assignment of the
punishment from the party committing the wrong to a third party, the insurer. Any
insurance contract purporting to cover criminal and administrative fines and penalties would
be therefore void and ineffective

This principle has been confirmed by a decision of the Supreme Court of Cassation (though
not binding on lower courts) and by the ISVAP (the Italian Regulatory Authority on
Insurance) guidelines.
Civil fines/penalties

There are no recognized civil fines or punitive damages under Italian law. Losses including
civil liabilities resulting from fraudulent/intentional misconduct of the insured cannot be
validly insured under section 1900 of the Civil Code.

SCOTLAND
1. Section 17 of the Marine Insurance Act 1906 imposes duties of good faith on both
parties. Sections 18 to 20 of the 1906 Act are specific examples of that principle in
relation to non-disclosure and misrepresentation, but section 17 also extends more
widely. The duty applies to both the insurer and the policyholder, both before and
after the contract has been formed.
2. This is a general principle. Sections 18 to 20 of the 1906 Act are specific examples of
that principle in relation to non-disclosure and misrepresentation.
3. Section 17 provides only one remedy: avoidance of the contract. This is no
compatible with the proportionate remedies we propose in Part 9. Nor is it compatible
with the remedies for fraudulent claims we proposed in our 2011 Consultation Paper.
4. In the course of our review, we have considered section 17 on several occasions. We
summarize these discussions in Part 10. We think that the duty of good faith is
important as a general interpretative principle but we do not think it should, in itself,
give either a policyholder or an insurer a cause of action. Any remedies which are
required, such as remedies for non-disclosure, misrepresentation or fraudulent claims,
should be specified directly in the legislation.
5. As we discuss below, we think that the duty of good faith is important as a general
interpretative principle but we do not think it should, in itself, give either a
policyholder or an insurer a cause of action. Any remedies which are required, such as
remedies for non-disclosure, misrepresentation or fraudulent claims, should be
specified directly in the legislation.

A Contract of the Utmost Good Faith

1. Section 17 states: 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.
2. Insurance contracts are therefore one of a small number of types of contract that are of
the utmost good faith.
3. The most obvious example of the duty of good faith is that the policyholder must
disclose information before entering into the contract. This contrasts with the law
which applies to other (non-insurance) commercial contracts, where a party must not
misrepresent facts, but is under no obligation to disclose facts about which it is not
asked.
4. The principle of good faith is wider than the policyholders duties to provide the
insurer with pre-contract information. First, the duty is said to be reciprocal, applying
to both the policyholder and the insurer. We discussed the insurers duty of good faith
in Issues Paper 6, Damages for Late Payment and the Insurers
5. Secondly, the duty of good faith, unlike the duty to disclose, is not confined to precontract information but also applies throughout the life of the contract. Issues Paper
7, The Insureds Post-Contract Duty of Good Faith considered this area of law. We
followed up this discussion in our second Consultation Paper, which focused
specifically on the remedies for fraud
6. For

present

purposes,

however,

we

concentrate

on

non-disclosure

and

misrepresentation. Although section 17 of the 1906 Act establishes the general

principle, the specific duties are set out in sections 18 to 20. To understand the law on
non-disclosure and misrepresentation, one must look at these three sections:

The Insurers duty of good faith

1. In Issues Paper 6 considered the insurers duty of good faith and asked if the law
should be reformed to provide policyholders with a claim for damages against an
insurer who acted in bad faith.3 Many consulates expressed concern about such a
development. They feared that, however limited the right initially, it would soon
develop along the lines of the doctrine of good faith in the United States, with
substantial damages being awarded against insurers

2. In 2011 Consultation Paper we said that section 17 of the 1906 Act should not give
policyholders a right of action against insurers. It should be seen as a shield rather
than a sword.5 Thus a policyholder should not be entitled to sue an insurer under
section 17 for damages.

The insureds duty of good faith

1. We examined the insureds post contract duty of good faith in Issues Paper 7.6

The clearest example of the insureds lack of good faith is submitting a fraudulent claim.
2. In the 2011 Consultation Paper we argued that policyholders should suffer a penalty

for fraud, but the penalty should not be avoidance of the contract. Instead, we
proposed that the policyholder should forfeit the whole claim to which the fraud
relates, together with any subsequent claim. We also said that in some cases the
insurer should have a right to claim damages for costs actually and reasonably
incurred in investigating the claim.
3. This has implications for section 17 of the 1906 Act. We would need to remove the

statement that if the utmost good faith be not observed by either party, the contract
may be avoided by the other party. Instead, specific remedies for fraudulent claims
would need to be written into the legislation.

Proposals for Reform

1. We propose to amend section 17 of the 1906 Act to remove the statement that, if good
faith is not observed, the contract may be avoided by the other party. Good faith
would remain as a general interpretative principle but would not, in itself, give rise to
any cause of action.
2. In our 2011 Consultation Paper, we summarized a series of cases in which the courts
have prevented an insurer from exercising an apparent right because the remedy was
not exercised in good faith.10 We intend that the courts should continue to use the
duty of good faith in this way. We do not think, however, that the policyholder should
be entitled to damages from the insurer, or that the insurer should have an additional
remedy against the policyholder, other than those already established in law.
3. Many legal systems recognize the idea of good faith as a way of interpreting legal
obligations. Many, for example, recognize the United Nations Convention on

Contracts for the International Sale of Goods (the Vienna Convention) which states
that: In the interpretation of this Convention, regard is to be had to the observance of
good faith in international trade. In an insurance context, section 17 of the 1906 Act
would operate in a similar way as a useful tool to interpret the terms of a contract and
the obligations of the parties.
4. Finally, we seek views on whether the duty of good faith should be seen as requiring
utmost good faith or simply good faith.
5. The inclusion of the word utmost has been subject to considerable academic
criticism. Professor Howard Bennett has shown that this was a nineteenth century
addition, which was not within Lord Mansfields original formulation. Professor
Lowry has queried whether the duty of good faith should be beyond honesty. He
noted that section 17 does not exactly mirror the law it came to codify which
distinguished

between

the

policyholders

deliberate

concealment

and

misrepresentation (bad faith) and innocent (good faith) mistaken belief.

6. Gerald Swaby and Dr Paul Richards view the modern concepts of good faith and
utmost good faith as interchangeable, both representing a flexible doctrine which
depends on the facts and circumstances of each case.14 According to Lord Justice
Aikens, however, the issue is unclear.15 He cites the confusing history of the phrase
and points to Lord Hobhouses view in The Star Sea, that there is a difference
between good faith and utmost good faith.

