Insurance is a contract between Insured and Insurer. In contract law,
the implied covenant of good faith and fair dealing is a general presumption
that the parties to a contract will deal with each other honestly, fairly, and
in good faith, so as to not destroy the right of the other party or parties to
receive the benefits of the contract.
Insurance contracts are special –
they are bound by ‘Uberrimae fidei’ (a Latin phrase meaning "utmost good
faith") - the legal doctrine which
governs insurance contracts. This means that all parties to an insurance
contract must deal in good faith, making a full declaration of all material
facts in the insurance proposal. It is
not simply good faith but more – a
higher duty is expected from parties to an insurance contract than from
parties to most other contracts in order to ensure the disclosure of all
material facts so that the contract may accurately reflect the actual risk
being undertaken.
Even as Tamilnadu gears for the new incumbent at Fort St. George,
democracy in Indonesia suffered a major setback, when the outgoing Parliament
passed a last-minute law eliminating direct elections for mayors, district
chiefs and governors. The measure was pushed through around 2 a.m. Friday by
the Gerindra party, whose candidate for president, the former army general
Prabowo Subianto, was defeated in a bitterly contested election in July. The
winner, Joko Widodo, rose to prominence as a popular reformist mayor and
governor. Analysts said the law would further polarize an already politically
divided country in a bruising election year, and represented a direct challenge
to Mr. Widodo by the country’s political elite.
This is no political post – something on a Fort - connected to Insurance. Fort Marlborough built between 1713-1719 is an English fort located in Bengkulu City, Sumatra. It was built by the East India Company under the
leadership of Governor Joseph Collett as a defensive fort for the British
Bencoolen. It was considered to be one of the strongest British forts in the
eastern region, second only to Fort St. George in Madras. It is stated that the earthquake that registered 7.3 on the Richter
scale had no effect on the strongly-built fort.
The fort was built on an artificial hill and construction, using both
convict and local labour. The trading post was never profitable for the
British, being hampered by a location which Europeans found unpleasant, and by
an inability to find sufficient pepper to buy. The British transferred Bengkulu, then known
as Bencoolen, to Dutch control under the Anglo-Dutch Treaty of 1824, which
defined British and Dutch spheres of influence. The Japanese occupied the fort during their
occupation of the Dutch East Indies (1942-1945). When the Dutch left Indonesia
in 1950, the Indonesian Army took over the fort. In 1977, the fort was handed
over to the Department of Education and Culture to be restored and converted
into a heritage site.
Photo credit : tripadvisor.com
The principle of ‘Utmost Goodfaith’ was enunciated by Lord Mansfield in the leading and often
quoted case of Carter v Boehm (1766) - .. The special facts, upon which the contingent chance is to be computed,
lie most commonly in the knowledge of the insured only: the underwriter trusts
to his representation, and proceeds upon confidence that he does not keep back
any circumstances in his knowledge, to mislead the under-writer into a belief
that the circumstance does not exist... Good faith forbids either party by
concealing what he privately knows, to draw the other into a bargain from his
ignorance of that fact, and his believing the contrary.
Mr Carter was the Governor of Fort Marlborough, built by
the British East India Company in the island of Sumatra. He took out an
insurance policy with Mr Boehm against the fort being taken by a foreign enemy.
A witness called Captain Tryon testified that Mr Carter knew the fort was built
to resist attacks from natives but not European enemies, and the French were
likely to attack. The French did attack, a claim was preferred - Mr Boehm
refused to fulfill the insurance claim. Mr Carter sued, protesting the
non-consideration of the claim.
In the case famously known as
Carter v Boehm - Lord Mansfield
held that Mr Carter as the proposer owed a duty of utmost good faith (uberrimae
fidei) to the insurer under which he was required to disclose all facts
material to the risk. Lord Mansfield held that the duty was reciprocal and that
if an insurer withheld material facts, (the example cited being that an insured
vessel had already arrived safely), the policyholder could declare the policy
void and recover the premium. Lord Mansfield proceeded to qualify the duty of
disclosure, commenting, ….“ either party
may be innocently silent, as to grounds open to both, to exercise their
judgment upon....An underwriter cannot insist that the policy is void, because
the insured did not tell him what he actually knew...The insured need not
mention what the underwriter ought to know; what he takes upon himself the
knowledge of; or what he waives being informed of. The underwriter needs not be
told what lessens the risque agreed and understood to be run by the express
terms of the policy. He needs not to be told general topics of speculation ”
Lord Mansfield found in favour of the policyholder on the grounds that
the insurer knew or ought to have known that the risk existed as the political
situation was public knowledge and, there was not a word said to him, of the
affairs of India, or the state of the war there, or the condition of Fort
Marlborough. If he thought that omission an objection at the time, he ought not
to have signed the policy with a secret reserve in his own mind to make it void.
Going by the case and the judgment of Lord Mansfield - non-disclosure in the insurance context in the
early years was referred to as a ‘concealment’, and the doctrine was sometimes viewed
and explained as constructive fraud and later, non-disclosure in a substantial proportion of cases was
treated to be the result of an innocent mistake.
With regards – S. Sampathkumar
29th Sept. 2o14.
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