Utmost Faith

A degree of comparison that won't die.

In 1985 the Appellate Division of the Supreme Court, at the time the highest court in the land, killed off the concept of insurance contracts as being contracts of the utmost good faith. It is not clear then why the hyperbolic superlative "utmost" still resurfaces from time to time when good faith and contracts of insurance are spoken about.

The concept of utmost good faith in insurance contracts seems to arise from a lop-sided reading of the English judgment of Carter v Boehm. The House of Lords has subsequently made it clear that the concept is not derived from civil law and has been regarded as unnecessary in civilian systems.

It is not necessary to go into degrees of good faith. One may act in less than good faith but not more. One may be honest, but you cannot be more honest than honest. One may be less than honest.

Our then Appellate Division in the 1985 judgment of Mutual and Federal Insurance Co ltd. v Oudsthoorn Municipality roundly and comprehensively rejected the concept of utmost good faith in South African law. No Roman -Dutch authority was found for such a concept. The expression, the court said is " alien, vague ...useless...without any particular meaning in law." There is no magic in the expression and no degrees of good faith. The court said it is " ...entirely inconceivable that there could be a little, more or (utmost) good faith ". And the court said firmly that there is no room in our law for utmost good faith as a third category. Notwithstanding that judgment there have been a few subsequent judgments which have incorrectly used the term. And it is unfortunately resurrected from time to time in the insurance industry.

In insurance contracts both parties to the contract owe each other a duty of good faith, not an exaggerated duty of good faith. It applies to all types of insurance contracts. This is so with all contracts.

The duty of good faith is primarily concerned with pre-contractual negotiations between the parties to the insurance contract and has a direct relationship with the duty of disclosure resting on the proposer for insurance. Because the basis for determining the risk and premium are usually within the sole knowledge of the proposer there is the duty to provide complete and accurate information of the facts likely to influence the decision of the insurer in writing the insurance and on what terms.

The duty of good faith and disclosure obligations also apply at renewal or variation of the contract of insurance because both are in effect the conclusion of a new contract. The duty of disclosure is however not based on bad faith. It may be breached with the best intentions. So even if the proposer acted in good faith that is not an excuse for a material non- disclosure. An insurer which avoids a policy for material non-disclosure need not prove bad faith on the part of the proposer. Good faith is used for determining what should be, or have been, disclosed.

Utmost good faith is long dead, long live good faith!

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Donald Dinnie
Group CEO
Natmed Medical Defence (Pty) Ltd
First published April 2018