GERMANY
1. The German Insurance Contract Law first introduced in 1908 was comprehensively
reformed in 2007. The reforms address both consumer and business insurance,
although exclude marine insurance and some large risks as defined by the German
Insurance Supervision Code.
2. Prior to the formation of the contract, the insurer is under a duty to inform
policyholders of their rights and obligations and a further duty to continue to provide
information to the insured during the currency of the contract. Special rules apply to
distance selling.
3. The VVG, section 19 modifies the insureds duty to disclose in that it only applies to
facts asked for by the insurer. Where the insured is in breach of this duty a range of
consequences follow, depending on the nature of the breach and how the insurer
would have acted had the duty been complied with?
4. If the insured has been grossly negligent the insurer may terminate the contract
immediately, unless the insurer would nevertheless have entered into the contract had
they known the facts, but on different terms. In that case the different terms become
part of the contract with retrospective effect where the insurer requests this. Where
this would have led to an increase in the premium charged in excess of 10%, or if the
insurer refuses to cover the entire risk the insured may terminate the contract.
5. The insured has acted fraudulently the insurer may avoid the contract. Where the
insured has breached the duty of disclosure the insurer is entitled to withdraw from
the contract, but this is subject to the proviso that where the breach has been neither
intentional nor grossly negligent the insurer cannot withdraw, but instead may
terminate the contract on one months notice.
6. The insurer must assert its rights under section 19 of the VVG in writing, and within a
month of learning of the breach by the insured of the duty of disclosure.
7. In 2009, the International Bar Association Legal Practice Division drafted a Report on
the reforms. It concluded that they were generally welcomed by the market as
providing increased transparency and a fundamental modernization of the
contractual relationship. On the other hand there was widespread agreement that it
had imposed additional administrative burdens which will continue to cause
premiums to increase.

ENGLAND
British Insurance Law developed during the 18th and 19th centuries, and was partially codified
in the Marine Insurance Act 1906. Although strictly, the 1906 Act only applied to marine
insurance, the Courts of England and Wales have consistently held that it applies to all forms
of insurance contracts, on the ground that it codifies the common law.
Unlike most contracts, insurance contracts are said to be based on utmost good faith. One
aspect of this is that the law imposes a duty on prospective policyholders to disclose all
material facts. This duty is spelled out in section 18 of the 1906 Act, which states the
assured must disclose to the insurer, before the contract is concluded, every material
circumstance which is known to the assured.
The term material circumstance is defined as; one which would influence the judgment of a
prudent insurer in fixing the premium, or determining whether he will take on the risk.
In 1994, the House of Lords added as further test, in the case of Pan Atlantic Insurance
Company Limited v Pinetop Insurance Company Limited. The Court held that the insurer
must show that it has been induced to enter the contract; that is if the insurer had known the
truth, it would not have entered into the policy at all, or not on the same terms. In other
words, it would have done something different, either by refusing cover, increasing the
premium or changing the policy terms.
The duty to disclose is subject to some limited exceptions. For example, the policyholder
does not need to disclose facts which diminish the risk, or which are matters of common
knowledge.
When Mrs Lambert claimed 311.00 for lost jewellery, the insurer avoided the policy. The
Court of Appeal held that the insurer was entitled to do so under the strict rules of the Law set
out in the 1906 Act, because Mrs Lambert had failed to provide a material disclosure, which
concerned her husbands previous criminal conviction.

The Court concluded that the

conviction was a material circumstance, which would have influenced a prudent insurer.
A rejection of a consumer policyholders claim is unreasonable, except where there is
evidence of fraud, if it is for;

1. Non disclosure of a fact material to the risk which the policy holder could not
reasonably be expected to have disclosed; or
2. Non negligent representation of a fact material to the risk.

AUSTRALIA

Good faith exactly comprises has developed over time as a result of court
determinations and remains without a closed and precise definition leading to
vagueness as to the exact delimitations of what comprises good faith. A starting
point cited for determining what constitutes good faith is an article by the Hon
Sir Anthony Mason, a former Chief Justice of the High Court of Australia, who
stated that the duty of good faith probably embraced three related notions:

an obligation on the parties to co-operate in achieving the contractual objects

(loyalty to the promise itself);

Compliance with honest standards of conduct;

Compliance with standards of conduct which are reasonable having regard to the
interests of the parties.

The third element has been the subject of judicial and academic criticism.
Renard Constructions (ME) Pty Ltd v Minister for Public Works, 9 provides the
basis for the emergence of a line of authority that creates a common law
obligation of good faith in commercial contractual performance and enforcement.

the phrase good faith takes its content from the particular contract and context
in which it is found. Case decisions as a result have noted good faith as:

(a) not bad faith such as parties not acting opportunistically or using contract terms for
purposes antithetical to the contract that are calculated to extract value from the other
contracting party

(b) Requiring parties to act honestly

(c) not acting arbitrarily, capriciously, unreasonably or recklessly
(d) not requiring a party to act in the interests of the other party to the contract
(e) not imposing obligations on the parties that, in effect, inconsistent with the terms
of the contract;
(f) incorporating reasonableness an being equated with fair dealing

But as noted in the introduction to this paper as yet there is no High Court
guidance on good faith at this point. Predominantly three views are advanced as
the doctrinal basis for good faith in Australia these being:

(a) as a general principle of contract construction

(b) as a term implied as a matter or law;
(c) as a term implied as a matter of fact.

The first of these has been largely an academic discussion that has not found
much favor with the judiciary. The second and third views have received
competing support in bodies of case law over the past 20 years or more resulting
in a variety of outcomes for parties to proceedings. The most common instances
where good faith has been considered by the Courts arise where there is either:

(d) an express term incorporated into the contract23;

(e) where a term is implied into a contract (either as a matter or law or as a matter of
fact);
(f) where legislative intervention stipulates good faith is to apply.

In practice however due to the varying approaches and lack of certainty, the
approach to good faith in commercial contracts, and by default franchising,
remains unclear and adhoc. Confusion continues to exist as to the extent of good
faith, its interaction with unconscious ability, fair dealing and reasonableness,
and more broadly protection of the vulnerable under Australian laws.

CANADA

Canadian courts have not accepted good faith as a general principle that applies
to all contracts .Despite this, good faith has been recognized by the Ontario Law
Reform Commission to be a factor in everyday contractual transactions. It has
also been acknowledged by Canadian courts to be of commercial value to the
business community.

Good Faith in Canadian Insurance Law will give practitioners and insurance
professionals the information they need when dealing with bad faith claims in
insurance law.

Keeping you up to date with the law, this book includes:

Whether there is an implied obligation of good faith in contract

The issues raised by such an obligation

The application of the obligation of good faith to insurance in Canada

A critical analysis and summary of existing law

Detailed suggested approaches to bad faith claims for insurers, insureds and
others affected by insurance

What does a good faith obligation apply to, and what does it not

Possible novel applications for a good faith obligation

An important resource for anyone doing insurance-related work.

Practitioners will gain a solid understanding of the principles of the implied

obligation of good faith and get practical guidance on handling cases based on
existing case law and analysis.

Insurance industry professionals and in-house counsel will get a better sense of
the law and more clarity on the limits of their obligations.

Counsel will benefit by understanding how to avoid and respond to bad faith
claims and manage litigation more effectively

Duties of Good Faith in South Asian Region

INDIA

Indemnity
A contract of insurance is a contract of 'indemnity'. It means that the insured, in case of loss
against which the policy has been issued, shall be paid the actual amount of loss not
exceeding the amount of the policy, i.e. he shall be fully indemnified. The object of every
contract of insurance is to place the insured in the same financial position, as nearly as
possible, after the loss, as if the loss has not taken place at all. This is applicable to all types
of insurance except life, personal accident and sickness insurance. A contract of insurance
does not remain a contract of indemnity if a fixed amount is paid by the insurer to the insured
on the happening of the event against, whether he suffers a loss or not. Like, in case of life
insurance, the insurer is liable to pay the sum mentioned in the policy on the death, or expiry
of a certain period.

