Utmost Good Faith

Insurance contracts have long been treated as a special category requiring more than ordinary contractual honesty. Section 17 of the Marine Insurance Act 1906 states that 'a contract of marine insurance is a contract based upon the utmost good faith', and this principle was applied by analogy across non-marine insurance too. In practice it meant each party — insurer and insured — had to disclose material facts to the other before the contract was formed, rather than simply avoid active misrepresentation.

The traditional remedy for breach was avoidance: the insurer could treat the entire policy as void from the outset, refusing all claims even where the non-disclosure was innocent and unrelated to the loss. This was widely seen as disproportionate, and section 14 of the Insurance Act 2015 abolished it: 'Any rule of law permitting a party to a contract of insurance to avoid the contract on the ground that the utmost good faith has not been observed by the other party is abolished.' The duty of good faith itself survives in modified form — disclosure obligations are now governed by the 2015 Act and, for consumers, the Consumer Insurance (Disclosure and Representations) Act 2012 — but the all-or-nothing avoidance remedy for breach of the duty as such no longer exists.