Avtor dr. Zoran Radović je član Programskega in izdajateljskega sveta IZOP – Inštituta za zavarovalništvo in pravo v Mariboru. Deloval je kot predstojnik Instituta za uporedno pravo v Beogradu, kot havarijski komisar in svetovalec večih zavarovalnic. V članku analizira doktrino skrajne dobre vere, sicer predvsem v pomorskem zavarovanju, vendar so njegova razmišljanja uporabna na vseh področjih zavarovalnega prava, pri čemer v članku vključuje tudi konkretne primere iz tuje sodne prakse. Dr. Radović ugotavlja, da je skrajna dobra vera pravna potrditev splošne obveznosti potencialnega zavarovanca, da zavarovalnici posreduje celovite in pravilne informacije. Nadalje meni, da morata biti pridobivanje in obdelava osebnih podatkov zavarovanca zakonsko urejena na način, ki zavarovalnici omogoča ustrezno oceno nevarnosti. Oteževanje uporabe oziroma zbiranja osebnih podatkov bi namreč prispevala k bistvenemu povišanju zavarovalne premije zaradi neustrezne ocene nevarnosti, ki je predmet zavarovanja. Pri tem posebej opozarja na ureditev zbiranja osebnih podatkov na podlagi Splošne uredbe o varstvu podatkov (The General Data Protection Regulation), ki se bo začela neposredno uporabljati 25. maja 2018.
A contract of marine insurance is a contract of utmost good faith (lat. uberrimae fidei). The good faith forbids either party, the insurer and the assured by concealing what they privately know, to draw the other party into a bargain from ignorance believing the contrary. Equity between contracting parties is essential. The first, it is the assured who knows most of the insurer’s requirements and the second, the insurer must trust the assured to give reliable information.
The principle of good faith is the most important principle of the contract of insurance. It was stressed very long ago that good faith represents important significance of insurance. Pursuant to this doctrine contracting parties have to meet their promises always.
The doctrine was confirmed long ago in the judgement of English court (Carter v Boehm, 1766). The court said that insurance contract is based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the assured only: the underwriter trusts to his representative and proceed with confidence that the assured does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as if did not exist. The insurance would be also void against the underwriter if he concealed. Therefore, each party to the contract must act with the utmost good faith in his dealings with other party (Pan Atlantic Insurance Co. Ltd. v Pine Top Insurance Co., 1994). Parties engaged must express conscientiousness.
The doctrine is endorsed in the English Marine Insurance Act, 1906, making it clear that
- The duty of utmost good faith applies to both underwriter and the assured, and
- If the utmost good faith is breached the innocent party may entirely avoid the contract.
In this article it will be mainly dealt with the English marine insurance law in view that the English institute clauses for insurance of sea going vessels and goods are applied worldwide, providing application of the English law and practice.
In the European civil law jurisdictions, the German, French, Dutch and Italian, for example, good faith is emphasized as paramount and statutory duty in contractual reciprocity.
Trust and confidence was also reviewed by William Shakespeare in the Merchant of Venice. But this plot was also reviewed by many insurers, whether the plot would have a different end if the author was engaged in insurance business. In Venice, Atonio and Bassanino approached Shylock a moneylender for a loan. Whether he should exercise confidence when knowing of rats at sea and land, including perils of the sea and pirates. Shylock was not a religious man but he knew that haven cannot exist without hell and capitalism without bankruptcy.
- MARINE INSURANCE ACT, 1906.
The object of the Act was to reproduce as exactly as possible the existing law without any attempt to amend it. In all commercial transactions of great importance is certainty. Where the rule is certain, the parties know when to stipulate and what to stipulate for (Sailing Ship Blaimore v Macrede, 1898). It is cheaper to legislate than to litigate.
Most of the MIA provisions are not of obligatory nature. In order to secure true nature of marine insurance contract that it is the contract of indemnity. It provides
a) Every contract of marine insurance by way of gaming or wagering is void
b) A contract of marine insurance is deemed to be void
- Where the assured has no an insurable interest and the contract is entered with no expectation of acquiring such an interest; or
- Where the policy is made “interest or no interest” or “without further proof of interest in the policy itself”, or subject to any other like terms.
