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Insurance Law - an Introduction

2 UTMOST GOOD FAITH John Lowry ELEMENTS OF THE DUTY OF UTMOST GOOD FAITH Nature of the duty Insurance is a rare species of contract where both parties, the insured and the insurer, are under a mutual duty of utmost good faith. The general duty borne by contracting parties to avoid misrepresentation is extended and reinforced in insurance contracts by the additional obligation to disclose all facts material to the risk. Breach of this duty renders the insurance contract voidable. Consequently, non-disclosure on the part of the insured will entitle the insurer to avoid the contract ab initio notwithstanding the absence of any fraudulent intent. The duty, which has been described as an “incident” of the insurance contract, was formulated by Lord Mansfield in Carter v. Boehm (1766) 3 Burr. 1905 and is codified in ss. 17 to 20 of the Marine Insurance Act 1906 (hereafter referred to as the MIA 1906: see Appendix). These provisions are of general application and, therefore, apply to non-marine insurance. In HIH Casualty and General Insurance Co. v. Chase Manhattan Bank [2003] 2 Lloyd’s Rep. 61 (H.L.), Lord Hobhouse summarized the effect of the duty of utmost good faith in the following terms:

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