Insurable interest
It means that the insured must have an actual interest in the subject matter of insurance. A
contract of insurance affected without insurable interest is void. A person is said to have an
insurable interest in the subject matter if he is benefited by its existence and is prejudiced by
its destruction. For example:- a person has insurable interest in the building he owns;
employer can insure the lives of his employees because of his pecuniary interest in them; a
businessman has insurable interest in his stock, plant and machinery, building, etc. So, all
these people have something at stake and all of them have insurable interest. It is the
existence of insurable interest in a contract of insurance which distinguishes it from a mere
wagering agreement.
In case of life insurance, insurable interest must be present at the time when the insurance is
affected. It is not necessary that the assured should have insurable interest at the time of
maturity also. In case of fire insurance, insurable interest must be present both at the time of
insurance and at the time of loss. In case of marine insurance, interest must be present at the
time of loss. It may or may not be present at the time of insurance.

Cause Proximal
The rule of 'causa proxima' means that the cause of the loss must be proximate or immediate
and not remote. If the proximate cause of the loss is a peril insured against, the insured can
recover. When a loss has been brought about by two or more causes, the real or the nearest
cause shall be the causa proxima, although the result could not have happened without the
remote cause. But, if the loss is brought about by any cause attributable to the misconduct of
the insured, the insurer is liable.

Risk
In a contract of insurance the insurer undertakes to protect the insured from a specified loss
and the insurer receives a premium for running the risk of such loss. Thus, risk must attach to
a policy.

Mitigation of loss
In the event of some mishap to the insured property, the insured must take all necessary steps
to mitigate or minimize the losses, just as any prudent person would do in those of loss
attributable to his negligence. But it must be remembered that though the insured is bound to
do his best for his insurer, he is, not bound to do so at the risk of his life.

Subrogation
The doctrine of subrogation is a corollary to the principle of indemnity and applies only to
fire and marine insurances. According to it, when an insured has received full indemnity in
respect of his loss, all rights and remedies which he has against third person, will pass on to
the insurer and will be exercised for his benefit until he(The insurer) recoups the amount he
has paid under the policy. The insurer's right of subrogation arises only when he has paid for
the loss for which he is liable under the policy and this right extends only to the rights and

remedies available to the insured in respect of the thing to which the contract of insurance
relates.

Contribution
When there are two or more insurances on one risk, the principle of contribution comes into
play. The aim of contribution is to distribute the actual amount of loss among the different
insurers who are liable for the same risk under different policies in respect of the same
subject matter. Any one insurer may pay to the insured the full amount of the loss covered by
the policy and then become entitled to contribution from his co-insurers in proportion to the
amount which each has undertaken to pay in case of the loss of the same subject matter. In
other words, the right of contribution arises when:There are different policies which relate to the same subject matter.
The policies cover the same peril which caused the loss.
All the policies are in force at the time of the loss.
One of the insurers has paid to the insured more than his share of the loss.

PAKISTAN
The insurance sector in Pakistan, until end of year 2000, was under the regulatory purview of
the Federal Ministry of Commerce, Government of Pakistan. Empirical results show that
during that period, the private sector insurance industry was fragmented and suffered
operational inefficiencies due to lower Paidup Capital and Equity requirements, while the
public sector insurance companies enjoyed their privileged status due to captive business.
During the regulatory regime of the former law, the archaic Insurance Act, 1938, the
insurance industry was infested with various issues. Capital adequacy requirements for
general insurance companies were grossly inadequate, registration and supervision fees for
insurers were modest, and the statutory solvency margins were based on outmoded principles.

A new insurance law was introduced in 2000 when the Insurance Act, 1938 was repealed and
replaced with the Insurance Ordinance, 2000. The new law primarily aimed to ensure the
protection of insurance policyholders interest and to promote sound development of the
insurance industry. In the year 2001, the regulatory and supervisory responsibilities of the
insurance sector were shifted from the Ministry of Commerce to the Securities and Exchange
Commission of Pakistan (SECP).

Understanding Insurance
Insurance can be defined in many different ways, from many different points of view. For
example, from an economic viewpoint, insurance is a system for reducing financial risk by
transferring it from a policy owner to an insurer. The social aspect of insurance involves the
collective bearing of losses through contributions by all members of a group to pay for losses
suffered by a few group members. From a business viewpoint, insurance achieves the sharing
of risk by transferring risks from individuals and businesses to financial institutions
specializing in risk. The insurer is not in fact paying for the loss. The insurer writes the claim
check, but is actually transferring funds from individuals who as part of a pool, paid
premiums that created the fund from which the claims are paid. Lastly, from a legal
standpoint, an insurance contract or the policy, transfers a risk, for a premium or
consideration, from one party to another party. The party bearing the risk is known as the
'insurer' or 'assurer' and the party whose risk is covered is known as the 'insured' or 'assured'.
How Insurance Works
Insurance is based on a mechanism called risk pooling, or a group sharing of losses. People
exposed to a risk agree to share losses on an equitable basis. They transfer the economic risk
of loss to an insurance company. Insurance collects and pools the premiums of thousands of
people, spreading the risk of losses across the entire pool. By carefully calculating the
probability of losses that will be sustained by the members of the pool, insurance companies
can equitably spread the cost of the losses to all the members. The risk of loss is transferred
from one to many and shared by all people who are insured in the pool. Each person pays a

premium that is measured to be fair to them and to all based on the risk they impose on the
company and the pool.
Insurance Basics
Following are the basic essentials or requirements of insurance, irrespective of the type of
insurance involved.
Principle of Utmost good faith
It is the name of a legal doctrine which governs insurance contracts. This means that all
parties to an insurance contract must deal in good faith, making a full declaration of all
material facts in the insurance proposal. A material fact is a fact which would influence the
mind of a prudent underwriter in deciding whether to accept a risk for insurance and on what
terms. Thus, the insured must reveal the exact nature and type of the risks that he / she passes
on to the insurer, while at the same time the insurer must make sure that the underlying
contract fits the needs of, and benefits the insured. Where either the Insurer or the Insured
fails to follow the principle of utmost good faith, the insurance contract is deemed null and
void.
Principle of Insurable Interest
The law states that in order for an insurance policy to be valid, the policyholder must have a
sufficient interest in the subject matter of the insurance. Broadly speaking, the doctrine
requires that a policyholder must gain a benefit from the preservation of the subject matter of
the insurance or suffer a disadvantage should it be lost. People who are policyholders but not
the owners of the insured substances, from deliberately causing loss to the substances in order
to claim compensation and deriving undue benefits from insurance business.
Principle of Indemnity
Indemnity is monetary compensation that aims to return the insured to the same financial
position he enjoyed before the loss occurred. Life insurance and personal accident policy are
therefore not contracts of indemnity. A monetary value cannot be easily placed on life and
limb. However, the idea behind indemnity is used for financial underwriting where life
insurance is concerned. As such life insurers limit the amount of coverage you can have,
based on your income.

Principle of Subrogation
Simply stated, the right of subrogation is the right to pursue someone else's claim. If you are
subrogated to someone's claim, it sounds as though you are somehow subordinated to it but
that's not what it means. It means that you may pursue it as though it were your own. It can
arise by the express agreement of the parties, or automatically by operation of law.
Principle of Proximate Cause
Proximate cause is an act from which an Injury or a property loss results as a natural, direct
and uninterrupted consequence and without which the injury or loss would not have occurred.
Proximate cause is the primary cause of an injury or loss. It is not necessarily the closest
cause in time or space, or the first event that sets in motion a sequence of events leading to an
injury or loss. Proximate cause produces a particular consequence without the intervention of
any independent or outside force.
Principle of unforeseen event
The insured events causing the losses should not be speculative, predicted or expected but
they must be sudden, unanticipated and out of the blue.
Principle of Contribution
It is based on the premise that no one should gain from a loss, since an insurable risk is a pure
risk. Contribution is essentially "the right of an insurer to call upon others similarly, but not
necessarily equally, liable to the same insured to share the cost of an indemnity payment."
Following is the simple way to calculate the contribution amount.

