Good Faith in Commercial Law: Insurance Contracts in

Bangladesh

Prepared for

Barrister Ishtiaque Ahmed

Lecturer

Department of Management

North South University

Prepared by

Fariha Shafi – 112 0217 030

Kashfia Kamal – 112 0096 030

Rejwana Hoque- 103 0033 530

Course

Law 200, Section: 4

Date of Submission

December 09, 2014

ACKNOWLEDGEMENT

In order to complete our research paper we had to encounter many hurdles that inevitably

made us dubious of finishing it on time. However, in the end we were able to complete this

research paper due to the presence and support of a lot of people around us. We would like to

take this opportunity to express our profound gratitude and deep regards to our faculty

Barrister Ishtiaque Ahmed for his exemplary guidance, monitoring and constant

encouragement throughout the course of this research paper. We would also like to thank the

North South University Library authorities for their assistance and cooperation that helped us

to acquire the necessary secondary data for our research paper. We are also very grateful to

all the twenty respondents to our survey for their time.

ABSTRACT

In recent years the popularity of good faith in insurance policies has grown rapidly with many

companies across the world providing this service. Consequently English law has to be

applied in good faith taken in all the country. However, in many aspects of good faith

principles of European commercial law contradict English insurance law. This thesis aims to

discover how they contradict and recommend how the insurance policies can be applied in

Bangladesh without breaking good faith principles.

INTRODUCTION

Since Carter v Boehm in 1766, insurance has been understood as a contract uberrimae fidei;

that is, each party carries a duty to act in the utmost good faith toward the other. The duty

recognizes the special nature of the insurance relationship, which at different stages places

one party in a vulnerable position, and the other in a position of power. The duty of utmost

good faith is intended to even the playing field at these stages.

The claims process demonstrates the inherent power imbalances in the insurance relationship.

The insured is likely to be economically and emotionally vulnerable, and relies upon the

insurer to assess its claim in a fair and reasonable manner. Conversely, the insurer has

significant discretion in its assessment of claims, and financial incentives to limit its liability

to the insured. The claims process, then, is a classic example of a situation where the duty of

utmost good faith could intervene. Therefore, this dissertation asks what such a duty would

require of insurers during claims-handling, and whether it should be enforceable by the

insured. It is largely concerned with first-party insurance arrangements, rather than liability

insurance.

"Good faith" in the case of a merchant means honesty in fact and the observance of

reasonable commercial standards of fair dealing. Good faith and English law historically, the

English courts have tended to be hostile to the concept of good faith. However, a duty of

good faith has long been implied into contracts of partnership, agency and other agreements

involving fiduciary obligations. More recently, the English courts have shown themselves

willing to give effect to express obligations to act in good faith in a wider range of

commercial contracts. In some instances, they may even be prepared to imply such a duty.

For example, in Yam Seng v International Trade Corporation (2013), the judge suggested

that, in some cases, a duty of good faith might need to be implied into other commercial

contracts, such as franchise, joint venture and long term distribution agreements where “a

high degree of communication and co-operation” is required to make the relationship work.

WHAT DOES GOOD FAITH MEAN?

There is as yet no widely accepted definition of good faith in a contractual context, although

the courts have often emphasized honesty and fair dealing and, in several cases, fidelity to the

parties‟ bargain. Its meaning and effect are therefore likely to vary considerably depending on

the context.

In practice, good faith has generally had less of an impact where the contract clearly sets out

the terms of the bargain struck between the parties.

In Gold Group v BDW (2010), which concerned a property development agreement, the

court rejected arguments that an express obligation to act in good faith required the owner of

the land to adjust the financial terms in the light of a significant fall in property prices. The

judge noted that good faith "does not require a party to give up a freely negotiated advantage

clearly embedded in the contract." However, where contracts are less clearly drafted and/or

there is evidence of dishonesty or unfair dealing, good faith may have a more significant

impact.

To make it work effectively, the judge considered that a broad duty to act in good faith

needed to be implied. By knowingly providing misleading information, the supplier had

breached the good faith obligation, entitling the attempt to define good faith.

In CPC v Qatari Diar (2010), the court concluded that an obligation in a property joint

venture to act in “utmost good faith” did not require one party to subordinate its interests to

those of the other party, but was likely to require it to:

•avoid cynical resort to the black letter of the law;

•observe reasonable commercial standards of fair dealing;

•be faithful to the agreed purpose of the agreement; and

•act consistently with the justified expectations of the other party.

For the good faith in commercial contracts

•The courts will generally enforce an express obligation to act in good faith – but the impact

of such a term will vary, depending on context.

•Inserting a good faith obligation can be useful – but the courts are reluctant to give it a wide

meaning unless it is clear that this is what the parties intended (and it is always better to spell

out what the other party has to do rather than rely on good faith).

•Specifically excluding good faith altogether is not advisable because it arguably seeks to

exclude any duty to act honestly.

•If you want to minimize the impact of any implied good faith obligation, make sure the

contract is sufficiently detailed, so that there is no need for the courts to imply such a duty in

order to "fill in the gaps."

DUTY OF UTMOST GOOD FAITH

The unique treatment of insurance policies is justified by the special and dynamic nature of

the relationship. Each party, at different stages, may be placed in a position of vulnerability to

the other, and depends on that other to exercise its discretion in a proper manner. Insurers

must decide whether to accept another person‟s personal risk, and on what premium, with

little knowledge of that particular risk. It relies upon the insured to disclose pertinent

information at this stage, and to not misrepresent claims later on. If that loss occurs, the

insured also depends on the insurer to evaluate the claim fairly. Because of this, the law does

not see the parties as operating at arms‟ length from each other as in other contracts. The law

must rectify power imbalances produced by the relationship, and promote the reasonable

expectations of customers. At the same time, it must preserve the insurance industry‟s

viability: the costs of doing business must be reasonable and insurers must be able to know

where they stand before acting. Mutual obligations of the utmost good faith seek to balance

these interests and reduce the parties‟ vulnerability.

Insurance is one of a small number of contracts based upon the principle of utmost good

faith. Section 17 of the Marine Insurance Act 1906 states this principle and goes on to

provide that if the utmost good faith be not observed by either party, the contract may be

avoided by the other party. It thus appears indirectly to impose on the parties a duty to act in

good faith in their mutual dealings. The principle governs all contracts of insurance and

reinsurance, and it applies both before a contract is concluded (the pre-formation period) and

during the performance of the contract (the post-formation period). In the pre-formation

period the principle of utmost good faith creates well-established duties owed by the assured

and by his agent affecting the insurance to disclose material facts and to refrain from making

untrue statements when negotiating the contract. The law is summarized in ss.18–20 of the

1906 Act, which again apply to all classes of insurance.

The Insured’s Duties of Utmost Good Faith

“Insurance is a contract upon speculation”. With those words in Carter v Boehm, a pre-

contractual duty of good faith was created to respond to a perceived imbalance between the

bargaining parties. The prospective insured is uniquely placed to know of matters which

affect the nature, scope and probability of the risk to be transferred. In contrast, the insurer is

largely ignorant of such matters and must rely on the insured‟s disclosures when deciding

whether to accept the risk and on what premium.

This vulnerability necessitates a requirement for positive disclosures by the prospective

insured. Therefore, an absence of misrepresentation is insufficient; an insured must volunteer

all past or present facts within his or her personal knowledge, which materially change the

relevant risk. It is inconsequential that the insurer did not specifically seek the information,

although specific questions may modify or waive the duty. Further, the materiality of non-

disclosures and misrepresentations is judged from the perspective of a prudent insurer, not the

(reasonable) insured. Breach can therefore occur innocently. So, this rule sees the duty of

utmost good faith requiring much more than honesty, and perhaps more than reasonableness

as well. It allows an insurer to avoid policies where a misrepresentation or nondisclosure

induced its entry into the policy or influenced its terms.

The duty of good faith also responds to information imbalances when an insured claims

against the policy, but applies less harshly. It is essentially an obligation of honesty, and is

only breached where the insured party dishonestly omits or misrepresents material

information. Breach will allow the insurer to deny the claim.

The differing requirements at these stages reflect the change in the insurer‟s vulnerability.

The information imbalance is reduced at the claims stage because insurers can investigate

particular losses more thoroughly than particular risks. Because of this, it is unnecessary to

impose such an onerous duty when an insured makes a claim. It is sufficient that wrongful

recovery in cases of fraud is prevented. This demonstrates that the duty‟s requirements are

very much context-dependent and must change as the insurance relationship does.

The Insurer’s Present and Potential Duties of Utmost Good Faith

Whilst it is accepted that insurers owe good faith obligations, they apply to insurers with less

certainty. The essential question here is whether this apparently mutual duty, which applies

so harshly in relation to the insured, can be employed to protect a vulnerable insured as the

balance of power in the relationship changes. There is also anecdotal evidence of insurers

treating policy-holders unfairly and offering far less than the true value of their claims. In

some of these instances, policy-holders have felt forced into accepting such offers because of

financial need. Whilst these cases may not necessarily constitute bad faith, they demonstrate

the inherent power imbalances in the insurance relationship and the insured‟s dependence on

the insurer.

In light of the insurer‟s financial incentives to act in bad faith, market forces are an

insufficient check on this power imbalance. It would require time and many well-publicized

incidents of bad faith to produce a sufficiently poor reputation among potential customers to

affect an insurer‟s profitability. So, another check is required to ensure that insurers are

accountable.

The insurer‟s good faith obligations could address this power imbalance and protect the

insured in the claims process. However, the ability to enforce a claims-handling duty in

Bangladesh remains uncertain. Because of this under-development, this report will examine

what the “utmost good faith” requires in other jurisdictions before proposing an appropriate

duty for Bangladesh.

