Limits on the Duty of Utmost Good Faith
Commercial Bar Association of Victoria
Insurance & Professional Negligence Section
The Australian Law Reform Commission’s 1982 Report No. 20 on Insurance Contracts (which led to the enactment of the Insurance Contracts Act in 1984) noted that the common law requirement that insurer and insured act in the utmost good faith towards each other forms the basis of their relationship (p 202, [328]). The ALRC proposed that legislation should make it clear that the duty of utmost good faith applies to all aspects of the relationship between insurer and insured, not just the duty of disclosure by the insured, including the settlement of claims. The report, and the relevant provisions of the Insurance Contracts Act which resulted from it, are conspicuous for the absence of any limitation on the broad scope of the duty. As to the content of that duty, the report did not escape the traditional resort to legal Latin, in this case “uberrima fides”, in circumstances where one is not entirely confident of the meaning of the corresponding English term, and despite the fact that the expression “uberrima fides” may, perhaps ironically, be translated as meaning “of the fullest confidence”. The more usual rendering, however, is simply “utmost good faith”.
The High Court in CGU Insurance Limited v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 accepted that the duty of utmost good faith is not limited to dishonesty: see [15] (Gleeson CJ and Crennan J), [257] (Callinan and Heydon JJ). Gleeson CJ and Crennan J said that utmost good faith “may require an insurer to act with due regard to the legitimate interests of an insured, as well as to its own interests” and “may require an insurer to act, consistently with commercial standards of decency and fairness, with due regard to the interests of the insured” (at [15]). The use of the word “may” avoided language conveying an absolute or inflexible requirement. In Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 97 ALJR 1 at [95], the High Court agreed that the implied condition of utmost good faith is not limited to honest performance, and the majority said that rights and powers must be exercised and duties “must” (not merely “may”) be performed “consistently with commercial standards of decency and fairness” (at [96]).
Commercial lawyers typically prefer the law to be more precisely expressed, and with more predictable application than those statements allow. We tend to be attracted by the crispness of well-articulated legal rules, and repelled by the sogginess of such indeterminate principles. The problem is illustrated by the fact that the 9 judges who decided Allianz v Delor Vue at various levels of the judicial hierarchy were split 5:4 on the issue of utmost good faith under s 13 of the Insurance Contracts Act, with the minority including judges of the stature of Allsop CJ at first instance, and Gageler J (as his Honour then was) who dissented in the High Court. The majority reasoning in the High Court seems to reflect an uneasiness with the notion of utmost good faith, and gives fresh impetus to what I respectfully regard as a misguided aim of limiting the operation of the concept. Despite the studied reverence with which we are trained to approach judgments of the High Court, there are aspects of this reasoning which I find deeply troubling. In this paper, I will deal with five candidates for limiting the duty of utmost good faith, and will proceed in what I regard as being an ascending order of contestability. But I should first declare an interest in the matter. I was the unsuccessful counsel in Allianz v Delor Vue, and in keeping with the sporting ethos of the Bar, there is nothing an advocate likes more in the absence of a win than claiming the moral high ground.
First, and most uncontroversially, one limit on the duty of utmost good faith is that the duty is not fiduciary in nature. The High Court reiterated that proposition in Allianz v Delor Vue at [95], and added that the duty of utmost good faith does not require a party to an insurance contract to exercise rights or powers or to perform obligations only in the interests of the other party. That strikes me as an obviously correct limit on the duty. The duty of utmost good faith does not demand unnatural altruism, nor does it require an insurer to sacrifice its own interests in the event of a conflict with the interests of the insured.