It should be therefore understood that if any person effects a contract of marine insurance without having any bona fide interest, the contract shall be deemed to be a contract by way of gaming.
The Yugoslav law of marine and inland navigation which included provisions for marine insurance of seagoing vessels and goods, accepted to great extent provisions of the English Marine Insurance Act. Majority of its provisions also are not of obligatory nature. In order to secure that the contract of insurance is the contract of indemnity, the law provided
- The assured could recover from the insurer only if he had material interest in the subject matter insured
- When submitting the claim to the insurer the assured is under duty to inform him about his other contracts of insurance when the subject matter was insured against the same risks at the same time on his behalf
- That the total loss of the subject matter insured included cases when the subject matter did not exist any longer as such (i.e. when the sunken vessel cannot be recovered).
This law was endorsed by counties that came into existence after the former Jugoslavija was dissolved.
Many issues of MIA were subject to court disputes.
- Who is the insurer who is entitled to avoid the contract of insurance due to failure of the assured to make necessary disclosure of every material circumstance.The act provides that every circumstance is material is material which would influence the judgement of a prudent insurer in fixing the premium or determine whether he will take the risk at all. It was relevant that a material circumstance is the one which had decisive influence on the insurer to enter the contact of insurance. It is upon the insurer to prove he was influenced by non-disclosure of the assured. Whether the prudent insurer is also the actual insurer in particular case? There is a tendency that prudent insurer shall be the one who acted in particular case (Bergen v Rollock, 1973). American courts often considered whether the insurer had exercised good faith. The insurer is obliged to act pursuant to the doctrine of good faith. He is not entitled to invoke this doctrine if he himself failed to act accordingly (The Star Sea, 2011). The insurer should act always as diligent professional. Bad faith is a fluid concept. Bad faith include undue delay in handling claims and inadequate interpretation of an insurance policy.
- Who is the assured who is under duty to disclose to the insurer every material circumstance known to him
The English law does not distinguish the assured from the party entering the contract of insurance. Whether the assured has to disclose to the insurer every circumstance material to the insurer depends whether the assured will pass the test of the reasonable assured (Reynolds v Phenix Assurance Co., 1978).
There is no presumption that the assured is “innocent” (Axis Surplus Inc. Co. v Reynolds, 2012). Innocent party is entitled to rescind the contract (Morisson v United Marine Insurance Co. Ltd. 1873). Because the doctrine of good faith was not observed by other contracting party, innocent party is not entitled to recover damages but only of return of premium paid (Banque Financiere la cite v Westgate Insurance, 1990).
What degree of behavior the assured should exercise enabling the court to ascertain whether he was negligent. The court said that whether the assured was negligent should be determined whether the assured behavior was reasonable (Sealion Shipping Ltd. & Anol v Valiant Insurance Co., 2012).
But good faith is presumed unless overruled. In this respect we should not distinguish legal and moral standards. But bad faith does not make the insurance contract void, only voidable ab initio at the option of the aggravated party. Concealment very nearly is allied to allergio falsi and avoids the contract ab initio upon the principle of natural justice.
Particular damaging to the assured are promissory warranties (MIA) where the assured undertakes that some condition shall be fulfilled or whereby he confirms or negatives the existence of particular state of facts. The assured must comply with the given warranty whether it is material or not to the risk. If the assured fails to comply with the given warranty the insurer is discharged from liability as from the date of the breach of warranty. Examples. a) The ship is warranted to sail from L. with fifty hands on board. She sails with crew of forty-six only. The insurer is not liable because of breach of warranty (Baines v Holland, 1855). b) A policy on ship: warranted German flag, ownership and management. In fact she was owned by Panamenian corporation. The ship was struck my missile in war between Iraq and Iran. Held, the insurers were not liable for damages because of breach of warranty. It is difficult to reconcile the doctrine of good faith harsh consequences of breach of express warranties. To take as examples:
- The warehouse owner warrants that in his warehouse equipment against fire was installed. No equipment was installed. The warehouse was burnt. Insurers were not responsible because of breach of warranty.
- The warehouse owner warrants that in his warehouse equipment against fire was installed. No equipment was installed. The warehouse was robbed. Insurers were not responsible because of breach of warranty.