Limitations on the Obligation of Good Faith

Scholarship addressed to the good faith provisions' of the Uniform Commercial Code

primarily discusses the intractable difficulty of defining the scope of the obligation to

perform and enforce one's contract in good faith.

Many scholars advocate an expansive interpretation of good faith, currently defined in the

Code as "honesty in fact in the conduct or transaction concerned. One writer proposes that

good faith be defined to require commercial actors to forbear from declaring technical

breaches. Another proposes that good faith requires disclosure of advantageous information

withheld to attain a superior bargain rather than to deceive or cheat.

At least one court has adopted an expansive interpretation of good faith to prevent

commercial actors from taking advantage of changed circumstances that adversely affect

other contracting parties.

Another court has been asked to rule that a seller's denial of a buyer's request for modification

of a contract constitutes bad faith conduct. In these instances the obligation becomes less of a

duty not to create undue risks to others and more of a duty to assist others confronted with

risks not created by the obligor. An expansive good faith obligation is appealing. It suggests

that commercial law be guided by ethical considerations such as promise keeping,

benevolence, and equality of interested parties in addition to traditional prohibitions of fraud

or deceit.

Moreover, the phrase "good faith" connotes altruism and creative remedies against

selfishness or egotism. Nevertheless, this article questions the propriety of an expansive

interpretation of the good faith obligation. The article concludes that, notwithstanding a

drafting history that partially supports the use of a good faith obligation to transform altruistic

behavior into a legal duty, and subsequent scholarly development of that interpretation, courts

justifiably have restricted the scope of the obligation.

This conclusion is predicated on arguments that an expansive obligation ex-tends the

responsibilities of commercial actors beyond bargained-for risk allocations, subjects bargains

to inconsistent and uncertain enforcement, and does not produce offsetting benefits in

commercial conduct. Implicit in these conclusions is the belief that the nebulous scope of

good faith may be clarified by focusing on the availability of an appropriate remedy within

each proffered definition. To define an obligation in terms of the remedies available for its

violation may appear to go about the rights-remedies process backwards. Once a right is

determined to exist, one may argue, judicial latitude must be permitted in order to structure a

remedy appropriate to the situation.

The Code, however, is a tool for businessmen and their attorneys to predict the legal

consequences of voluntary transactions. Realization of that goal requires precision of

definition and certainty of the effects of performance and nonperformance. Perhaps

predictability sometimes can be achieved by relatively vague standards." Nevertheless,

vagueness of the good faith language raises suspicions about the scope and force of the

obligation. Investigation into potential remedies may reveal whether the consequences of

violating the good faith obligation are sufficiently clear to state that the obligation provides

the predictability promised by the Code. The existence of a certain remedy for a violation of a

statutory obligation of good faith takes on additional significance in light of Professor

Powell's observation that the success of such a provision depends on its independent force.

He explains the degree of vitality of similar provisions in European legal systems as a

function of the remedies provided for their violation.

Responding nearly a decade ago to Powell's work, Professors Kessler and Gilmore were

uncertain whether the good faith obligation would become a substantial, enforceable

requirement of commercial behavior or little more than statutory surplus age.

The conclusions of this article suggest that, thus far, courts largely have resisted the entreaties

of commentators to invigorate the good faith obligation. The question is whether that

outcome is desirable or inevitable.

What should the Utmost Good Faith require?

So far, no Bangladesh cases have necessitated a definitive statement of a claims-handling

duty of good faith. Insured‟s have argued that insurers have breached their good faith

obligations by delaying claims and engaging in poor quality decision-making processes

involving elements of pre-determination. It has also been argued that an insurer acted in bad

faith in identifying the nature and cause of damage, and the extent of consequential losses. As

in Australia and Canada, the duty of utmost good faith should be applicable in all of these

instances. This is because insurers have significant discretion throughout the process,

especially when investigating claims. So, the duty of utmost good faith should have a broad

role across all stages of claims-handling, including the investigation, assessment and

settlement of claims.

The content of this obligation could be conceptualized in two ways. The first view is that the

duty should entail broad and flexible requirements of reasonableness and fairness. This is the

prevailing law in Australia and Canada, and the duty has not required an unreasonably high

standard of conduct from insurers in those jurisdictions. The Law Commission for England

and Wales and the Scottish Law Commission have advocated a similar duty, and this view is

also supported by obiter statements in Bangladesh. In State Insurance Ltd v Cedenco Foods

Ltd, Salmon J in the High Court favored a wide duty requiring fairness, reasonableness,

decency and fair dealing. In the Court of Appeal, the main judgment did not consider the

duty‟s content, but Thomas J “assumed” it would require insurers to act conscientiously,

fairly and reasonably.

This standard reflects the spirit of the concept of utmost good faith and could capture a wide

range of blameworthy conduct. It would also have useful similarity to the duties of liability

insurers. The standard is flexible but in light of the Canadian and Australian law, insurers

could be required to:

(i) Investigate claims fairly and reasonably quickly;

(ii) Assess claims fairly, objectively and even-handedly, with consideration of all relevant

circumstances but no irrelevant matters;

(iii) Decide whether to accept the claim within a reasonable time, and only deny claims on

reasonable grounds;

(iv) Reach settlements fairly, without taking advantage of the insurer‟s economic weight or

the insured‟s vulnerability; and

(v) Pay valid claims within a reasonable period.

The second view is that good faith should only require honesty. Insurers have advanced this

view in Cedenco Foods and in Pegasus Group Ltd v QBE Insurance (International) Ltd. This

would provide parity in the parties‟ post-formation obligations. However, as the duty of

utmost good faith is only expressed through specific, independent obligations, these duties

need not have the same content.

A touchstone of honesty could provide useful certainty for insurance practice and litigation.

However, the insurer in Pegasus conceded that enough capriciousness or unreasonableness

could conceivably amount to dishonesty. Although Winkelmann J did not decide this point,

this concession was rightly made. The main difference between the two conceptions of good

faith would be the threshold for conduct to be acceptable, with honesty comprising a lower

standard than reasonableness or fairness.

An honesty standard could be too restrictive and difficult to prove. Insurers have monetary

incentives to take advantage of the insured‟s vulnerability, and sufficient discretion and

economic weight to do so. Conversely, the insured party may be economically and

emotionally vulnerable, and relies on the insurer to protect its interests. Because of this, it is

justifiable to expect more of insurers than honesty. A standard of reasonableness and fairness

strikes an appropriate balance between protecting the insured and promoting an efficient

insurance industry. Insurers would be required to consider the insured‟s interests, but they

need not expend excessive costs or time in investigating claims. They must follow due

process in handling claims, but are still free to deny or delay claims on a reasonable basis.

Therefore, the remainder of this paper considers a good faith duty of fairness and

reasonableness in clams-handling.

Duties of Good Faith in Eastern and Western Region

FRANCE

Insurance contracts may be rescinded where there has been misrepresentation by the insured,

in accordance with the general rules provided in the Civil Code. Some specific rules applying

to insurance contracts are provided by the Insurance Code (art. L.113-8 and L.113-9). In

terms of disclosure obligations, the insured is only required to respond to specific questions

regarding the risk that are set out in the underwriting questionnaire; the insured cannot be

sanctioned for having failed to volunteer some information, albeit relevant, that was not

expressly requested by the insurer or for having provided an ambiguous response to a

question that was itself drafted in vague or ambiguous terms. Avoidance of the contract is

only available where the insured/policyholder acted in bad faith, with the knowledge that the

information provided was false or misleading (art. L.113-8 IC). Good faith is always

presumed and the burden of proof lies with the insurer. Where false information deliberately

provided by the insured is discovered in connection with a loss, avoidance is available even if

that false information bears no relation to that loss. The insurer is entitled to keep all the

premiums already collected and claim payment of all further premiums which have fallen due

and payable as damages (except in relation to life insurance).

Third-Party Rights Against Insurers

A third-party “victim” who has suffered damage is entitled to bring a direct action against the

liability insurer of the party liable for that damage (art. L.124-3 IC) by showing that (i) the

insured is liable to compensate his loss and (ii) the damage suffered is covered by the policy.

While the direct action in essence depends on the insurance contract, there are specific rules

applying to how such actions may be both pursued and defended, making it to some extent

“autonomous” from the underlying insurance contract. Thus, the insurer may defend the

direct action by raising all the defenses that it would be entitled to raise against the insured,

except (i) the statutory two-year limitation period applying to the insured‟s action, or (ii) any

forfeiture of the policy based on the insured‟s conduct after the damage occurred.

Criminal fines/penalties

Criminal fines are uninsurable under French law as a matter of public policy (art.6 CC), the

rationale being that passing the burden of criminal sanctions on to an insurer would frustrate

the deterrent purpose of criminal law. This also applies to pecuniary sanctions imposed by

criminal courts in customs or taxation matters.

Civil fines/penalties

It is also generally considered that no insurance coverage may be validly taken out in respect

of “civil” fines, namely pecuniary sanctions imposed by civil courts in the event of violations

of some civil statutes (chiefly rules of civil procedure, for example, failing to give assistance

in establishing the truth in a civil action; the failure of a witness to appear in a civil court;

abuse of civil process; abusing the right to appeal; wrongly challenging a magistrate or a

court-appointed expert; etc.).

ITALY

Under section 1892 of the Civil Code, if the insured willfully or with gross negligence

presents the insurer with incorrect or false declarations, or fails to disclose circumstances

affecting the risk, the insurer is entitled to terminate the insurance contract within three

months from the date the insurer first becomes aware of the false representations or

omissions.