Before moving on, I should perhaps sound a note of caution arising out of the argument put by the regulator in ASIC v Zurich Australia Limited (No 2) [2023] FCA 1641, which I decided at the end of last year. In that case, ASIC developed an elaborate argument as to the duty of utmost good faith requiring very onerous standards of insurers when considering claims made under a policy, and in considering whether to avoid a policy for fraudulent non-disclosure, including an obligation to give the insured an opportunity to respond to adverse materials. The argument relied heavily on decisions concerning policies of insurance (and superannuation trust deeds) for total and permanent disablement, where the definition of disablement depended upon the formation of a subjective state of belief or satisfaction by the insurer or trustee, as the case may be. In the TPD cases, the insurer’s state of satisfaction is determinative of the insured’s rights under such policies, in contrast to (say) a purported but invalid avoidance of a policy for fraudulent non-disclosure where the insurer wrongly asserts that an insured was fraudulent, in which case the purported avoidance is simply “writ in water”, to pick up the words requested by John Keats for his epitaph. There does not appear to be any material difference in the standards of proper inquiry and consideration to be adopted by an insurer, as distinct from a superannuation trustee, in the TPD cases, and a superannuation trustee undoubtedly owes fiduciary duties to its members. However, as the authorities such as Beverley v Tyndall Life Insurance (1999) 21 WAR 327 indicate, central to the reasoning in those cases is the proposition that the insurer (or superannuation trustee) is effectively a judge in its own cause, in that the applicable contractual provisions confer quasi-judicial decision-making functions on a person where such provisions may implicitly require that a decision be reached honestly, in good faith and reasonably. The judgment of an insurer under a policy of that kind is in the nature of a discretionary judgment, in the sense that it cannot be successfully impugned on the grounds that it is incorrect, given that reasonable minds may differ. However, a decision by an insurer or an insured to assert and exercise a contractual right that is not dependent upon any subjective state of satisfaction is qualitatively and fundamentally different, as such an exercise can be challenged on the ground that it is objectively incorrect. In that case the party purporting to exercise the right is not acting as a judge in its own cause and any dispute as to the effectiveness of the exercise of the right can be determined in due course by a court or other tribunal. Plainly enough, the content of the duty of utmost good faith depends on the particular factual circumstances of the case, and as Allsop CJ said in ASIC v TAL Life Limited (No 2) (2021) 389 ALR 128 at [173]:
It is inappropriate to draw conclusions of principle or of rules from other articulated fact situations about a duty of this character. Fact situations should not be converted into rules by a process of extrapolation and abstraction.
Accordingly, isolated judicial statements made in relation to the specific circumstances of TPD policies, and the provisions in them concerning decision-making as to disablement or incapacity by the insurer or trustee of a superannuation fund, cannot be treated as though they are of general or universal application.
Moving then to the second, and slightly more controversial, limit to the duty of utmost good faith, there is an issue as to the nature of the duty once parties are in litigation against each other and complaint is made concerning the conduct of that litigation, for example in relation to disclosure of documents or the defences relied upon by an insurer. In Manifest Shipping Co Limited v Uni-Polaris Shipping Co Limited [2003] 1 AC 469, the House of Lords held that the obligation of utmost good faith under s 17 of the Marine Insurance Act 1906 (UK) did not continue to apply unqualified once the parties to a policy of marine insurance were in hostile litigation before the courts. On the reasoning of Lord Hobhouse at [75], there are important changes in the parties’ relationship that come about when litigation between them starts. There is no longer a community of interest, the parties are in dispute and their interests are opposed. Most importantly, their relationship and rights are now governed by the rules of procedure and the orders which the court makes on the application of one or other party. The battle lines have been drawn and new remedies are available to the parties. Accordingly, once the parties are in litigation it is the procedural rules of the court process which govern issues such as the extent of disclosure which should be given in the litigation not s 17 as such, although s 17 may influence the court in the exercise of its discretion: [77]. That reasoning does not go so far as to say that the duty of utmost good faith under s 17 no longer applies to the conduct of the litigation, which would be difficult to reconcile with the breadth and apparently unlimited scope of the duty imposed by s 17, but rather proceeds on the basis that the content of the duty must take into account the particular circumstances of the parties, and will thus be qualified by the procedural rules which govern the proper conduct of litigation.
It seems to me that there is much to be said for that position as a matter of principle, although in Imaging Applications Pty Ltd v Vero Insurance Ltd [2008] VSC 178 at [55], Vickery J expressed the point more absolutely in terms that the statutory implied term in s 13 of the Insurance Contracts Act does not extend at all to the conduct of litigation between insured and insurer concerning the contract of insurance. I note that in Silbermann v CGU Insurance Ltd (2003) 57 NSWLR 469 at [51], Hodgson JA said that the obligation of good faith means that the insurer can rely on any defence only if it has reasonable grounds to do so, and Tobias JA at [78] made similar remarks with which Beazley JA agreed. However, Hodgson JA noted at [51] that because of legal professional privilege, the insured and the court will not generally be able to test the reasonableness of those grounds, which would generally require legal advice given on the basis of full instructions as to facts and evidence known to the insurer, and otherwise the only real sanction was the possibility of striking out defences which are shown to have no reasonable chance of success. Similarly, I note that in Admiral International Pty Ltd v Insurance Australia Limited [2022] NSWCA 277 at [243], Bell CJ (with whom Ward P and Macfarlan JA agreed) said in effect that a breach of an insurer’s duty of good faith would not be established in circumstances where an insurer has a reasonably arguable basis for denying indemnity, including on grounds of alleged fraud, even if, as in that case, it may not ultimately be successful.