Insurance Intermediaries
Insurance intermediaries form the feeding line for the insurance companies. They are
essentially matchmakers who match the insurance needs of policyholders with the insurers
who have the capability of meeting those needs. Their services include record keeping and
modeling for insurers, providing advice to clients on selecting insurers, and assisting with
claims settlement. They play a key role in providing underwriting information to insurers.
The intermediaries play a vital role in soliciting quotations for complex risks and in helping
clients make comparisons on the basis of price, coverage, service and the financial strength of

the insurer. Moreover, the intermediary ensures increased price and quality competitiveness,
by providing the insured access to a wider range of possible insurers.

SRILANKA
Utmost good faith and any fraudulent claims arising from self-induced loss including those
caused with intent to commit fraud may be justifiably repudiated by the insurer. The basis of
exclusion of the liability of an insurer to pay in such and similar circumstances, was
explained by Lord Atkin in Beresford at page 595 in the following manner: On ordinary
principles of insurance law an assured cannot by his own deliberate act cause the event upon
which the assurance money is payable. The insurers have not agreed to pay on that
happening. The duty of good faith between the insurer and insured is sometimes specified as
the foundation, although not the only foundation, of the rule that fraud in a claim by the 9
insured defeats the claim and terminates the contract of insurance. The rule is often spoken of
as a contract term but a term that is in accordance with legal principles and sound policy.
Although at the time of the claim as at other times, the duty of good faith is most apparent as
it affects the insured claimant, the duty must also be observed by the insurer. The onus of
proving fraud is on the insurer. In cases of fraudulent misstatement about the extent of loss,
there may be little doubt that the statement was made, but the insurer must also prove that it
was false and that the claimant knew it was false. In other cases the insurers allegation of
fraud may be more serious: that the loss occurred as claimed but was deliberately caused by
the claimant. In all cases of alleged fraud, the onus, while not that of the criminal law, is
greater than the usual balance of probabilities, because the more serious the allegation the
higher the degree of probability to be established. Indeed, if the allegation of fraud is that the
insured fired his own property, the onus is close to that of facing the prosecution in a criminal
case on the same facts, involving a high degree of probability. It is in the light of this
understanding of the law that the arbitral tribunal went on to analyze the evidence led in the
case, and arrived at the conclusion that the Respondent had failed to discharge the burden
placed on him to establish that the claims were fraudulent. It is manifest that the approach of
the arbitral tribunal was consistent with the law and practice in Sri Lanka. In Lakshmanan
Chettiar v. Muttiah Chettiar 50 NLR 337, which was a civil action filed by a professional
money lender against his agent claiming that he had fraudulently and in breach of trust

assigned a decree made in his favour to a third party without any consideration, the court had
to decide whether the assignment was fraudulent, and Howard, C.J. (with Canakaratne, J.
concurring) held that the standard applicable to the proof of fraud was akin to the criminal
standard. His Lordship observed at page 344, that fraud, like any other charge of a criminal
offence whether made in civil or criminal proceedings, must be established beyond
reasonable doubt as such a finding cannot be based on suspicion and conjecture. This
decision was followed in Yoosoof v. Rajaratnam 74 NLR 9, in which in the context of an
inquiry under Section 325 of the Civil Procedure Code, G.P.A. Silva A.C.J., observed at page
13 that Both principle and precedent would support the view that when a transfer is effected
for valuable consideration the burden of proving that it was fraudulent rests on the plaintiff in
these circumstances. It is an accepted rule that such a burden even in a civil proceeding must
be discharged to the satisfaction of a Court. For that degree of satisfaction to be reached, the
standard of proof that is required is the equivalent of proof beyond reasonable doubt.
However, in Associated Battery Manufacturers (Ceylon) Ltd. v. United Engineering Workers
Union 77 NLR 541 at 544, and Caledonian Estate Ltd., v. Hilaman 79 - 1 NLR 421 at 426, it
has been observed by this Court that allegations of misconduct in labour tribunal proceedings
may be proved on a balance of probabilities.
The balance of probability standard means that a court is satisfied an event occurred if the
court considers that on the evidence, the occurrence of the event was more likely than not.
When assessing the probabilities, the court will have in mind the factor, to 10 whatever extent
is appropriate in the particular case, that the more serious the allegation the less likely it is
that the event occurred and hence, the stronger should be the evidence before the court
concludes that the allegation is established on the balance of probability. Fraud is usually less
likely than negligence. Deliberate physical injury is usually less likely than accidental
physical injury. Explaining the principles enunciated by the courts in this regard, Phipson on
Evidence (16th Edition 2005) at page 156, emphasizes that .attention should be paid to the
nature of the allegation, the alternative version of facts suggested by the defence (which may
not be that the event did not occur, but rather that it occurred in a different way, or at
someone elses hand), and the inherent probabilities of such alternatives having occurred. In
the recent decision of this Court in Francis Samarawickrema v Dona Enatto Hilda Jayasinghe
and Another, [2009] 1 SLR 293, the Supreme Court has adopted this approach, exploding the
theory that fraud in a civil case has to be proved beyond reasonable doubt, subject of course
to the to the qualification that in applying the standard of the balance of probabilities, the

court should always bear in mind that, as Lord Nicholls observed in the dicta quoted earlier,
that the more serious the allegation the less likely it is that the event occurred and hence, the
stronger should be the evidence before the court concludes that the allegation is established
on the balance of probability. In my view, since the applicable degree of proof would depend
on the seriousness of the charge, the question whether it is the criminal or civil standard of
proof that would apply in a civil case involving a charge of fraud, would become difficult to
answer without a meaningless play on semantics. In my opinion, the High Court failed in its
impugned judgment, to subject the evidence led by the parties before the arbitral tribunal to
careful scrutiny in arriving at its decision to set aside the award. The arbitral tribunal, which
was conscious of the standard applicable to the proof of fraud had closely examined all
evidence led in the case by both parties and unanimously concluded that the lorry and its
contents had been destroyed by fire, and the said fire had been caused by an electrical short
circuit in the lorry. Witness Nihal Perera, who testified on behalf of the Appellant, stated in
evidence that he was one of the passengers in the vehicle at the relevant time. He stated that
the vehicle had transported the musical instruments and sound equipments in question to be
used at a dance at a Hotel in Kandy. After the dance, the instruments were being transported
to Colombo. The lorry left the Hotel at about 4.00 am andwas proceeding along the KandyColombo road. After they had travelled for about 20 or 30 minutes, one of the other
passengers in the said lorry banged on some portion of the lorry in the rear and alerted the
witness and the other passengers that there was a fire. Nihal Perera testified that, as a result of
the fire, the lorry and its contents were completely destroyed. He specifically stated that the
fire was not caused by him or any other persons. He also produced two lists of goods that
were destroyed. He clarified that he was seated in the cab section of the lorry as a passenger
when he was alerted to the fire. The Appellant, Kiran Atapattu, also testified to the fact that
the musical instruments and sound equipments were transported to Kandy in the lorry and
that in the early hours of the relevant day, he was contacted by telephone at his home in
Colombo by the witness Nihal Perera who informed him that the lorry had caught fire on the
return journey. He reached Kandy and went to the spot and he specifically denied the
suggestion that the vehicle and its contents had been set on fire at his instance. His evidence
was followed by the next witness who was Inspector F. Henry Silva who had been OIC
Crimes at the Peradeniya Police Station, within the area of which the incident had occurred.
He stated that, at about 6.30 am on the day of the incident, a complaint had been received at
the Police Station relating to the fire and he visited the spot at 11 about 8.20 am. He observed
that the lorry was almost completely burnt down. He observed a heap of ash within the