If, before the expiry of this three-month period, the insurer fails to inform the insured in

writing that he intends to terminate the insurance contract, then the insurer‟s rights to

terminate for nondisclosure or misrepresentation will be time-barred.

However, if the event triggering coverage (i.e. the notification of a claim in case of a claims-

made policy) occurs before the insurer gains knowledge of the non-

disclosure/misrepresentation or before the three-month deadline expires, then the insurer is

entitled to decline indemnity, and is not required to terminate the policy.

Third-Party Rights against Insurers

There is no general right afforded to a third party, who has suffered damage as a consequence

of the insured‟s errors or omissions, to pursue any remedy or claim for indemnity against the

insurer.

However, the insurer may decide to compensate the damaged party/claimant directly, and

must do so if required by the insured.

Criminal and administrative fines/penalties

There is a general principle in Italian law that losses arising from criminal and administrative

fines and penalties cannot be validly insured, as this would imply an assignment of the

“punishment” from the party committing the wrong to a third party, the insurer. Any

insurance contract purporting to cover criminal and administrative fines and penalties would

be therefore void and ineffective.

„There is a general principle in Italian law that losses arising from criminal and administrative

fines and penalties cannot be validly insured, as this would imply an assignment of the

“punishment” from the party committing the wrong to a third party, the insurer. Any

insurance contract purporting to cover criminal and administrative fines and penalties would

be therefore void and ineffective‟

This principle has been confirmed by a decision of the Supreme Court of Cassation (though

not binding on lower courts) and by the ISVAP (the Italian Regulatory Authority on

Insurance) guidelines.

Civil fines/penalties

There are no recognized civil fines or punitive damages under Italian law. Losses – including

civil liabilities – resulting from fraudulent/intentional misconduct of the insured cannot be

validly insured under section 1900 of the Civil Code.

SCOTLAND

1. Section 17 of the Marine Insurance Act 1906 imposes duties of good faith on both

parties. Sections 18 to 20 of the 1906 Act are specific examples of that principle in

relation to non-disclosure and misrepresentation, but section 17 also extends more

widely. The duty applies to both the insurer and the policyholder, both before and

after the contract has been formed.

2. This is a general principle. Sections 18 to 20 of the 1906 Act are specific examples of

that principle in relation to non-disclosure and misrepresentation.

3. Section 17 provides only one remedy: avoidance of the contract. This is no

compatible with the proportionate remedies we propose in Part 9. Nor is it compatible

with the remedies for fraudulent claims we proposed in our 2011 Consultation Paper.

4. In the course of our review, we have considered section 17 on several occasions. We

summarize these discussions in Part 10. We think that the duty of good faith is

important as a general interpretative principle but we do not think it should, in itself,

give either a policyholder or an insurer a cause of action. Any remedies which are

required, such as remedies for non-disclosure, misrepresentation or fraudulent claims,

should be specified directly in the legislation.

5. As we discuss below, we think that the duty of good faith is important as a general

interpretative principle but we do not think it should, in itself, give either a

policyholder or an insurer a cause of action. Any remedies which are required, such as

remedies for non-disclosure, misrepresentation or fraudulent claims, should be

specified directly in the legislation.

A Contract of the Utmost Good Faith

1. Section 17 states: A contract of marine insurance is a contract based upon the utmost

good faith, and, if the utmost good faith be not observed by either party, the contract

may be avoided by the other party.

2. Insurance contracts are therefore one of a small number of types of contract that are of

the “utmost good faith”.

3. The most obvious example of the duty of good faith is that the policyholder must

disclose information before entering into the contract. This contrasts with the law

which applies to other (non-insurance) commercial contracts, where a party must not

misrepresent facts, but is under no obligation to disclose facts about which it is not

asked.

4. The principle of good faith is wider than the policyholder‟s duties to provide the

insurer with pre-contract information. First, the duty is said to be reciprocal, applying

to both the policyholder and the insurer. We discussed the insurer‟s duty of good faith

in Issues Paper 6, Damages for Late Payment and the Insurer‟s

5. Secondly, the duty of good faith, unlike the duty to disclose, is not confined to pre-

contract information but also applies throughout the life of the contract. Issues Paper

7, The Insured‟s Post-Contract Duty of Good Faith considered this area of law. We

followed up this discussion in our second Consultation Paper, which focused

specifically on the remedies for fraud

6. For present purposes, however, we concentrate on non-disclosure and

misrepresentation. Although section 17 of the 1906 Act establishes the general

principle, the specific duties are set out in sections 18 to 20. To understand the law on

non-disclosure and misrepresentation, one must look at these three sections:

The Insurer’s duty of good faith

1. In Issues Paper 6 considered the insurer‟s duty of good faith and asked if the law

should be reformed to provide policyholders with a claim for damages against an

insurer who acted in bad faith.3 Many consulates expressed concern about such a

development. They feared that, however limited the right initially, it would soon

develop along the lines of the doctrine of good faith in the United States, with

substantial damages being awarded against insurers

2. In 2011 Consultation Paper we said that section 17 of the 1906 Act should not give

policyholders a right of action against insurers. It should be seen as a “shield rather

than a sword”.5 Thus a policyholder should not be entitled to sue an insurer under

section 17 for damages.

The insured’s duty of good faith

1. We examined the insured‟s post contract duty of good faith in Issues Paper 7.6

The clearest example of the insured‟s lack of good faith is submitting a fraudulent claim.

2. In the 2011 Consultation Paper we argued that policyholders should suffer a penalty

for fraud, but the penalty should not be avoidance of the contract. Instead, we

proposed that the policyholder should forfeit the whole claim to which the fraud

relates, together with any subsequent claim. We also said that in some cases the

insurer should have a right to claim damages for costs actually and reasonably

incurred in investigating the claim.

3. This has implications for section 17 of the 1906 Act. We would need to remove the

statement that “if the utmost good faith be not observed by either party, the contract

may be avoided by the other party”. Instead, specific remedies for fraudulent claims

would need to be written into the legislation.

Proposals for Reform

1. We propose to amend section 17 of the 1906 Act to remove the statement that, if good

faith is not observed, “the contract may be avoided by the other party”. Good faith

would remain as a general interpretative principle but would not, in itself, give rise to

any cause of action.

2. In our 2011 Consultation Paper, we summarized a series of cases in which the courts

have prevented an insurer from exercising an apparent right because the remedy was

not exercised in good faith.10 We intend that the courts should continue to use the

duty of good faith in this way. We do not think, however, that the policyholder should

be entitled to damages from the insurer, or that the insurer should have an additional

remedy against the policyholder, other than those already established in law.

3. Many legal systems recognize the idea of good faith as a way of interpreting legal

obligations. Many, for example, recognize the United Nations Convention on

Contracts for the International Sale of Goods (the Vienna Convention) which states

that: In the interpretation of this Convention, regard is to be had to the observance of

good faith in international trade. In an insurance context, section 17 of the 1906 Act

would operate in a similar way as a useful tool to interpret the terms of a contract and

the obligations of the parties.

4. Finally, we seek views on whether the duty of good faith should be seen as requiring

“utmost good faith” or simply “good faith”.

5. The inclusion of the word “utmost” has been subject to considerable academic

criticism. Professor Howard Bennett has shown that this was a nineteenth century

addition, which was not within Lord Mansfield‟s original formulation. Professor

Lowry has queried whether the duty of good faith should be beyond honesty. He

noted that section 17 does not exactly mirror the law it came to codify which

distinguished between the policyholder‟s “deliberate concealment and

misrepresentation (bad faith) and innocent (good faith) mistaken belief”.

6. Gerald Swaby and Dr Paul Richards view the modern concepts of “good faith” and

“utmost good faith” as interchangeable, both representing a flexible doctrine which

depends on the facts and circumstances of each case.14 According to Lord Justice

Aikens, however, the issue is unclear.15 He cites the confusing history of the phrase

and points to Lord Hobhouse‟s view in The Star Sea, that there is a difference

between “good faith” and “utmost good faith”.

GERMANY

1. The German Insurance Contract Law first introduced in 1908 was comprehensively

reformed in 2007. The reforms address both consumer and business insurance,

although exclude marine insurance and some large risks as defined by the German

Insurance Supervision Code.

2. Prior to the formation of the contract, the insurer is under a duty to inform

policyholders of their rights and obligations and a further duty to continue to provide

information to the insured during the currency of the contract. Special rules apply to

distance selling.

3. The VVG, section 19 modifies the insured‟s duty to disclose in that it only applies to

facts asked for by the insurer. Where the insured is in breach of this duty a range of

consequences follow, depending on the nature of the breach and how the insurer

would have acted had the duty been complied with?

4. If the insured has been grossly negligent the insurer may terminate the contract

immediately, unless the insurer would nevertheless have entered into the contract had

they known the facts, but on different terms. In that case the different terms become

part of the contract with retrospective effect where the insurer requests this. Where

this would have led to an increase in the premium charged in excess of 10%, or if the

insurer refuses to cover the entire risk the insured may terminate the contract.

5. The insured has acted fraudulently the insurer may avoid the contract. Where the

insured has breached the duty of disclosure the insurer is entitled to withdraw from

the contract, but this is subject to the proviso that where the breach has been neither

intentional nor grossly negligent the insurer cannot withdraw, but instead may

terminate the contract on one month‟s notice.

6. The insurer must assert its rights under section 19 of the VVG in writing, and within a

month of learning of the breach by the insured of the duty of disclosure.

7. In 2009, the International Bar Association Legal Practice Division drafted a Report on

the reforms. It concluded that they were generally welcomed by the market “as

providing increased transparency and a fundamental modernization” of the

contractual relationship. On the other hand there was widespread agreement that it

had imposed additional administrative burdens which “will continue to cause

premiums to increase”.