Turning then to the third limit on the duty of utmost good faith, the majority of the High Court in Allianz v Delor Vue advanced a somewhat opaque proposition that the duty in s 13(1) of the Insurance Contracts Act is not a free-standing or independent general duty to act in good faith, equating the s 13 duty with the position at common law as articulated by Chesterman J in Re Zurich Australian Insurance Ltd [1999] 2 Qd R 203 at [82]. Rather, the majority of the High Court stated that the duty under s 13(1) has two aspects, namely:
(i) it is a principle upon which a contract of insurance is “based” and thus assists in the recognition of particular implied duties; and (ii) it is an implied condition on existing rights, powers, and duties, governing the manner in which each contracting party must act towards the other party “in respect of any matter arising under or in relation to” the contract of insurance.
The first of those propositions is explicitly stated in s 13(1), namely that a contract of insurance is a contract “based on the utmost good faith”. The second element is partly reflected in the language of s 13(1), which is expressed to apply “in respect of any matter arising under or in relation to” the contract of insurance, but it is not clear what the source was for the High Court majority’s reference to “existing rights, powers and duties”. Nor is it clear what the practical point may be of the insistence by the High Court majority at [92] that the duty in s 13(1) is not a free-standing or independent general duty to act in good faith.
The High Court’s reasoning can be contrasted with that of McKerracher and Colvin JJ in the Full Federal Court. In the Full Court, McKerracher and Colvin JJ had said ((2021) 287 FCR 388 at [252]) that:
Whether the conduct of Allianz in all the circumstances amounted to a breach of the duty required an evaluative decision to be made by reference to all of the circumstances of the case.
One might be forgiven for thinking that that statement was wholly unexceptional and entirely correct. Moreover, Derrington J’s dissenting judgment also included the proposition at [576] that whether or not the duty of utmost good faith is breached in a particular case “requires an evaluation of all the circumstances relevant to the conduct in question”. So what was the error?
The High Court majority treated the approach of McKerracher and Colvin JJ as being in error at [97], apparently on the basis that the majority of the Full Court gave no particularised content to the duty of utmost good faith, treating it only as an open-textured contractual obligation, such as to act “consistently with commercial standards of decency and fairness”, requiring “an evaluative decision to be made by reference to all the circumstances of the case”. The High Court majority reiterated that there was no free-standing general obligation upon an insurer, independent of its contractual rights, powers, and obligations to act in a manner which is decent and fair, and the obligation to act decently and with fairness is a condition on how existing rights, powers and duties are to be exercised or performed in the commercial world. The High Court majority at [98] drew a contrast between that approach by the majority of the Full Court and the approach of the primary judge, who had relied upon the duty of utmost good faith in its first aspect, as a principle that gives rise to particular implied duties, concluding that the duty of utmost good faith precluded Allianz from resiling from its previous representation or promise.
The point which the High Court majority appears to be making is that one cannot rely simply on the duty of utmost good faith in broad terms, but one must identify particular implied duties which stem from it. That reading is consistent with the High Court’s reliance on Chesterman J’s 1999 decision in Re Zurich, although that decision expressly did not deal with the duty of utmost good faith under ss 13 and 14 of the Insurance Contracts Act 1984, because the policy of insurance in that case was effected in 1972, so that the Act had no application to it. As the High Court majority acknowledged, Chesterman J was dealing with the duty of utmost good faith at common law. For example, in relation to the insured’s obligation to disclose to the insurer prior to the issue of the policy facts material to the insurer’s decision whether to accept the proposal or what premium to demand, Chesterman J said at [37] that the duty is not to act in good faith. The duty is to disclose material facts. That duty was said to arise from the relationship between insurer and insured as being one “of the utmost good faith”, but the duty is described in more specific terms than to act in good faith. Similarly, Chesterman J said that the duty of an insured to take reasonable steps to reduce or minimise its loss was a manifestation of the principle of utmost good faith, and because of the nature of the relationship there is a duty to reduce loss, but the duty is not “to act in good faith” as such: at [39]. Accordingly, Chesterman J said that in each instance the relationship, that of good faith, is not itself expressed in terms of an obligation but is the basis for implying a more specific duty: [40]. That then led Chesterman J at [82] to express the conclusion that there is not a separately existing, independent general duty to act in good faith. Rather, consistently with the nature of the relationship of good faith between an insurer and an insured, there is an implied limitation on the manner in which an insurer may act when, as in that case, its interests conflict with the insured’s in relation to compromising a claim against the insured, in which case the implied limitation is that the insurer must exercise its powers with due regard to the interests of the insured. In each instance, it is the nature of the relationship which gives rise to the imposition of a more particular duty: [83].