A clear distinction must be drawn between representations and warranties in marine insurance. While a representation need to be only substantially true, and misrepresentation to render the contract voidable, must be material to the risk, a warranty must be literally (exactly) complied with, whether material or not.
Law, as many laws of European countries do not recognize the warranty as the institute.
- IMPACT OF EUROPEAN UNION REGULATIONS
For very long time insurers alone were regulating the insurance market. Society did not intervene. Enacted law (MIA) allowed to insurers free hand to impose to the assured general terms and conditions which should be accepted and never negotiated. By accepting the Institute insurance clauses the assured warrants that the vessel has the proper classification, that the vessel is seaworthy at the beginning of voyage (insuring voyage charterer), that the vessel will not be engaged in salvage operations, etc.
This situation was changed by intervention of the European Union which was engaged to protect consumers and personal data of their citizens.
a) Consumer protection
The Consumer insurance (disclosure and representation) Act was introduced in 2013. A consumer contract of insurance is defined as a contract entered into by the individual wholly or mainly for purpose unrelated to individual’s trade, business or profession. The judgment Pan Atlantic Co.Ltd. v Pine Top Insurance Co. Ltd., 1995, saying “every circumstance is material which would influence the judgement of a prudent insurer…” is not any longer valid. The Act abolishes duty of consumers to volunteer material facts. But the consumer is still under duty to take reasonable care not make misrepresentation to the insurer. In general non-disclosure is only relevant if a specific question was asked in the proposal form. Whether or not a consumer has taken a reasonable care not to make misrepresentation is to be determined in the light of relevant circumstance. Sometimes found in proposal forms which request the assured to provide factual information about the risk the clause will state that information provided will form the “basis of the contract” of insurance so that if any false statements appear on the form, whether deliberate or not, the insurer may avoid the policy. Such clauses are enforced as warranties and one was upheld in 2013 by the Court of Appeal in Genesis Housing Association Ltd. v Liberty Syndicate Management Ltd.
An insurer has a remedy against the consumer for a misrepresentation made by the consumer before the contract was entered into, if the insurer shows that without misrepresentation the insurer would not have entered into the contract at all, or would have done so by different terms.
The court,’ ruling of the Court of Appel (Lambert v ABCD Insurance) in 1975 is not any longer valid as precedent. Mrs. Lambert has insured her family ornaments with ABCD Insurance Company. Mr. Lambert had a previous criminal conviction for theft but his wife did not mention on the proposal form. Mrs. Lambert claimed money for her loss. Insurers avoided the policy for failure to disclose the conviction of her husband.
The Act replaces the duty regarding disclosure and representation that contained in the MIA. Disclose must be made in a manner that would be “reasonably clear to a prudent insurer”. The assured is requested to disclose every material circumstance which is known to him or ought to be known to him or alternatively is requested to give to the insurer sufficient information to put a prudent insurer on notice that insurer needs to make further enquires. Such circumstances have to be sufficient to enable the insurer to determine whether to take the risk and if so, on what terms.
The Act obliges the assured not to make misrepresentations. Material representation as to matters of fact are required to be substantially correct and material representations as to matters of expectations or belief must be made in good faith.
To have a remedy for a breach of duty of fair representation the insurer must demonstrate that he would have acted differently if the assured had made a fair representation of the risk:
- If the breach was negligent or reckless, the insurer can avoid the contract and keep the premium paid by the assured
- If the breach was neither deliberate nor reckless, the insurer’s remedy depends on the action he would have taken had the assured had made fair representation.
Application of doctrine of good faith in insurance substantially limited by the EU Commission. It was stressed that consumers are often not aware of risks associated with the purchase of insurance cover. Insurance Mediation Directive (IMD) was renewed by the Insurance Distribution Directive (IDD). The goal of the Commission was to update consumer protection in insurance section by introducing common standards for insurance sales and insurer’s obligations towards the assured have to be increased. The IMD already have improved common consumer protection for insurance products. Great transparency followed.
Requirements that an insurance distributor “always acts honestly, fairly and professionally in accordance with the best interest of the customer” (IDD). “The insurance distributor” means any insurance intermediary or insurance undertaking.