ENGLAND

British Insurance Law developed during the 18th

and 19th

centuries, and was partially codified

in the Marine Insurance Act 1906. Although strictly, the 1906 Act only applied to marine

insurance, the Courts of England and Wales have consistently held that it applies to all forms

of insurance contracts, on the ground that it codifies the common law.

Unlike most contracts, insurance contracts are said to be based on “utmost good faith”. One

aspect of this is that the law imposes a duty on prospective policyholders to disclose all

material facts. This duty is spelled out in section 18 of the 1906 Act, which states “the

assured must disclose to the insurer, before the contract is concluded, every material

circumstance which is known to the assured”.

The term material circumstance is defined as; one which would influence the judgment of a

prudent insurer in fixing the premium, or determining whether he will take on the risk.

In 1994, the House of Lords added as further test, in the case of Pan Atlantic Insurance

Company Limited v Pinetop Insurance Company Limited. The Court held that the insurer

must show that it has been induced to enter the contract; that is if the insurer had known the

truth, it would not have entered into the policy at all, or not on the same terms. In other

words, it would have done something different, either by refusing cover, increasing the

premium or changing the policy terms.

The duty to disclose is subject to some limited exceptions. For example, the policyholder

does not need to disclose facts which diminish the risk, or which are matters of common

knowledge.

When Mrs Lambert claimed £311.00 for lost jewellery, the insurer avoided the policy. The

Court of Appeal held that the insurer was entitled to do so under the strict rules of the Law set

out in the 1906 Act, because Mrs Lambert had failed to provide a material disclosure, which

concerned her husband‟s previous criminal conviction. The Court concluded that the

conviction was a material circumstance, which would have influenced a prudent insurer.

“A rejection of a consumer policyholder‟s claim is unreasonable, except where there is

evidence of fraud, if it is for;

1. Non disclosure of a fact material to the risk which the policy holder could not

reasonably be expected to have disclosed; or

2. Non negligent representation of a fact material to the risk.

AUSTRALIA

„Good faith‟ exactly comprises has developed over time as a result of court

determinations and remains without a closed and precise definition leading to

vagueness as to the exact delimitations of what comprises good faith. A starting

point cited for determining what constitutes „good faith‟ is an article by the Hon

Sir Anthony Mason, a former Chief Justice of the High Court of Australia, who

stated that the duty of good faith probably embraced three related notions:

an obligation on the parties to co-operate in achieving the contractual objects

(loyalty to the promise itself);

Compliance with honest standards of conduct;

Compliance with standards of conduct which are reasonable having regard to the

interests of the parties.

”The third element has been the subject of judicial and academic criticism.

Renard Constructions (ME) Pty Ltd v Minister for Public Works, 9 provides the

basis for the emergence of a line of authority that creates a common law

obligation of good faith in commercial contractual performance and enforcement.

the phrase „good faith‟ takes its content from the particular contract and context

in which it is found”. Case decisions as a result have noted good faith as:

(a) not bad faith such as parties not acting opportunistically or using contract terms for

purposes antithetical to the contract that are calculated to extract value from the other

contracting party

(b) Requiring parties to act honestly

(c) not acting arbitrarily, capriciously, unreasonably or recklessly

(d) not requiring a party to act in the interests of the other party to the contract

(e) not “imposing obligations on the parties that, in effect, inconsistent with the terms”

of the contract;

(f) incorporating reasonableness an being equated with fair dealing

But as noted in the introduction to this paper as yet there is no High Court

guidance on good faith at this point. Predominantly three views are advanced as

the doctrinal basis for good faith in Australia these being:

(a) as a general principle of contract construction

(b) as a term implied as a matter or law;

(c) as a term implied as a matter of fact.

The first of these has been largely an academic discussion that has not found

much favor with the judiciary. The second and third views have received

competing support in bodies of case law over the past 20 years or more resulting

in a variety of outcomes for parties to proceedings. The most common instances

where good faith has been considered by the Courts arise where there is either:

(d) an express term incorporated into the contract23;

(e) where a term is implied into a contract (either as a matter or law or as a matter of

fact);

(f) where legislative intervention stipulates good faith is to apply.

In practice however due to the varying approaches and lack of certainty, the

approach to good faith in commercial contracts, and by default franchising,

remains unclear and adhoc. Confusion continues to exist as to the extent of good

faith, its interaction with unconscious ability, fair dealing and reasonableness,

and more broadly protection of the vulnerable under Australian laws.

CANADA

Canadian courts have not accepted good faith as a general principle that applies

to all contracts .Despite this, good faith has been recognized by the Ontario Law

Reform Commission to be a factor in everyday contractual transactions. It has

also been acknowledged by Canadian courts to be of commercial value to the

business community.

Good Faith in Canadian Insurance Law will give practitioners and insurance

professionals the information they need when dealing with bad faith claims in

insurance law.

Keeping you up to date with the law, this book includes:

Whether there is an implied obligation of good faith in contract

The issues raised by such an obligation

The application of the obligation of good faith to insurance in Canada

A critical analysis and summary of existing law

Detailed suggested approaches to bad faith claims for insurers, insured‟s and

others affected by insurance

What does a good faith obligation apply to, and what does it not

Possible novel applications for a good faith obligation

An important resource for anyone doing insurance-related work.

Practitioners will gain a solid understanding of the principles of the implied

obligation of good faith and get practical guidance on handling cases based on

existing case law and analysis.

Insurance industry professionals and in-house counsel will get a better sense of

the law and more clarity on the limits of their obligations.

Counsel will benefit by understanding how to avoid and respond to bad faith

claims and manage litigation more effectively

Duties of Good Faith in South Asian Region

INDIA

Indemnity

A contract of insurance is a contract of 'indemnity'. It means that the insured, in case of loss

against which the policy has been issued, shall be paid the actual amount of loss not

exceeding the amount of the policy, i.e. he shall be fully indemnified. The object of every

contract of insurance is to place the insured in the same financial position, as nearly as

possible, after the loss, as if the loss has not taken place at all. This is applicable to all types

of insurance except life, personal accident and sickness insurance. A contract of insurance

does not remain a contract of indemnity if a fixed amount is paid by the insurer to the insured

on the happening of the event against, whether he suffers a loss or not. Like, in case of life

insurance, the insurer is liable to pay the sum mentioned in the policy on the death, or expiry

of a certain period.

Insurable interest

It means that the insured must have an actual interest in the subject matter of insurance. A

contract of insurance affected without insurable interest is void. A person is said to have an

insurable interest in the subject matter if he is benefited by its existence and is prejudiced by

its destruction. For example:- a person has insurable interest in the building he owns;

employer can insure the lives of his employees because of his pecuniary interest in them; a

businessman has insurable interest in his stock, plant and machinery, building, etc. So, all

these people have something at stake and all of them have insurable interest. It is the

existence of insurable interest in a contract of insurance which distinguishes it from a mere

wagering agreement.

In case of life insurance, insurable interest must be present at the time when the insurance is

affected. It is not necessary that the assured should have insurable interest at the time of

maturity also. In case of fire insurance, insurable interest must be present both at the time of

insurance and at the time of loss. In case of marine insurance, interest must be present at the

time of loss. It may or may not be present at the time of insurance.

Cause Proximal

The rule of 'causa proxima' means that the cause of the loss must be proximate or immediate

and not remote. If the proximate cause of the loss is a peril insured against, the insured can

recover. When a loss has been brought about by two or more causes, the real or the nearest

cause shall be the causa proxima, although the result could not have happened without the

remote cause. But, if the loss is brought about by any cause attributable to the misconduct of

the insured, the insurer is liable.

Risk

In a contract of insurance the insurer undertakes to protect the insured from a specified loss

and the insurer receives a premium for running the risk of such loss. Thus, risk must attach to

a policy.

Mitigation of loss

In the event of some mishap to the insured property, the insured must take all necessary steps

to mitigate or minimize the losses, just as any prudent person would do in those of loss

attributable to his negligence. But it must be remembered that though the insured is bound to

do his best for his insurer, he is, not bound to do so at the risk of his life.

Subrogation

The doctrine of subrogation is a corollary to the principle of indemnity and applies only to

fire and marine insurances. According to it, when an insured has received full indemnity in

respect of his loss, all rights and remedies which he has against third person, will pass on to

the insurer and will be exercised for his benefit until he(The insurer) recoups the amount he

has paid under the policy. The insurer's right of subrogation arises only when he has paid for

the loss for which he is liable under the policy and this right extends only to the rights and

remedies available to the insured in respect of the thing to which the contract of insurance

relates.

Contribution

When there are two or more insurances on one risk, the principle of contribution comes into

play. The aim of contribution is to distribute the actual amount of loss among the different

insurers who are liable for the same risk under different policies in respect of the same

subject matter. Any one insurer may pay to the insured the full amount of the loss covered by

the policy and then become entitled to contribution from his co-insurers in proportion to the

amount which each has undertaken to pay in case of the loss of the same subject matter. In

other words, the right of contribution arises when:-

There are different policies which relate to the same subject matter.

The policies cover the same peril which caused the loss.

All the policies are in force at the time of the loss.

One of the insurers has paid to the insured more than his share of the loss.

PAKISTAN

The insurance sector in Pakistan, until end of year 2000, was under the regulatory purview of

the Federal Ministry of Commerce, Government of Pakistan. Empirical results show that

during that period, the private sector insurance industry was fragmented and suffered

operational inefficiencies due to lower Paid‐up Capital and Equity requirements, while the

public sector insurance companies enjoyed their privileged status due to captive business.

