Utmost good faith
It has long been the case that each party owed the other the duty of utmost good faith in respect of insurance policies / contracts at all times.
Although the duty of utmost good faith is sometimes shortened to "good faith" it is important to notice the distinction. It does not mean a measure of good faith. It means the utmost good faith.
The duty of utmost good faith applies both to insured and insurer. Although often applied to the insured only, the insurer must also be aware of its duties. For example, if the insurer has failed to act in the utmost of good faith toward the insured by not bringing it to his/her notice the possible consequences of not telling it about wheel and suspension modifications on a motor vehicle, the insurer may not be able to avoid the claim and have to pay it in full.
The duty of disclosure
The duty of disclosure follows on as a natural consequence of the overriding duty of utmost good faith as to insurance contracts. The insured should before executing the contract (such as, before signing the proposal or renewal form), notify the insurer of all he/she knows to be relevant.
The knowledge of the insured may be either actual or constructive. If the insured states that he or she did not know of a material fact, the court may consider what a reasonable insured in those circumstances could be expected to know and impose that level of knowledge on the insured.
The insured does not have to notify the insurer of information such as:
In the insurer's possession by prior dealings with the same insured;
That could have been found out as it was put on an enquiry through its dealings with the insured; or
The fact is of such common knowledge that the insured could not have been expected to notify the insurer of it.
The insured's duty of disclosure is restated in the Insurance Contracts Act and the concept is further refined.
How can Lex Fori Lawyers help you with your Insurance Claim?
Lex Fori Lawyers provides a broad range of specialist insurance services and our clients benefit from the depth of knowledge and understanding of all types of insurance issues, claims and policy disputes – from the most complex commercial dispute to a car accident. Lex Fori Lawyers are Commercial Litigation specialists and are committed to providing efficient, timely, technically correct and responsive advice. If you have a claim or dispute with an Insurance Company, you can contact Lex Fori Lawyers for an appointment on (02) 9723 8793.