vehicle and a set of drums inside the vehicle which was still burning. He observed a large
number of musical instruments and equipments within the lorry some of which were burnt
and others still burning. He had been at the scene for one hour and in the course of his
investigations, he questioned the passengers who had been in the lorry and inmates of houses
in the vicinity. According to his investigations and inquiry he concluded that the fire must
have been caused by an electrical short circuit in the lorry. He also stated that a retired
Deputy Inspector-General of Police had visited the scene along with K.I. Jegatheesan, a
retired officer from the Government Analysts Department, a few days after the fire. Two
witnesses were called to give evidence on behalf of the Respondent, namely, Police
Constable Weerasooriya of Peredeniya Police and K.I.Jegatheesan, a retired Government
Analyst. Witness Weerasooriya read out from the notes made by the I.P. Henry Silva. These
notes indicated that I.P. Henry Silva had noticed that the tires and tubes of the vehicle had
been burnt and the vehicle had settled on its rims. These observations included the fact that,
when IP Henry Silva visited the scene, flames were still visible and the entire rear portion of
the lorry had been burnt. The main witness called on behalf of the Respondent was
Jegatheesan, who testified as an expert. He stated that, at the request of the Respondent, he
investigated the fire, and had visited the scene on 9th July 1998, several days after the vehicle
had caught fire. His evidence suggests that the vehicle had not been guarded during the
interval between the fire and his inspection. This witness was of the opinion that the fire had
not started from the diesel tanks. His position was that the fire had definitely started from the
inside of the lorry and not from the diesel tanks. He was also of the opinion that the fire had
not started from the battery area and contended that the fire could not have occurred as a
result of an electrical short circuit. He was of the opinion that the fire could have commenced
with the use of an inflammable liquid such as petrol. The arbitral tribunal formed the opinion
that his testimony was insufficient to establish with any certainty that the fire was the result
of arson, particularly considering the delay in the inspection made by Jegatheesan, which
might have resulted in the destruction of whatever meager evidence that may have remained
in the scene after the fire. It would appear that the evidence of this witness is flawed in that,
on his own admission, he did not carry out any chemical or other scientific tests to determine
the cause of the fire. Moreover, under crossexamination,he was compelled to admit that there
was nothing in his report to establish that the fire had been deliberately caused, and that he
could have written his report from his office without visiting the scene at all. The tribunal
also viewed his evidence with caution as he was an expert engaged by the Respondent. In this
context it is necessary to quote from the following pertinent observation made by the tribunal

at page 15 of the majority award:- We do not go to the extent of stating that we disbelieve the
witness, but in assessing the worth of his evidence, as in the case of any witness whose
evidence is put forward as that of an expert, it is necessary to bear in mind the cautions that
have been expressed from time to time by the courts in the evaluation of such evidence. The
tribunal referred in the course of its majority award to the early decision of this Court in
Soysa v Sanmugam 10 NLR 355, where Hutchinson CJ, was inclined to treat the opinion of
an expert as nothing more than slight corroboration of a conclusion arrived at independently,
and in any event, never so strong as to turn the scale against the person charged with a
criminal act if the other evidence is not conclusive. In the subsequent decision of R v Perera
31 NLR 449, Jayawardena A.J. called attention to the danger of acting on the unsupported
testimony of an expert. Somewhat similar views have been taken in Gratiaen Perera v The
Queen 61 NLR 522 12 and in Samarakoon v Public Trustee 65 NLR 100. There are many
authorities which show that the courts are aware of the fact that experts are inclined to show
conscious or unconscious bias towards those who call them, and are perhaps hostile to those
who challenge their views in cross-examination. Thus, in an old case, Cresswall v Jackson
(1860) F &F 24, Cockburn CJ expressed the view that the evidence of professional witness
has to be viewed with some degree of distrust, for it is generally given with some bias. In the
case of Abinger v Ashton (1874) LR 17 Jessel MR stated that an expert is employed and paid,
not merely his expenses but much more by the persons who calls him, and there is
undoubtedly a natural bias to do something of use for those who employ him and adequately
remunerate him. In this state of evidence and in the light of the applicable law, I am of the
opinion that the finding of the tribunal in this regard is unimpeachable and consistent with
authority both on the question of the standard of proof applicable in civil cases involving an
allegation of fraud as well as the value of expert evidence. In my view, the High Court had
erred in its finding that the awards of the arbitral tribunal should be set aside and its
enforcement refused on the basis that the tribunal had misapplied the applicable law relating
to the standard of proof in civil cases where fraud is alleged and had failed to assess the
evidence led before the arbitral tribunal to determine whether the Respondent would have
succeeded with its defence of arson even on a balance of probabilities. Accordingly,
questions (i), (ii) and (iv) raised on behalf of the Appellant have to be answered in the
affirmative. While it is clear that in such cases the burden of proof of establishing fraud falls
on the insurer, the question that arises in this appeal is whether the applicable standard of
proof is the criminal standard of proof beyond reasonable doubt, or the civil standard of
preponderance of probabilities, or something in between. The learned High Court Judge had

taken the view that it is the lesser of these two standards, namely proof on a preponderance of
probabilities that applies in such a case to establish fraud, and has set aside the award in
favour of the Appellant, and allowed the application of the Appellant for enforcing the same,
on the basis that the arbitrators had erred in law and that their awards are contrary to the
public policy of Sri Lanka. The primary basis on which the Appellant challenged the finding
of the High Court was that it had misapplied the standard of proof required to establish fraud
in this case. Learned President Counsel for the Appellant argued with great force that the
High Court had erred in applying the civil standard of balance of probabilities for the proof of
fraud, which was by its very nature a serious allegation requiring a higher degree of proof. He
submitted that the High Court had in fact treated the unanimous award of the arbitral tribunal,
which upheld the claims of the Appellant on the basis that there was no plausible evidence
placed before it that could establish fraud to the satisfaction of the tribunal, was arrived at by
applying the wrong standard of proof. In this context, it is necessary to consider the judgment
of the High Court care