That reasoning as to the common law is now of historical interest only, given that the statutory duty of utmost good faith under s 13 has been in place for forty years. As a matter of statutory construction, it is difficult to avoid the conclusion that s 13(1) implies in a contract of insurance a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. That is exactly what the section says. The section does not require the duty of utmost good faith to be re-formulated or refined in terms of a more particular duty. However, that is what I think the reasoning of the High Court majority now requires. It will therefore be incumbent on counsel and judges to discern from the particular circumstances of the case the particularised content of the duty of utmost good faith, expressed as a more particular duty limiting the exercise of rights, powers and duties in the insurance contract. In many cases this may have little practical impact, beyond adding what seems to me to be an unnecessary layer of analysis and expression. However, in Allianz v Delor Vue, it led to the High Court saying that the insured was contending for a novel duty, being the duty not to depart from a prior representation, rather than referring to the 250-year history of the duty of utmost good faith itself, or even its statutory embodiment in the UK in s 17 of the Marine Insurance Act 1906, followed by Australia three years later in s 23 of the Marine Insurance Act 1909.
That then brings me to the fourth, and even more controversial, supposed limit to the duty of utmost good faith, namely the requirement laid down by the High Court majority in Allianz v Delor Vue that the particular duty emanating from the requirement of utmost good faith must be “coherent” with the operation of existing legal doctrines. In Allianz, the majority of the High Court held that there had been no irrevocable election or waiver, and no detriment so as to give rise to an estoppel by reason of representations by the insurer to the insured. The insured contended that the insurer had a duty not to depart from its clear representation a year earlier that it would not rely on s 28(3) for failure to comply with the duty of disclosure, and the insured relied on the duty of utmost good faith in addition to those preclusionary doctrines. The High Court majority described such a duty of not departing from the insurer’s prior representation as a “novel duty”, reflecting the previous point which I have examined to the effect that the requirement of utmost good faith must be given particular content in terms of some narrower and more refined duty. However, if the duty is simply regarded in the terms of s 13(1) as the duty of utmost good faith, then it could not be described as “novel”, being a duty which is at least 250 years old and has been enshrined in Australian statutory law since 1909 in the context of marine insurance, and since 1984 more generally.
At [103], the High Court majority said the following:
What is fatal to the recognition of this novel duty is that it would not be coherent either with the operation of existing legal doctrines, whose existence was well established at the time of the Insurance Contracts Act, or with the Insurance Contracts Act itself. In relation to insurers, it would have the effect of subsuming much of the operation of the doctrines of election, waiver, and estoppel into a broader positive duty not to unreasonably depart from significant representations. No reliance or detriment would be required.
The word “coherent” is not traditional common law language, but was recently interpreted in the Melbourne University Law Review as denoting consistency in the law’s underlying normative reasons (Andrew Fell, ‘Coherence in Australia Private Law’ (2018) 41 Melbourne University Law Review 1160 at 1163-4 and 1185). The majority’s reasoning appears to be that the insured cannot succeed in establishing a breach of the duty of utmost good faith if it has already failed on the well established legal doctrines of election, waiver and estoppel. Accordingly, the lack of detrimental reliance which the majority treated as fatal to the estoppel case, was also treated as ipso facto fatal to the claim based on utmost good faith. The majority of the High Court did not identify any principle of statutory construction which would produce that result.
It is worth dwelling on the question of statutory construction, not least because the majority at [103] insisted that the application of the duty of utmost good faith must be “coherent” with the Insurance Contracts Act itself. It is certainly hard to resist the proposition that the various elements of the Insurance Contracts Act should be construed harmoniously, which raises the question as to how well the insistence on s 13 being coherent with existing legal doctrines measures up to that standard. As an exercise of statutory construction, the High Court majority’s reasoning is most surprising. Section 12 of the Insurance Contracts Act introduces Part II, dealing with the duty of utmost good faith, and begins by saying that the effect of Part II “is not limited or restricted in any way by any other law”. The paramountcy thus conferred on the principle of utmost good faith might be thought to have presented an insuperable obstacle to the proposition that the requirement of detrimental reliance in establishing an estoppel is also a necessary element in the concept of utmost good faith in comparable circumstances of a party reneging on a representation or promise. Section 13(1) then implies a provision requiring each party to the contract of insurance to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith, without any indication that such a requirement is limited by other legal doctrines. Section 14(1) then provides that if reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. As far as I am aware, it was an established principle in 1984, and remains so to the present day, that parties to a contract are generally entitled to rely on its provisions. Plainly, however, ss 12, 13 and 14(1) contemplate that utmost good faith may demand of a party a standard of conduct which is inconsistent with that established legal principle. In this context, it is difficult to understand how the content of existing legal doctrines can be “fatal” to an interpretation of the duty of utmost good faith.