During the regulatory regime of the former law, the archaic Insurance Act, 1938, the

insurance industry was infested with various issues. Capital adequacy requirements for

general insurance companies were grossly inadequate, registration and supervision fees for

insurers were modest, and the statutory solvency margins were based on outmoded principles.

A new insurance law was introduced in 2000 when the Insurance Act, 1938 was repealed and

replaced with the Insurance Ordinance, 2000. The new law primarily aimed to ensure the

protection of insurance policyholders‟ interest and to promote sound development of the

insurance industry. In the year 2001, the regulatory and supervisory responsibilities of the

insurance sector were shifted from the Ministry of Commerce to the Securities and Exchange

Commission of Pakistan (SECP).

Understanding Insurance

Insurance can be defined in many different ways, from many different points of view. For

example, from an economic viewpoint, insurance is a system for reducing financial risk by

transferring it from a policy owner to an insurer. The social aspect of insurance involves the

collective bearing of losses through contributions by all members of a group to pay for losses

suffered by a few group members. From a business viewpoint, insurance achieves the sharing

of risk by transferring risks from individuals and businesses to financial institutions

specializing in risk. The insurer is not in fact paying for the loss. The insurer writes the claim

check, but is actually transferring funds from individuals who as part of a pool, paid

premiums that created the fund from which the claims are paid. Lastly, from a legal

standpoint, an insurance contract or the policy, transfers a risk, for a premium or

consideration, from one party to another party. The party bearing the risk is known as the

'insurer' or 'assurer' and the party whose risk is covered is known as the 'insured' or 'assured'.

How Insurance Works

Insurance is based on a mechanism called “risk pooling”, or a group sharing of losses. People

exposed to a risk agree to share losses on an equitable basis. They transfer the economic risk

of loss to an insurance company. Insurance collects and pools the premiums of thousands of

people, spreading the risk of losses across the entire pool. By carefully calculating the

probability of losses that will be sustained by the members of the pool, insurance companies

can equitably spread the cost of the losses to all the members. The risk of loss is transferred

from one to many and shared by all people who are insured in the pool. Each person pays a

premium that is measured to be fair to them and to all based on the risk they impose on the

company and the pool.

Insurance Basics

Following are the basic essentials or requirements of insurance, irrespective of the type of

insurance involved.

Principle of Utmost good faith

It is the name of a 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. A material fact is a fact which would influence the

mind of a prudent underwriter in deciding whether to accept a risk for insurance and on what

terms. Thus, the insured must reveal the exact nature and type of the risks that he / she passes

on to the insurer, while at the same time the insurer must make sure that the underlying

contract fits the needs of, and benefits the insured. Where either the Insurer or the Insured

fails to follow the principle of utmost good faith, the insurance contract is deemed null and

void.

Principle of Insurable Interest

The law states that in order for an insurance policy to be valid, the policyholder must have a

sufficient interest in the subject matter of the insurance. Broadly speaking, the doctrine

requires that a policyholder must gain a benefit from the preservation of the subject matter of

the insurance or suffer a disadvantage should it be lost. People who are policyholders but not

the owners of the insured substances, from deliberately causing loss to the substances in order

to claim compensation and deriving undue benefits from insurance business.

Principle of Indemnity

Indemnity is monetary compensation that aims to return the insured to the same financial

position he enjoyed before the loss occurred. Life insurance and personal accident policy are

therefore not contracts of indemnity. A monetary value cannot be easily placed on life and

limb. However, the idea behind indemnity is used for financial underwriting where life

insurance is concerned. As such life insurers limit the amount of coverage you can have,

based on your income.

Principle of Subrogation

Simply stated, the right of subrogation is the right to pursue someone else's claim. If you are

subrogated to someone's claim, it sounds as though you are somehow subordinated to it ‐‐ but

that's not what it means. It means that you may pursue it as though it were your own. It can

arise by the express agreement of the parties, or automatically by operation of law.

Principle of Proximate Cause

Proximate cause is an act from which an Injury or a property loss results as a natural, direct

and uninterrupted consequence and without which the injury or loss would not have occurred.

Proximate cause is the primary cause of an injury or loss. It is not necessarily the closest

cause in time or space, or the first event that sets in motion a sequence of events leading to an

injury or loss. Proximate cause produces a particular consequence without the intervention of

any independent or outside force.

Principle of unforeseen event

The insured events causing the losses should not be speculative, predicted or expected but

they must be sudden, unanticipated and out of the blue.

Principle of Contribution

It is based on the premise that no one should gain from a loss, since an insurable risk is a pure

risk. Contribution is essentially "the right of an insurer to call upon others similarly, but not

necessarily equally, liable to the same insured to share the cost of an indemnity payment."

Following is the simple way to calculate the contribution amount.

Insurance Intermediaries

Insurance intermediaries form the feeding line for the insurance companies. They are

essentially matchmakers who match the insurance needs of policyholders with the insurers

who have the capability of meeting those needs. Their services include record keeping and

modeling for insurers, providing advice to clients on selecting insurers, and assisting with

claims settlement. They play a key role in providing underwriting information to insurers.

The intermediaries play a vital role in soliciting quotations for complex risks and in helping

clients make comparisons on the basis of price, coverage, service and the financial strength of

the insurer. Moreover, the intermediary ensures increased price and quality competitiveness,

by providing the insured access to a wider range of possible insurers.

SRILANKA

Utmost good faith and any fraudulent claims arising from self-induced loss including those

caused with intent to commit fraud may be justifiably repudiated by the insurer. The basis of

exclusion of the liability of an insurer to pay in such and similar circumstances, was

explained by Lord Atkin in Beresford at page 595 in the following manner: “On ordinary

principles of insurance law an assured cannot by his own deliberate act cause the event upon

which the assurance money is payable. The insurers have not agreed to pay on that

happening.” The duty of good faith between the insurer and insured is sometimes specified as

the foundation, although not the only foundation, of the rule that fraud in a claim by the 9

insured defeats the claim and terminates the contract of insurance. The rule is often spoken of

as a contract term but a term that is „in accordance with legal principles and sound policy‟.

Although at the time of the claim as at other times, the duty of good faith is most apparent as

it affects the insured claimant, the duty must also be observed by the insurer. The onus of

proving fraud is on the insurer. In cases of fraudulent misstatement about the extent of loss,

there may be little doubt that the statement was made, but the insurer must also prove that it

was false and that the claimant knew it was false. In other cases the insurer‟s allegation of

fraud may be more serious: that the loss occurred as claimed but was deliberately caused by

the claimant. In all cases of alleged fraud, the onus, while not that of the criminal law, is

greater than the usual balance of probabilities, because the „more serious the allegation the

higher the degree of probability‟ to be established. Indeed, if the allegation of fraud is that the

insured fired his own property, the onus is close to that of facing the prosecution in a criminal

case on the same facts, involving a high degree of probability.” It is in the light of this

understanding of the law that the arbitral tribunal went on to analyze the evidence led in the

case, and arrived at the conclusion that the Respondent had failed to discharge the burden

placed on him to establish that the claims were fraudulent. It is manifest that the approach of

the arbitral tribunal was consistent with the law and practice in Sri Lanka. In Lakshmanan

Chettiar v. Muttiah Chettiar 50 NLR 337, which was a civil action filed by a professional

money lender against his agent claiming that he had fraudulently and in breach of trust

assigned a decree made in his favour to a third party without any consideration, the court had

to decide whether the assignment was fraudulent, and Howard, C.J. (with Canakaratne, J.

concurring) held that the standard applicable to the proof of fraud was akin to the criminal

standard. His Lordship observed at page 344, that “fraud, like any other charge of a criminal

offence whether made in civil or criminal proceedings, must be established beyond

reasonable doubt” as such a finding “cannot be based on suspicion and conjecture.” This

decision was followed in Yoosoof v. Rajaratnam 74 NLR 9, in which in the context of an

inquiry under Section 325 of the Civil Procedure Code, G.P.A. Silva A.C.J., observed at page

13 that Both principle and precedent would support the view that when a transfer is effected

for valuable consideration the burden of proving that it was fraudulent rests on the plaintiff in

these circumstances. It is an accepted rule that such a burden even in a civil proceeding must

be discharged to the satisfaction of a Court. For that degree of satisfaction to be reached, the

standard of proof that is required is the equivalent of proof beyond reasonable doubt.

However, in Associated Battery Manufacturers (Ceylon) Ltd. v. United Engineering Workers

Union 77 NLR 541 at 544, and Caledonian Estate Ltd., v. Hilaman 79 - 1 NLR 421 at 426, it

has been observed by this Court that allegations of misconduct in labour tribunal proceedings

may be proved on a balance of probabilities.

The balance of probability standard means that a court is satisfied an event occurred if the

court considers that on the evidence, the occurrence of the event was more likely than not.