BANGLADESH
According to J. H. Magce Life insurance contract embodies an agreement in which the
insurer undertakes to pay a stipulated sum upon death of insured or at some designated time.
Life insurance provides financial security to human lives. Life insurance is a legal contract
between the insured and the insurer. The insurer agrees to pay a definite sum of money to the
insured on maturity of contract.
Life insurance is a contract between an insurance policy holder and an insurer, where the
insurer promises to pay a designated beneficiary a sum of money (the benefits) upon the
death of the insured person. Depending on the contract, other events such as terminal illness
or critical illness may also trigger payment. The policy holder typically pays a premium,
either regularly or as a lump sum. Other expenses (such as funeral expenses) are also
sometimes included in the benefits.
There is a difference between the insured and the policy owner, although the owner and the
insured are often the same person. For example, if Joe buys a policy on his own life, he is
both the owner and the insured. But if Jane, his wife, buys a policy on Joes life, she is the

owner and he is the insured. The policy owner is the guarantor and he will be the person to
pay for the policy. The insured is a participant in the contract, but not necessarily a party to it.
Also, most companies allow the payer and owner to be different, e. g. a grandparent paying
premiums for a policy on a child, owned by a grandchild.
The beneficiary receives policy proceeds upon the insured persons death. The owner
designates the beneficiary, but the beneficiary is not a party to the policy. The owner can
change the beneficiary unless the policy has an irrevocable beneficiary designation. If a
policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or cash
value borrowing would require the agreement of the original beneficiary.
Death proceeds
Upon the insureds death, the insurer requires acceptable proof of death before it pays the
claim. The normal minimum proof required is a death certificate, and the insurers claim form
completed, signed (and typically notarized).[citation needed] If the insureds death is suspicious
and the policy amount is large, the insurer may investigate the circumstances surrounding the
death before deciding whether it has an obligation to pay the claim.
Payment from the policy may be as a lump sum or as an annuity, which is paid in regular
installments for either a specified period or for the beneficiarys lifetime.

Age and gender of policy holder

Medical history/pre-existing conditions (you fill in form, but many companies also
use database of Medical Information Bureau)

Family medical history (For instance, did your parents have a history of heart disease
or cancer?)

Results of medical exam (various tests usually required for higher amounts of
insurance; the higher the value the more stringent the criteria). Typical tests include:

Property Insurance
Homeowner insurance protects the owner financially from losses and liability.
Homeowners need insurance because it protects them from costly liability lawsuits, covers
them in the event of weather- or fire-related damage to their homes, and pays for losses

sustained from theft. When a homeowner owes money on his home, he needs to have
insurance to protect both himself and the lender. Homeowners whose homes are completely
paid for also carry insurance to protect themselves financially.
Personal Property Coverage
While not required by the lender, personal property coverage is frequently part of a policy.
Homeowners need to document their possessions, with receipts, video or photographs, and
keep the records in a safe place. Making several paper or DVD copies and distributing them
among friends or family who do not live in the house is a good way to safeguard the record of
personal property. Most hazard insurance policies will not cover expensive jewelry, art, or
musical instruments except as riders to the policy. Before many insurance companies will
accept the value of the item, they may require an appraisal of the item by a professional.
Some homeowners insurance policies do not cover business equipment located in the home;
just as with jewelry or art, the insurer may require a rider for items that are used in a home
office like copiers, faxes and computers.

Construction type of dwelling (frame, brick, masonry, EIFS, etc.) and size

Age of dwelling and condition; age or renovation date of systems within structure
such as plumbing, electrical, furnace, roof

Location of dwelling/property

Proximity to local fire protection

Presence of safety features (smoke detectors/fire alarm system, security system,

sprinklers, etc.)

Factors of Insurance
1. Utmost Good Faith
The Principle of Utmost Good Faith, is a very basic and first primary principle of insurance.
According to this principle, the insurance contract must be signed by both parties (i.e insurer
and insured) in an absolute good faith or belief or trust.
2. Insurable Interest

The principle of insurable interest states that the person getting insured must have insurable
interest in the object of insurance. A person has an insurable interest when the physical
existence of the insured object gives him some gain but its non-existence will give him a loss.
In simple words, the insured person must suffer some financial loss by the damage of the
insured object.
3. Indemnity
Indemnity means security, protection and compensation given against damage, loss or injury.
According to the principle of indemnity, an insurance contract is signed only for getting
protection against unpredicted financial losses arising due to future uncertainties. Insurance
contract is not made for making profit else its sole purpose is to give compensation in case of
any damage or loss.
4. Contribution
Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts
of indemnity, if the insured has taken out more than one policy on the same subject matter.
According to this principle, the insured can claim the compensation only to the extent of
actual loss either from all insurers or from any one insurer. If one insurer pays full
compensation then that insurer can claim proportionate claim from the other insurers.
5. Subrogation
Subrogation means substituting one creditor for another. Principle of Subrogation is an
extension and another corollary of the principle of indemnity. It also applies to all contracts
of indemnity. According to the principle of subrogation, when the insured is compensated for
the losses due to damage to his insured property, then the ownership right of such property
shifts to the insurer.
6. Loss Minimization
According to the Principle of Loss Minimization, insured must always try his level best to
minimize the loss of his insured property, in case of uncertain events like a fire outbreak or
blast, etc. The insured must take all possible measures and necessary steps to control and
reduce the losses in such a scenario. The insured must not neglect and behave irresponsibly

during such events just because the property is insured. Hence it is a responsibility of the
insured to protect his insured property and avoid further losses.
7. Causa Proxima (Nearest Cause)
Principle of Causa Proxima (a Latin phrase), or in simple English words, the Principle of
Proximate (i.e Nearest) Cause, means when a loss is caused by more than one causes, the
proximate or the nearest or the closest cause should be taken into consideration to decide the
liability of the insurer.

Comparison of Eastern and Western countries with Bangladesh

Australia
In Australia Good faith is not a recognized principle in the common law system in that it is
not recognized as a fundamental proposition that serves as a foundation for common law
contracts. This is unlike the position in the civil law system, where a principle of good faith is
clearly stated to apply to contracts. In Bangladesh government do not take any
responsibilities, they are not compiling with their honesty and with standards of conduct
which are reasonable having regard to the interests of the parties.
Australian insurance company does not acting like arbitrarily, capriciously, unreasonably or
recklessly. They do not requiring a party to act in the interests of the other party to the
contract. As Bangladesh is a poor country and people are very poor, every people try to take
chance either they have forget their morality and doing wrong thing. Maximum insurance
company remains ford so people dont trust them. Maximum company try to influence people
by their sweet word but at last they give their service no in proper sense of eject what they
were said. Government takes no action or after being informed they do no handle them as
dishonest people are everywhere.

Canada
Canadian courts have not accepted good faith as a general principle that applies to all
contracts. Despite this, good faith has been recognized by the Ontario Law Reform
Commission to be a factor in everyday contractual transactions. It has also been
acknowledged by Canadian courts to be of commercial value to the business community. The
application of the obligation of good faith to insurance in Canada A critical analysis and
summary of existing law .Detailed suggested approaches to bad faith claims for insurers,
insureds and others affected by insurance . Insurance industry professionals and in-house
counsel will get a better sense of the law and more clarity on the limits of their obligations.
Counsel will benefit by understanding how to avoid and respond to bad faith claims and
manage litigation more effectively
In Bangladesh government or in house no one control

insurance company. Insurance

company makes law as like as their company need. They give good benefits and service but
sometime see the ford cases and dishonesty and also some bad faith. There no system of
practicing good faith or take action against claim.