Some of the consequences of this insistence on “coherence” with established legal doctrines can now be teased out. In circumstances where the allegation of a breach of utmost good faith is based on the insurer seeking to resile from a previous representation or promise, the allegation will fail if the insured cannot establish detrimental reliance on that representation or promise. That follows directly from the majority’s reasoning at [103]. That consequence stands in stark contrast to the dissenting reasoning of Gageler J at [178], which pointed to Allianz having accepted that the requirement of utmost good faith necessitated that it make and communicate to the insured in a timely manner a decision as to whether or not it would accept or reject the claim, which is what Allianz did when it unequivocally announced to the insured that it would not be relying on its statutory right to reduce its liability in respect of the claim for non-disclosure, with full knowledge of the facts giving rise to that right. Gageler J said that whether or not that fully informed and unequivocally communicated choice constituted a legally operative waiver, the requirement of utmost good faith entailed that the insurer was from then on bound to adhere to the position it had announced, and the insurer was not entitled to go back on its word. As Gageler J expressed the matter at [176], “an insured is in principle entitled to know where the insured stands in respect of a claim made under an insurance contract”, and “an insurer having made and unequivocally communicated a fully informed choice not to assert a right in answer to a claim should in principle be held to that choice”. Similarly, Allsop CJ at first instance described the insurer’s conduct as “a clear renunciation of a representation, in effect a promise, to confirm cover in accordance with policy terms” upon a threat that the insurer would assert the statutory rights that it had previously said it would not assert: (2020) 379 ALR 117 at [346].
To take a slightly different scenario, let it be assumed that there was in fact detrimental reliance on the representation on its proper construction, but that the representation was not sufficiently clear and unequivocal to support an estoppel. A majority of the High Court confirmed in Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at [35] and [142] that an estoppel requires a clear and unequivocal promise or representation. To adopt the contested phrase from that case, let it be supposed that the insured suffers substantial detrimental reliance upon a statement by the insurer that the insured will be “looked after” when the insurer considers the insured’s claim. Following the reasoning of the High Court in Crown Melbourne, that would not be sufficiently clear and unequivocal to generate an estoppel. According to the High Court majority in Allianz v Delor Vue, the estoppel claim therefore fails, and ipso facto, the claim for breach of the duty of utmost good faith would also fail. That strikes me as a most surprising outcome, which gives the duty of utmost good faith no practical operation beyond what the strict requirements of the doctrine of estoppel would provide for.
The consequences of the High Court majority’s reasoning may be further illustrated by considering the different circumstance where the insurer purports to avoid the contract of insurance for fraudulent non-disclosure under s 28(2) of the Insurance Contracts Act on a particular stated ground. Let it be assumed that the ground of avoidance initially articulated by the insurer was wholly unreasonable, capricious and irrational. However, let it be assumed that by the time of the hearing, the insurer has fortuitously become aware of a different ground for avoidance of the contract which it makes good at the hearing. It is well established that a contracting party may at the point of judicial determination justify the termination of the contract on a ground not asserted at the time of termination, being a proposition for which Shepherd v Felt & Textiles of Australia Limited (1931) 45 CLR 359 is usually cited as the leading authority. That principle applies equally where one party exercises a statutory right of avoidance of the contract: see Brennan J’s reasons in Sibbles v Highfern Pty Ltd (1987) 164 CLR 214 at 231. That scenario, of an initial decision to avoid the policy on a capricious and irrational ground, strikes me as involving a breach of the requirement of utmost good faith, even if that avoidance is ultimately shown to be justified in law on a different ground which is subsequently and fortuitously discovered. However, such a conclusion would not be “coherent” with established legal doctrine, such that the reasoning of the High Court majority in Allianz would appear to point to a different conclusion. That point arose in ASIC v Zurich (No. 2), but I did not need to decide it as ASIC conceded that the material and reasons which Zurich had at the time it decided to avoid the policy in that case provided a reasonable basis for the conclusion that the insured had engaged in fraudulent misrepresentation and non-disclosure.