When assessing the probabilities, the court will have in mind the factor, to 10 whatever extent

is appropriate in the particular case, that the more serious the allegation the less likely it is

that the event occurred and hence, the stronger should be the evidence before the court

concludes that the allegation is established on the balance of probability. Fraud is usually less

likely than negligence. Deliberate physical injury is usually less likely than accidental

physical injury. Explaining the principles enunciated by the courts in this regard, Phipson on

Evidence (16th

Edition – 2005) at page 156, emphasizes that .attention should be paid to the

nature of the allegation, the alternative version of facts suggested by the defence (which may

not be that the event did not occur, but rather that it occurred in a different way, or at

someone else‟s hand), and the inherent probabilities of such alternatives having occurred. In

the recent decision of this Court in Francis Samarawickrema v Dona Enatto Hilda Jayasinghe

and Another, [2009] 1 SLR 293, the Supreme Court has adopted this approach, exploding the

theory that fraud in a civil case has to be proved beyond reasonable doubt, subject of course

to the to the qualification that in applying the standard of the balance of probabilities, the

court should always bear in mind that, as Lord Nicholls observed in the dicta quoted earlier,

that the more serious the allegation the less likely it is that the event occurred and hence, the

stronger should be the evidence before the court concludes that the allegation is established

on the balance of probability. In my view, since the applicable degree of proof would depend

on the seriousness of the charge, the question whether it is the criminal or civil standard of

proof that would apply in a civil case involving a charge of fraud, would become difficult to

answer without a meaningless play on semantics. In my opinion, the High Court failed in its

impugned judgment, to subject the evidence led by the parties before the arbitral tribunal to

careful scrutiny in arriving at its decision to set aside the award. The arbitral tribunal, which

was conscious of the standard applicable to the proof of fraud had closely examined all

evidence led in the case by both parties and unanimously concluded that the lorry and its

contents had been destroyed by fire, and the said fire had been caused by an electrical short

circuit in the lorry. Witness Nihal Perera, who testified on behalf of the Appellant, stated in

evidence that he was one of the passengers in the vehicle at the relevant time. He stated that

the vehicle had transported the musical instruments and sound equipments in question to be

used at a dance at a Hotel in Kandy. After the dance, the instruments were being transported

to Colombo. The lorry left the Hotel at about 4.00 am andwas proceeding along the Kandy-

Colombo road. After they had travelled for about 20 or 30 minutes, one of the other

passengers in the said lorry banged on some portion of the lorry in the rear and alerted the

witness and the other passengers that there was a fire. Nihal Perera testified that, as a result of

the fire, the lorry and its contents were completely destroyed. He specifically stated that the

fire was not caused by him or any other persons. He also produced two lists of goods that

were destroyed. He clarified that he was seated in the cab section of the lorry as a passenger

when he was alerted to the fire. The Appellant, Kiran Atapattu, also testified to the fact that

the musical instruments and sound equipments were transported to Kandy in the lorry and

that in the early hours of the relevant day, he was contacted by telephone at his home in

Colombo by the witness Nihal Perera who informed him that the lorry had caught fire on the

return journey. He reached Kandy and went to the spot and he specifically denied the

suggestion that the vehicle and its contents had been set on fire at his instance. His evidence

was followed by the next witness who was Inspector F. Henry Silva who had been OIC

Crimes at the Peradeniya Police Station, within the area of which the incident had occurred.

He stated that, at about 6.30 am on the day of the incident, a complaint had been received at

the Police Station relating to the fire and he visited the spot at 11 about 8.20 am. He observed

that the lorry was almost completely burnt down. He observed a heap of ash within the

vehicle and a set of drums inside the vehicle which was still burning. He observed a large

number of musical instruments and equipments within the lorry some of which were burnt

and others still burning. He had been at the scene for one hour and in the course of his

investigations, he questioned the passengers who had been in the lorry and inmates of houses

in the vicinity. According to his investigations and inquiry he concluded that the fire must

have been caused by an electrical short circuit in the lorry. He also stated that a retired

Deputy Inspector-General of Police had visited the scene along with K.I. Jegatheesan, a

retired officer from the Government Analyst‟s Department, a few days after the fire. Two

witnesses were called to give evidence on behalf of the Respondent, namely, Police

Constable Weerasooriya of Peredeniya Police and K.I.Jegatheesan, a retired Government

Analyst. Witness Weerasooriya read out from the notes made by the I.P. Henry Silva. These

notes indicated that I.P. Henry Silva had noticed that the tires and tubes of the vehicle had

been burnt and the vehicle had settled on its rims. These observations included the fact that,

when IP Henry Silva visited the scene, flames were still visible and the entire rear portion of

the lorry had been burnt. The main witness called on behalf of the Respondent was

Jegatheesan, who testified as an expert. He stated that, at the request of the Respondent, he

investigated the fire, and had visited the scene on 9th July 1998, several days after the vehicle

had caught fire. His evidence suggests that the vehicle had not been guarded during the

interval between the fire and his inspection. This witness was of the opinion that the fire had

not started from the diesel tanks. His position was that the fire had definitely started from the

inside of the lorry and not from the diesel tanks. He was also of the opinion that the fire had

not started from the battery area and contended that the fire could not have occurred as a

result of an electrical short circuit. He was of the opinion that the fire could have commenced

with the use of an inflammable liquid such as petrol. The arbitral tribunal formed the opinion

that his testimony was insufficient to establish with any certainty that the fire was the result

of arson, particularly considering the delay in the inspection made by Jegatheesan, which

might have resulted in the destruction of whatever meager evidence that may have remained

in the scene after the fire. It would appear that the evidence of this witness is flawed in that,

on his own admission, he did not carry out any chemical or other scientific tests to determine

the cause of the fire. Moreover, under crossexamination,he was compelled to admit that there

was nothing in his report to establish that the fire had been deliberately caused, and that he

could have written his report from his office without visiting the scene at all. The tribunal

also viewed his evidence with caution as he was an expert engaged by the Respondent. In this

context it is necessary to quote from the following pertinent observation made by the tribunal

at page 15 of the majority award:- We do not go to the extent of stating that we disbelieve the

witness, but in assessing the worth of his evidence, as in the case of any witness whose

evidence is put forward as that of an expert, it is necessary to bear in mind the cautions that

have been expressed from time to time by the courts in the evaluation of such evidence. The

tribunal referred in the course of its majority award to the early decision of this Court in

Soysa v Sanmugam 10 NLR 355, where Hutchinson CJ, was inclined to treat the opinion of

an expert as nothing more than slight corroboration of a conclusion arrived at independently,

and in any event, never so strong as to turn the scale against the person charged with a

criminal act if the other evidence is not conclusive. In the subsequent decision of R v Perera

31 NLR 449, Jayawardena A.J. called attention to the danger of acting on the unsupported

testimony of an expert. Somewhat similar views have been taken in Gratiaen Perera v The

Queen 61 NLR 522 12 and in Samarakoon v Public Trustee 65 NLR 100. There are many

authorities which show that the courts are aware of the fact that experts are inclined to show

conscious or unconscious bias towards those who call them, and are perhaps hostile to those

who challenge their views in cross-examination. Thus, in an old case, Cresswall v Jackson

(1860) F &F 24, Cockburn CJ expressed the view that the evidence of professional witness

has to be viewed with some degree of distrust, for it is generally given with some bias. In the

case of Abinger v Ashton (1874) LR 17 Jessel MR stated that an expert is employed and paid,

not merely his expenses but much more by the persons who calls him, and there is

undoubtedly a natural bias to do something of use for those who employ him and adequately

remunerate him. In this state of evidence and in the light of the applicable law, I am of the

opinion that the finding of the tribunal in this regard is unimpeachable and consistent with

authority both on the question of the standard of proof applicable in civil cases involving an

allegation of fraud as well as the value of expert evidence. In my view, the High Court had

erred in its finding that the awards of the arbitral tribunal should be set aside and its

enforcement refused on the basis that the tribunal had misapplied the applicable law relating

to the standard of proof in civil cases where fraud is alleged and had failed to assess the

evidence led before the arbitral tribunal to determine whether the Respondent would have

succeeded with its defence of arson even on a balance of probabilities. Accordingly,

questions (i), (ii) and (iv) raised on behalf of the Appellant have to be answered in the

affirmative. While it is clear that in such cases the burden of proof of establishing fraud falls

on the insurer, the question that arises in this appeal is whether the applicable standard of

proof is the criminal standard of proof beyond reasonable doubt, or the civil standard of

preponderance of probabilities, or something in between. The learned High Court Judge had

taken the view that it is the lesser of these two standards, namely proof on a preponderance of

probabilities that applies in such a case to establish fraud, and has set aside the award in

favour of the Appellant, and allowed the application of the Appellant for enforcing the same,

on the basis that the arbitrators had erred in law and that their awards are contrary to the

public policy of Sri Lanka. The primary basis on which the Appellant challenged the finding

of the High Court was that it had misapplied the standard of proof required to establish fraud

in this case. Learned President‟ Counsel for the Appellant argued with great force that the

High Court had erred in applying the civil standard of balance of probabilities for the proof of

fraud, which was by its very nature a serious allegation requiring a higher degree of proof. He

submitted that the High Court had in fact treated the unanimous award of the arbitral tribunal,

which upheld the claims of the Appellant on the basis that there was no plausible evidence

placed before it that could establish fraud to the satisfaction of the tribunal, was arrived at by

applying the wrong standard of proof. In this context, it is necessary to consider the judgment

of the High Court care

BANGLADESH

According to J. H. Magce “Life insurance contract embodies an agreement in which the

insurer undertakes to pay a stipulated sum upon death of insured or at some designated time”.

“Life insurance provides financial security to human lives. Life insurance is a legal contract

between the insured and the insurer. The insurer agrees to pay a definite sum of money to the

insured on maturity of contract.

Life insurance is a contract between an insurance policy holder and an insurer, where the

insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the

death of the insured person. Depending on the contract, other events such as terminal illness

or critical illness may also trigger payment. The policy holder typically pays a premium,

either regularly or as a lump sum. Other expenses (such as funeral expenses) are also

sometimes included in the benefits.

There is a difference between the insured and the policy owner, although the owner and the

insured are often the same person. For example, if Joe buys a policy on his own life, he is

both the owner and the insured. But if Jane, his wife, buys a policy on Joe‟s life, she is the

owner and he is the insured. The policy owner is the guarantor and he will be the person to

pay for the policy. The insured is a participant in the contract, but not necessarily a party to it.

Also, most companies allow the payer and owner to be different, e. g. a grandparent paying

premiums for a policy on a child, owned by a grandchild.