France
Insurance contracts may be rescinded where there has been misrepresentation by the insured,
in accordance with the general rules provided in the Civil Code. Some specific rules applying
to insurance contracts are provided by the Insurance Code (art. L.113-8 and L.113-9). In
terms of disclosure obligations, the insured is only required to respond to specific questions
regarding the risk that are set out in the underwriting questionnaire; the insured cannot be
sanctioned for having failed to volunteer some information, albeit relevant, that was not
expressly requested by the insurer or for having provided an ambiguous response to a
question that was itself drafted in vague or ambiguous terms. Avoidance of the contract is
only available where the insured/policyholder acted in bad faith, with the knowledge that the
information provided was false or misleading (art. L.113-8 IC). Good faith is always
presumed and the burden of proof lies with the insurer. Where false information deliberately
provided by the insured is discovered in connection with a loss, avoidance is available even if
that false information bears no relation to that loss. The insurer is entitled to keep all the

premiums already collected and claim payment of all further premiums which have fallen due
and payable as damages (except in relation to life insurance).

India
The duty of good faith between the insurer and insured is sometimes specified as the
foundation, although not the only foundation, of the rule that fraud in a claim by the insured
defeats the claim and terminates the contract of insurance. The rule is often spoken of as a
contract term but a term that is in accordance with legal principles and sound policy.
Although at the time of the claim as at other times, the duty of good faith is most apparent as
it affects the insured claimant, the duty must also be observed by the insurer. There are
different policies which relate to the same subject matter. The policies cover the same peril
which caused the loss. All the policies are in force at the time of the loss. One of the insurers
has paid to the insured more than his share of the loss.

In a contract of insurance the insurer undertakes to protect the insured from a specified loss
and the insurer receives a premium for running the risk of such loss. Thus, risk must attach to
a policy. All these people have something at stake and all of them have insurable interest. It is
the existence of insurable interest in a contract of insurance which distinguishes it from a
mere wagering agreement.

Pakistan
In Pakistan all parties to an insurance contract must deal in good faith, making a full
declaration of all material facts in the insurance proposal. A material fact is a fact which
would influence the mind of a prudent underwriter in deciding whether to accept a risk for
insurance and on what terms. Thus, the insured must reveal the exact nature and type of the
risks that he / she passes on to the insurer, while at the same time the insurer must make sure
that the underlying contract fits the needs of, and benefits the insured. Where either the
Insurer or the Insured fails to follow the principle of utmost good faith, the insurance contract
is deemed null and void. In Pakistan people believe in insurance company.

Maximum

people are doing life insurance car insurance, home insurance, organization and many more.

There company provide good service and people trust them. As a Muslim country good faith
are maintain strictly though dishonesty is everywhere. Government takes care of these
things. In Bangladesh government is not aware about these things.
We are the post colonial countries of European countries so we have an obvious tendency to
follow their way of living. After the post colonial time we have adopted lots of things of
European people. As a new country we had follow the regulations that are use by the
colonizers country. We have been adopted most of the British regulation as they were the
last colonizers country.
We have been under British rule moreover 190 years. After we have got independence we
needed to structure our bureaucracy and the laws in a way that will generally accepted by the
people. So from the very beginning our 80% of laws are followed by British law.
The Britain has adopted or recognized good faith in their insurance contract long time back in
1906. The western countries have made lots of changes in their law with the context of time.
Bangladesh has also made changes in their law but not the way Britain made changes in
insurance law.
In our country insurance is not as popular as western countries. One of the big reasons is that
people do not rely or have faith in insurance. They are very much doubtful towards the
insurance policy. In order to make them confident about insurance the government of
Bangladesh should have some necessary steps.
In insurance there is lots of space where fraud of mistake can took place. To stop the mistakes
the western countries have introduced good faith (Honesty) in the insurance law. Previously
there were only the duty of not to show dishonesty and duty of not showing honesty. In that
case the insurer and insured have no responsibility to show honesty means they didnt need to
deliberate duty to show honesty. And in duty to not showing dishonest means they also can
not show the dishonesty to the insured or insurer.
As western countries using good faith in insurance as a law it becomes more reliable contract
than before. They have set up the duty of insurer towards the insured and duty of insured
towards insurer about using good faith. But if you look to Bangladesh there is not that many
changes took place in insurance contract. The laws of country followed by Bangladesh have
made their amendments in law but Bangladesh has not made it so far.

The government of Bangladesh still now didnt pay much attention to the using good faith as
a law in insurance contract as well as commercial contract. Here we have also rules regarding
no duty to show good faith and duty to not show bad faith. But now its not enough for both
insured and insurer to stop the fraud and mistake. Though there are lots of experts like
lawyer, legislator, insurer etc. already started to think about the necessity of using good faith.
Recently Canadian court has published the necessity of good faith in insurance and the
Canadian government has already included the clause regarding using good faith in insurance
contract. Overall all the western countries have been included the good faith as a law of
insurance contract. The absence of good faith has created lost of disputes among insurer and
insured. The remedies of all disputes can be reduced by good faith. So it is high time for us to
take the initiative to take good faith as a law in our insurance contract.

HYPOTHESIS

As Bangladesh is a under developed country the people of this country is not much aware
about the insurance policies because they think that it is a luxurious product. Therefore, the
term Good Faith is not yet that much popularly known in Bangladesh. From our research,
we expect to find that violation of good faith exists in Bangladesh and people have fallen
prey to it in many ways over the years. We expect that the governmental authorities are doing
their work efficiently to protect the duties of good faith in the overall commercial law. We
surmise that either people have themselves known about the good faith or they have heard or
seen other people suffering from the consequences of violation of good faith in the insurance
policies. We have also postulated that most people have not boycotted branded insurance
companies that were discovered to have been violated the duties and rules of good faith. This
is because while western, for example, UK clients are known to entirely boycott a insurance
company if it goes against their vested interests Bangladeshi clients are yet to follow suit. We
expect that clients would be somewhat aware of their rights since our sampling was taken
from the capital and they also know the names of the major insurance provider companies.
We also expect that people will deem the present punishments meted out to the offenders not
severe and believe that the offenders get away with their offence due to widespread

corruption. Through our research we hope to find valuable information and strong arguments
to support, justify and prove our points.

METHODOLOGY

As a primary research, we conducted a survey of a representative sampling of 20

general public in Dhaka city and interviewed an official of well known company insurance
industry. To that end we designed a questionnaire with different types of questions so as to
get a range of useful responses which helped us to answer our research questions.
As a secondary research, we used the resources of the library and consulted few books and
journals specializing on the duties and rights of the good faith in the insurance contracts. We
also browsed the internet and used standard search engines like Google, Bing, Yahoo, Alta
Vista, Dogpile etc.

DATA ANALYSIS

1) Do you have any existing Insurance policy?

Yes

No

18
16
14
12
10
8
6
4
2
0
Yes

No

From a sample of 20 respondents, 17 people do not have any insurance policy, 3

people have life insurance policy for the survivorship with 20 years length. From the

data collected, we can assume that majority of the people do not have any insurance
policy. Studies have shown that in Bangladesh people assume insurance policy as a
luxurious product.

2) Which factors do you consider when choosing an insurance company?

a. Good faith of the company (Honesty in business practices and information
flow)
b. Quality rating of the insurance company
c. Paying ability, financial strength, assets etc.
d. Reputation of the agent
e. Efficiency in paying insurance coverage
f. Amount of insurance coverage
g. Customer support system
h. Policy Price

6
5
4
3
2
1
0

We asked the respondents which factors do you consider when choosing an insurance
company. Out of 20 respondents, 5 people often consider the efficiency in paying, 5 people
consider amount of insurance coverage, 4 of them consider paying ability, two persons go for
price of the policy and other two persons go for the reputation of the agent. Only 2 persons
consider good faith of the company. The response raises some concerns.
3) Have you ever heard about the term Good Faith?