Before leaving this fourth supposed limit to the requirement of utmost good faith, I note that there was no necessity for the High Court to engage in this unfortunate path of reasoning in order to reach the result which it did. If the High Court wished to say that the particular circumstances did not amount to a lack of utmost good faith, Derrington J’s dissenting judgment in the Full Court at [573]-[600] showed them how to do it. That passage contains 28 paragraphs of detailed reasoning, in which the lack of detrimental reliance is merely a factor in the overall evaluation of the particular circumstances, not a self-sufficient knock-down blow to the argument for a lack of utmost good faith.
Finally, the fifth of the limits on utmost good faith also stems from the reasoning of the High Court majority in Allianz v Delor Vue, namely an insistence on the application of that principle being “coherent with the generally symmetrical operation of the Insurance Contracts Act”: at [104]. With respect, this is very odd language. “Symmetry” refers to an object being divided into parts of an equal shape and size and similar position to the point or line or plane of division, and where there is an exact correspondence in position of the several points or parts of a figure or body with reference to that dividing point, line or plane. Very few contracts or statutes fall within that description. An example might be a very simple and absolutely egalitarian partnership (or joint venture) agreement, or the way in which the Partnership Act operates on such a simple agreement. However, the Insurance Contracts Act is not that kind of statute. The Insurance Contracts Act clearly identifies the particular and separate rights and powers of the insured and the insurer, and those respective entities are not interchangeable. A contract whereby one party promises to indemnify another for loss in exchange for a premium is about as asymmetrical as a contract can be. If the majority intended merely to say that the requirement of utmost good faith is imposed on both parties, then a more appropriate description would have been to say, as Gageler J did at [170], that the duty is “mutual”. But to insist on a “symmetrical” operation of the duty of utmost good faith in the particular circumstances of a given case, because of a perceived symmetry inherent in the Insurance Contracts Act as a whole, is to make the duty unworkable.
The point was developed by the High Court majority in the following way at [104]:
Suppose that, following the occurrence of an insured event, an insured party, carelessly assuming that the damage was minimal, made a representation to their insurer that no claim would be brought under the policy. The factual aspect of that representation – the “state of affairs” – being the present state of mind of the insured party would not be a misrepresentation by the insured within s 24 of the Insurance Contracts Act. But if it were a breach of the duty of utmost good faith for the insured to depart unreasonably from their representation concerning a claim, then the insurer could cancel the contract under s 60(1)(a) if a claim was subsequently brought by the insured.
The conditional expression in that last sentence seems to me to be a very big “if”. While I acknowledge that several decades at the Bar may have left me morally calloused, I cannot see how the correction of an innocent, but careless, mistake by the insured in that regard could amount to a breach by the insured of the duty of utmost good faith. To continue the geometrical metaphor introduced by the notion of “symmetry”, the correction of an innocent but careless mistake strikes me as being on a wholly different moral plane from the conduct of Allianz in that case in reneging on a fully-informed deliberate decision not to rely on the insured’s non-disclosure. But why, one may ask, are we concerned with so-called “symmetry” in the first place? The concept of symmetry in the legal context appears to have been an obsession of the late Professor Birks and should be consigned to the waste paper basket. Fundamental to our system of justice is the imperative of treating like cases alike, not some imperative of treating disparate cases “symmetrically”.
Whether the limits sought to be imposed by the High Court on the duty of utmost good faith can withstand analysis in future cases remains to be seen. As the High Court acknowledged, it is now more than 250 years since Lord Mansfield recognised the duty of utmost good faith in insurance contracts in Carter v Boehm (1766) 97 ER 1162 at 1165. The duty was embodied in the Insurance Contracts Act because it was regarded as having a valuable role to play in dealings between insured and insurer beyond the role played by other established legal principles. However, as Lord Mansfield’s fellow Scot and contemporary, Adam Smith, said in The Theory of Moral Sentiments (Part 7, Section 2, Chapter 2) there is “a propensity … which philosophers in particular are apt to cultivate with peculiar fondness as the great means of displaying their ingenuity, [namely] the propensity to account for all appearances from as few principles as possible”. Lawyers may not be comfortable travelling through the pearly fog of a principle as vague as utmost good faith, but if the fog is burned off, the landscape which is revealed may well prove to be savage and brutal.