The beneficiary receives policy proceeds upon the insured person‟s death. The owner

designates the beneficiary, but the beneficiary is not a party to the policy. The owner can

change the beneficiary unless the policy has an irrevocable beneficiary designation. If a

policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or cash

value borrowing would require the agreement of the original beneficiary.

Death proceeds

Upon the insured‟s death, the insurer requires acceptable proof of death before it pays the

claim. The normal minimum proof required is a death certificate, and the insurer‟s claim form

completed, signed (and typically notarized).[citation needed]

If the insured‟s death is suspicious

and the policy amount is large, the insurer may investigate the circumstances surrounding the

death before deciding whether it has an obligation to pay the claim.

Payment from the policy may be as a lump sum or as an annuity, which is paid in regular

installments for either a specified period or for the beneficiary‟s lifetime.

Age and gender of policy holder

Medical history/pre-existing conditions (you fill in form, but many companies also

use database of Medical Information Bureau)

Family medical history (For instance, did your parents have a history of heart disease

or cancer?)

Results of medical exam (various tests usually required for higher amounts of

insurance; the higher the value the more stringent the criteria). Typical tests include:

Property Insurance

Homeowner insurance protects the owner financially from losses and liability.

Homeowners need insurance because it protects them from costly liability lawsuits, covers

them in the event of weather- or fire-related damage to their homes, and pays for losses

sustained from theft. When a homeowner owes money on his home, he needs to have

insurance to protect both himself and the lender. Homeowners whose homes are completely

paid for also carry insurance to protect themselves financially.

Personal Property Coverage

While not required by the lender, personal property coverage is frequently part of a policy.

Homeowners need to document their possessions, with receipts, video or photographs, and

keep the records in a safe place. Making several paper or DVD copies and distributing them

among friends or family who do not live in the house is a good way to safeguard the record of

personal property. Most hazard insurance policies will not cover expensive jewelry, art, or

musical instruments except as riders to the policy. Before many insurance companies will

accept the value of the item, they may require an appraisal of the item by a professional.

Some homeowners‟ insurance policies do not cover business equipment located in the home;

just as with jewelry or art, the insurer may require a rider for items that are used in a home

office like copiers, faxes and computers.

Construction type of dwelling (frame, brick, masonry, EIFS, etc.) and size

Age of dwelling and condition; age or renovation date of systems within structure

such as plumbing, electrical, furnace, roof

Location of dwelling/property

Proximity to local fire protection

Presence of safety features (smoke detectors/fire alarm system, security system,

sprinklers, etc.)

Factors of Insurance

1. Utmost Good Faith

The Principle of Utmost Good Faith, is a very basic and first primary principle of insurance.

According to this principle, the insurance contract must be signed by both parties (i.e insurer

and insured) in an absolute good faith or belief or trust.

2. Insurable Interest

The principle of insurable interest states that the person getting insured must have insurable

interest in the object of insurance. A person has an insurable interest when the physical

existence of the insured object gives him some gain but its non-existence will give him a loss.

In simple words, the insured person must suffer some financial loss by the damage of the

insured object.

3. Indemnity

Indemnity means security, protection and compensation given against damage, loss or injury.

According to the principle of indemnity, an insurance contract is signed only for getting

protection against unpredicted financial losses arising due to future uncertainties. Insurance

contract is not made for making profit else its sole purpose is to give compensation in case of

any damage or loss.

4. Contribution

Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts

of indemnity, if the insured has taken out more than one policy on the same subject matter.

According to this principle, the insured can claim the compensation only to the extent of

actual loss either from all insurers or from any one insurer. If one insurer pays full

compensation then that insurer can claim proportionate claim from the other insurers.

5. Subrogation

Subrogation means substituting one creditor for another. Principle of Subrogation is an

extension and another corollary of the principle of indemnity. It also applies to all contracts

of indemnity. According to the principle of subrogation, when the insured is compensated for

the losses due to damage to his insured property, then the ownership right of such property

shifts to the insurer.

6. Loss Minimization

According to the Principle of Loss Minimization, insured must always try his level best to

minimize the loss of his insured property, in case of uncertain events like a fire outbreak or

blast, etc. The insured must take all possible measures and necessary steps to control and

reduce the losses in such a scenario. The insured must not neglect and behave irresponsibly

during such events just because the property is insured. Hence it is a responsibility of the

insured to protect his insured property and avoid further losses.

7. Causa Proxima (Nearest Cause)

Principle of Causa Proxima (a Latin phrase), or in simple English words, the Principle of

Proximate (i.e Nearest) Cause, means when a loss is caused by more than one causes, the

proximate or the nearest or the closest cause should be taken into consideration to decide the

liability of the insurer.

Comparison of Eastern and Western countries with Bangladesh

Australia

In Australia Good faith is not a recognized principle in the common law system in that it is

not recognized as a fundamental proposition that serves as a foundation for common law

contracts. This is unlike the position in the civil law system, where a principle of good faith is

clearly stated to apply to contracts. In Bangladesh government do not take any

responsibilities, they are not compiling with their honesty and with standards of conduct

which are reasonable having regard to the interests of the parties.

Australian insurance company does not acting like arbitrarily, capriciously, unreasonably or

recklessly. They do not requiring a party to act in the interests of the other party to the

contract. As Bangladesh is a poor country and people are very poor, every people try to take

chance either they have forget their morality and doing wrong thing. Maximum insurance

company remains ford so people don‟t trust them. Maximum company try to influence people

by their sweet word but at last they give their service no in proper sense of eject what they

were said. Government takes no action or after being informed they do no handle them as

dishonest people are everywhere.

Canada

Canadian courts have not accepted good faith as a general principle that applies to all

contracts. Despite this, good faith has been recognized by the Ontario Law Reform

Commission to be a factor in everyday contractual transactions. It has also been

acknowledged by Canadian courts to be of commercial value to the business community. The

application of the obligation of good faith to insurance in Canada A critical analysis and

summary of existing law .Detailed suggested approaches to bad faith claims for insurers,

insured‟s and others affected by insurance . Insurance industry professionals and in-house

counsel will get a better sense of the law and more clarity on the limits of their obligations.

Counsel will benefit by understanding how to avoid and respond to bad faith claims and

manage litigation more effectively

In Bangladesh government or in house no one control insurance company. Insurance

company makes law as like as their company need. They give good benefits and service but

sometime see the ford cases and dishonesty and also some bad faith. There no system of

practicing good faith or take action against claim.

France

Insurance contracts may be rescinded where there has been misrepresentation by the insured,

in accordance with the general rules provided in the Civil Code. Some specific rules applying

to insurance contracts are provided by the Insurance Code (art. L.113-8 and L.113-9). In

terms of disclosure obligations, the insured is only required to respond to specific questions

regarding the risk that are set out in the underwriting questionnaire; the insured cannot be

sanctioned for having failed to volunteer some information, albeit relevant, that was not

expressly requested by the insurer or for having provided an ambiguous response to a

question that was itself drafted in vague or ambiguous terms. Avoidance of the contract is

only available where the insured/policyholder acted in bad faith, with the knowledge that the

information provided was false or misleading (art. L.113-8 IC). Good faith is always

presumed and the burden of proof lies with the insurer. Where false information deliberately

provided by the insured is discovered in connection with a loss, avoidance is available even if

that false information bears no relation to that loss. The insurer is entitled to keep all the

premiums already collected and claim payment of all further premiums which have fallen due

and payable as damages (except in relation to life insurance).

India

The duty of good faith between the insurer and insured is sometimes specified as the

foundation, although not the only foundation, of the rule that fraud in a claim by the insured

defeats the claim and terminates the contract of insurance. The rule is often spoken of as a

contract term but a term that is „in accordance with legal principles and sound policy‟.

Although at the time of the claim as at other times, the duty of good faith is most apparent as

it affects the insured claimant, the duty must also be observed by the insurer. There are

different policies which relate to the same subject matter. The policies cover the same peril

which caused the loss. All the policies are in force at the time of the loss. One of the insurers

has paid to the insured more than his share of the loss.

In a contract of insurance the insurer undertakes to protect the insured from a specified loss

and the insurer receives a premium for running the risk of such loss. Thus, risk must attach to

a policy. All these people have something at stake and all of them have insurable interest. It is

the existence of insurable interest in a contract of insurance which distinguishes it from a

mere wagering agreement.

Pakistan

In Pakistan all parties to an insurance contract must deal in good faith, making a full

declaration of all material facts in the insurance proposal. A material fact is a fact which

would influence the mind of a prudent underwriter in deciding whether to accept a risk for

insurance and on what terms. Thus, the insured must reveal the exact nature and type of the

risks that he / she passes on to the insurer, while at the same time the insurer must make sure

that the underlying contract fits the needs of, and benefits the insured. Where either the

Insurer or the Insured fails to follow the principle of utmost good faith, the insurance contract

is deemed null and void. In Pakistan people believe in insurance company. Maximum

people are doing life insurance car insurance, home insurance, organization and many more.

There company provide good service and people trust them. As a Muslim country good faith

are maintain strictly though dishonesty is everywhere. Government takes care of these

things. In Bangladesh government is not aware about these things.

We are the post colonial countries of European countries so we have an obvious tendency to

follow their way of living. After the post colonial time we have adopted lots of things of

European people. As a new country we had follow the regulations that are use by the

colonizer‟s country. We have been adopted most of the British regulation as they were the

last colonizer‟s country.

We have been under British rule moreover 190 years. After we have got independence we

needed to structure our bureaucracy and the laws in a way that will generally accepted by the

people. So from the very beginning our 80% of laws are followed by British law.