If insurers are not able to analyze information of potential policyholder of car owner (or motorboat), how many years je have been driving and how many accidents he had, the insurer will not be able to elevate risks on an individual bases. EU data protection rules could increase costs of insurance.
b) Processing personal data
The General Data Protection Regulation (Regulation) strives for common data protection in all EU countries. The USA and other non-union countries will be subject to Regulation if undertaking risks for issue policies to individuals or companies based in the EU or monitor individual’s behavior which takes place within the EU. It is important that Regulation does not impede insurer’s ability to undertake risks.
Data processing is at the heart of insurance and is important to secure that insurers can continue to responsibly use data to provide their services. If insurers are not able to analyze information of the potential assured insurance premium will be increased. European insurers (Insurance Europe) have expressed their concern.
For the last couple of centuries courts of law paid particular attention to the doctrine of good faith in insurance disputes. Philosophical aspect of confidence and trust are not the subject of this paper.
Contracts of insurance could be understood as contracts of fear of loss rather than as contracts of utmost good faith. The “faith” for insurer and the assured should be understood that money will be “made good” if any loss or damage insured take place.
Utmost good faith is the legal confirmation of a general obligation of the potential assured to give correct information to the insurer, without which insurance will not be possible.
Deceit and fraud will not be tolerated in any commercial contract. But equity between contracting parties in insurance transactions is essential. First, it is the assured who knows most of the insurer’s requirements, and second, the insurer must trust the assured to give him reliable information. Each contracting party have to exercise good faith.
The doctrine of utmost good faith in the Marine Insurance Act providing that if the doctrine was not observed by the assured, enabling the insurer to avoid the contract because of not disclosing material circumstances by the assured is not any longer acceptable. The right of the insurer to avoid the contract should be limited in the following manner:
- No circumstance should be deemed material unless it could have been considered so by the reasonable insurer
- No innocent disclosure of material circumstance by the assured shall be held against him where he could prove that it was true to the best of his knowledge.
Institution of warranty as regulated by the Marine Insurance Act is not acceptable. Solution by which the insurer may avoid the contract in case the assured was in breach of express warranty given, nevertheless that the damage that occurred by the covered risk was not in any connection with the given warranty should be abolished. It is against the doctrine of utmost good faith.
Processing personal data should be improved in the manner to enable insurers to process and use data in order to assess risks properly. Excluding data to insurers will contribute to the significance increase of insurance premium.
The doctrine of utmost good faith shall remain in force though limited. Good faith, honesty and innocence slipped into legal disclosure.
Zoran D. Radović, PhD
 E.R.H. Ivamy, Chalmers’ Marine Insurance Act 1906.,London, p.24.
njegovo pravno dejstvo, s nariočitim osvrtom na obavezna osiguranja, Beograd, 1960., sr. 174.
 N.G. Hudson and J.C. Allen, The Institute Clauses Handbook, London, 1986, p. 3.
 T.S. Midgley, Good Faith
http://www.angelfire.com/journal/amma/godfaithbasic/html , 02.09.2010.
 E.R.H.Ivamy, Marine Insurance, London, 1969., p.13.
 Veljko Tomašić, Ugovor o plovidbenom osiguranju, Beograd, 1990., p. 11-12.
 Drago Pavić, Pomorsko osiguranje, Split, 2011., str. 100.
 Victor Dover, A hadbook to marine insurance, London, 1970, p. 350
 Ivamy, p. 51.h
 Dover, p. 376.
 James Deacon and David Hartzoll. The Consumer insurance (disclossure and representation) Act, 2013.
 Callum Brodie, Out with the old, in with the new, Post magazine, London, 22.11.2012.
 Ben Browhme, http://www.thomascooperlaw.com/insurance-act-2015-2/ , 31.05.2015.
 The UK Insurance Act, 2015
 Clifford Chance Briefing note, June, 22.02.2016.
 Press release,
 Allan D. Meneghetti, powered by Lehxology,
 William Vidonja, Insurance Europe, 06.12.2016.
 Data Protection Tegulation 95/46/EC
 Raluce Borroian-Omuca
 William Vidonja
Prikazna slika: Freepik