Yes

No

Yes
No

Out of the 20 respondents, 16 people said that they have heard about the term Good Faith
as an ethical issue not as a term that is used in commercial law in the insurance contracts
while the rest of the 4 people did not hear any such situation of insurance policy where good
faith exists.
4) Do you fully understand your policy coverage?

Yes

No

Do you fully understand your policy

coverage?

Yes
35%

No
65%

5) Did you receive your policy document quickly after completing your application
process?

Yes

No

Yes
No

Out of the 20 respondents, 13 people said that as they do not have any insurance policy they
do not know much about the application process but still they think that people receive policy
document quickly after completing your application process with the insurance service
provider.
6) Did you or anyone among your friends and family claim for insurance coverage?

Yes

No

Yes
No

Out of the 20 respondents, 13 people said that as they do not have any insurance policy they
do not know much about the claim process but still they said that people like their friends and
family claim for insurance coverage.
7) Have you or any one you know ever been involved in any false act to claim the
insurance price?

Yes

No

20
18
16
14
12
10
8
6
4
2
0
Yes

No

Out of the 20 respondents, only 19 respondents said that they do not know anyone
who been involved in any false act to claim the insurance price.

8) What is your view towards Bangladeshi insurance company?

Strongly Like

Somewhat like

Neutral

Somewhat dislike

Strongly dislike

10
9
8

7
6
5
4

Series1

3
2
1
0
Strongly Like Somewhat
like

Neutral

Somewhat
dislike

Strongly
dislike

When asked about view towards Bangladeshi insurance company, 6 people said that they
somewhat like the insurance company of Bangladesh, while 9 people were neutral about
insurance company because they are a little bit aware of it. On the other hand, 3 people
somewhat do not like the insurance companies while only 2 people strongly dislike the
insurance companies of Bangladesh.
9) Do you have confidence in the service of your insurer?

Yes

No

Do you have confidence in the service

of your insurer?
Yes
15%

No
85%

Out of the 20 respondents, 17 people said that they do not have the confidence in the service
of your insurer which is the majority with 85% of the sample. On the other hand, 3 people
said that they have the confidence in the service of your insurer.
10) Do you think proper training about ethical business practices could make the
future of Bangladeshi insurance company?

20
18
16
14
12
10
8
6
4
2
0
Yes

No

Out of 20 respondents all of them said that proper training about ethical business practices
could make the future of Bangladeshi insurance company.

AN IN-DEPTH INPERVIEW

In order to investigate issues of good faith in insurance contracts in Bangladesh and the
corresponding laws on Commercial law in an in depth way and to discover how individuals
think and feel about the topic, we conducted an interview with Mr. S.M. Shaheen Akhter, the
Vice President (HR & Admin), Pragati Insurance Limited. In a face to face interview, he
discusses the rights and duties of the insurer and also the role of his company. According to
him, good faith is not only the right to have all the information about the insurance contracts
but also the basic Human Right which should not be violated. But in Bangladesh, good
faith is not so widespread that it is very difficult to understand about the term clearly. Almost
every day in the news papers, newer and newer cases of violation of the duties of good faith
are reported which is very frustrating. He also talked but the recent changes in laws to
prevent the violation and protect consumer rights. The steps (Insurance Act 2010), Mr.
Shaheen says, are likely to have a positive impact on public and can support both the insurers
and insured to protect their rights and duties of good faith. Governments initiative for setting
up a unified authority to fight against the violation is well appreciated. But it needs a ground
level monitoring facility and should introduce awareness programs for people involved in
different stages of the insurance policies because besides deliberate occurrences violation of
good faith in commercial law along with insurance contracts due to lack of awareness or
proper guidance is also a common phenomenon. Many established insurance companies in
Bangladesh are accused for violation of good faith many times though Mr. Shaheen argues

that duties of good faith are fundamental to Pragati Insurance Limited. Mr. Shaheen states,
The main focus of our company is to improve the insurance industry among Bangladeshi
clients. We work with good faith every time by maintaining the guideline and other relevant
laws otherwise we wouldnt be standing where we are today. Every day we work to earn the
trust of our customers and clients. A question was asked about his opinion of what other
companies are practicing. Are they following the rules properly? Though Mr. Shaheen was
very spontaneous throughout the interview, he was not interested to comment on this matter.

RECOMMENDATIONS

1.

Insurers must ask questions about any matter which they wish to know about in order
to assess the risk being insured.

2.

Clients who take responsible care to answer the insurers questions fully and
accurately can expect to have any subsequent claims paid in full. It is only if they
answer questions dishonestly or recklessly that insurers are permitted to refuse all
claims and retain any premium.

3.

If a client makes a careless mistake when answering a question, he or she may still be
entitled to have some of the claim paid: a clients entitlement is dependent upon the
insurer and what that insurer would have done had it known the true facts at the time
the insurance policy was incepted.

CONCLUSION

Contracts of insurance are designed to provide peace of mind and security for insured parties,
and to allow insureds to recover from loss. The fulfillment of these purposes depends on
insurers acting in good faith during the claims-handling process; that is, insurers must act
fairly, reasonably and honestly when investigating, assessing and settling claims. Bad faith in
this process should not be ignored. The mutual duty of utmost good faith was developed to
facilitate the operation of insurance and even the playing field between the parties at times of
vulnerability. The concept is better described than defined, but his report contend that
insurers should owe duties of fairness and reasonableness during the claims process. Given
that a purpose of insurance is to provide security and peace of mind for the insured, it is
arguable that those obligations should become enforceable. This could protect the interests of
the insured and constrain abuses of the insurers power.

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Cummins, J. David, and J. Francois Outreville. "An international analysis of underwriting
cycles in property-liability insurance." Journal of Risk and insurance (1987): 246-262.
Neil Campbell "A Sceptical View of Good Faith in Insurance Law" in Duncan Webb and
David Rowe (eds) Insurance Law: Practice, Policy & Principles, (The Centre for
Commercial & Corporate Law, Christchurch, 2004) 205.
Malcolm A Clarke, Julian M Burling and Robert L Purves The Law of Insurance Contracts
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John Lowry, Philip Rawlings and Robert Merkin Insurance Law: Doctrines and Principles
(3rd ed, Hart Publishing, Oxford, 2011).
H K Lcke "Good Faith and Contractual Performance" in P D Finn (ed) Essays on Contract,
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Peter Mann and Candace Lewis Annotated Insurance Contracts Act (The Law Book
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Edwin Peel The Law of Contract (13th ed, Sweet & Maxwell, London, 2011).
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John Smillie "Trespassing on Land" in Stephen Todd (ed) The Law of Torts in New Zealand,
(5th ed, Thomson Reuters, Wellington, 2009) 423.

Anthony A Tarr, Julie-Anne R Tarr and Malcolm Clarke Insurance: The Laws of Australia
(Thomson Reuters, Sydney, 2009).
Stephen Todd "General Introduction" in Stephen Todd (ed) The law of torts in New Zealand,
(5th ed, Thomson Reuters, Wellington, 2009) 1.
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Todd (eds) Law of Contract in New Zealand, (4th ed, LexisNexis NZ, Wellington, 2012) 819.
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