The Britain has adopted or recognized good faith in their insurance contract long time back in

1906. The western countries have made lots of changes in their law with the context of time.

Bangladesh has also made changes in their law but not the way Britain made changes in

insurance law.

In our country insurance is not as popular as western countries. One of the big reasons is that

people do not rely or have faith in insurance. They are very much doubtful towards the

insurance policy. In order to make them confident about insurance the government of

Bangladesh should have some necessary steps.

In insurance there is lots of space where fraud of mistake can took place. To stop the mistakes

the western countries have introduced good faith (Honesty) in the insurance law. Previously

there were only the duty of not to show dishonesty and duty of not showing honesty. In that

case the insurer and insured have no responsibility to show honesty means they didn‟t need to

deliberate duty to show honesty. And in duty to not showing dishonest means they also can

not show the dishonesty to the insured or insurer.

As western countries using good faith in insurance as a law it becomes more reliable contract

than before. They have set up the duty of insurer towards the insured and duty of insured

towards insurer about using good faith. But if you look to Bangladesh there is not that many

changes took place in insurance contract. The laws of country followed by Bangladesh have

made their amendments in law but Bangladesh has not made it so far.

The government of Bangladesh still now didn‟t pay much attention to the using good faith as

a law in insurance contract as well as commercial contract. Here we have also rules regarding

no duty to show good faith and duty to not show bad faith. But now it‟s not enough for both

insured and insurer to stop the fraud and mistake. Though there are lots of experts like

lawyer, legislator, insurer etc. already started to think about the necessity of using good faith.

Recently Canadian court has published the necessity of good faith in insurance and the

Canadian government has already included the clause regarding using good faith in insurance

contract. Overall all the western countries have been included the good faith as a law of

insurance contract. The absence of good faith has created lost of disputes among insurer and

insured. The remedies of all disputes can be reduced by good faith. So it is high time for us to

take the initiative to take good faith as a law in our insurance contract.

HYPOTHESIS

As Bangladesh is a under developed country the people of this country is not much aware

about the insurance policies because they think that it is a luxurious product. Therefore, the

term “Good Faith” is not yet that much popularly known in Bangladesh. From our research,

we expect to find that violation of good faith exists in Bangladesh and people have fallen

prey to it in many ways over the years. We expect that the governmental authorities are doing

their work efficiently to protect the duties of good faith in the overall commercial law. We

surmise that either people have themselves known about the good faith or they have heard or

seen other people suffering from the consequences of violation of good faith in the insurance

policies. We have also postulated that most people have not boycotted branded insurance

companies that were discovered to have been violated the duties and rules of good faith. This

is because while western, for example, UK clients are known to entirely boycott a insurance

company if it goes against their vested interests Bangladeshi clients are yet to follow suit. We

expect that clients would be somewhat aware of their rights since our sampling was taken

from the capital and they also know the names of the major insurance provider companies.

We also expect that people will deem the present punishments meted out to the offenders not

severe and believe that the offenders get away with their offence due to widespread

corruption. Through our research we hope to find valuable information and strong arguments

to support, justify and prove our points.

METHODOLOGY

As a primary research, we conducted a survey of a representative sampling of 20

general public in Dhaka city and interviewed an official of well known company insurance

industry. To that end we designed a questionnaire with different types of questions so as to

get a range of useful responses which helped us to answer our research questions.

As a secondary research, we used the resources of the library and consulted few books and

journals specializing on the duties and rights of the good faith in the insurance contracts. We

also browsed the internet and used standard search engines like Google, Bing, Yahoo, Alta

Vista, Dogpile etc.

DATA ANALYSIS

1) Do you have any existing Insurance policy?

Yes

No

From a sample of 20 respondents, 17 people do not have any insurance policy, 3

people have life insurance policy for the survivorship with 20 years length. From the

0

2

4

6

8

10

12

14

16

18

Yes No

data collected, we can assume that majority of the people do not have any insurance

policy. Studies have shown that in Bangladesh people assume insurance policy as a

luxurious product.

2) Which factors do you consider when choosing an insurance company?

a. Good faith of the company (Honesty in business practices and information

flow)

b. Quality rating of the insurance company

c. Paying ability, financial strength, assets etc.

d. Reputation of the agent

e. Efficiency in paying insurance coverage

f. Amount of insurance coverage

g. Customer support system

h. Policy Price

We asked the respondents which factors do you consider when choosing an insurance

company. Out of 20 respondents, 5 people often consider the efficiency in paying, 5 people

consider amount of insurance coverage, 4 of them consider paying ability, two persons go for

price of the policy and other two persons go for the reputation of the agent. Only 2 persons

consider good faith of the company. The response raises some concerns.

3) Have you ever heard about the term “Good Faith”?

0

1

2

3

4

5

6

Yes

No

Out of the 20 respondents, 16 people said that they have heard about the term “Good Faith”

as an ethical issue not as a term that is used in commercial law in the insurance contracts

while the rest of the 4 people did not hear any such situation of insurance policy where good

faith exists.

4) Do you fully understand your policy coverage?

Yes

No

Yes

No

5) Did you receive your policy document quickly after completing your application

process?

Yes

No

Out of the 20 respondents, 13 people said that as they do not have any insurance policy they

do not know much about the application process but still they think that people receive policy

document quickly after completing your application process with the insurance service

provider.

6) Did you or anyone among your friends and family claim for insurance coverage?

Yes

Yes35%

No65%

Do you fully understand your policy coverage?

Yes

No

No

Out of the 20 respondents, 13 people said that as they do not have any insurance policy they

do not know much about the claim process but still they said that people like their friends and

family claim for insurance coverage.

7) Have you or any one you know ever been involved in any false act to claim the

insurance price?

Yes

No

Yes

No

0

2

4

6

8

10

12

14

16

18

20

Yes No

Out of the 20 respondents, only 19 respondents said that they do not know anyone

who been involved in any false act to claim the insurance price.

8) What is your view towards Bangladeshi insurance company?

Strongly Like

Somewhat like

Neutral

Somewhat dislike

Strongly dislike

When asked about view towards Bangladeshi insurance company, 6 people said that they

somewhat like the insurance company of Bangladesh, while 9 people were neutral about

insurance company because they are a little bit aware of it. On the other hand, 3 people

somewhat do not like the insurance companies while only 2 people strongly dislike the

insurance companies of Bangladesh.

9) Do you have confidence in the service of your insurer?

Yes

0

1

2

3

4

5

6

7

8

9

10

Strongly Like Somewhat like

Neutral Somewhat dislike

Strongly dislike

Series1

No

Out of the 20 respondents, 17 people said that they do not have the confidence in the service

of your insurer which is the majority with 85% of the sample. On the other hand, 3 people

said that they have the confidence in the service of your insurer.

10) Do you think proper training about ethical business practices could make the

future of Bangladeshi insurance company?

Yes15%

No85%

Do you have confidence in the service of your insurer?

0

2

4

6

8

10

12

14

16

18

20

Yes No

Out of 20 respondents all of them said that proper training about ethical business practices

could make the future of Bangladeshi insurance company.

AN IN-DEPTH INPERVIEW

In order to investigate issues of good faith in insurance contracts in Bangladesh and the

corresponding laws on Commercial law in an in depth way and to discover how individuals

think and feel about the topic, we conducted an interview with Mr. S.M. Shaheen Akhter, the

Vice President (HR & Admin), Pragati Insurance Limited. In a face to face interview, he

discusses the rights and duties of the insurer and also the role of his company. According to

him, good faith is not only the right to have all the information about the insurance contracts

but also the basic “Human Right” which should not be violated. But in Bangladesh, good

faith is not so widespread that it is very difficult to understand about the term clearly. Almost

every day in the news papers, newer and newer cases of violation of the duties of good faith

are reported which is very frustrating. He also talked but the recent changes in laws to

prevent the violation and protect consumer rights. The steps (Insurance Act 2010), Mr.

Shaheen says, are likely to have a positive impact on public and can support both the insurers

and insured to protect their rights and duties of good faith. Government‟s initiative for setting

up a unified authority to fight against the violation is well appreciated. But it needs a ground

level monitoring facility and should introduce awareness programs for people involved in

different stages of the insurance policies because besides deliberate occurrences violation of

good faith in commercial law along with insurance contracts due to lack of awareness or

proper guidance is also a common phenomenon. Many established insurance companies in

Bangladesh are accused for violation of good faith many times though Mr. Shaheen argues

that duties of good faith are fundamental to Pragati Insurance Limited. Mr. Shaheen states,

“The main focus of our company is to improve the insurance industry among Bangladeshi

clients. We work with good faith every time by maintaining the guideline and other relevant

laws otherwise we wouldn‟t be standing where we are today. Every day we work to earn the

trust of our customers and clients”. A question was asked about his opinion of what other

companies are practicing. Are they following the rules properly? Though Mr. Shaheen was

very spontaneous throughout the interview, he was not interested to comment on this matter.

RECOMMENDATIONS

1. Insurers must ask questions about any matter which they wish to know about in order

to assess the risk being insured.

2. Clients who take responsible care to answer the insurer‟s questions fully and

accurately can expect to have any subsequent claims paid in full. It is only if they

answer questions dishonestly or recklessly that insurers are permitted to refuse all

claims and retain any premium.

3. If a client makes a careless mistake when answering a question, he or she may still be

entitled to have some of the claim paid: a client‟s entitlement is dependent upon the

insurer and what that insurer would have done had it known the true facts at the time

the insurance policy was incepted.

CONCLUSION

Contracts of insurance are designed to provide peace of mind and security for insured parties,

and to allow insured‟s to recover from loss. The fulfillment of these purposes depends on

insurers acting in good faith during the claims-handling process; that is, insurers must act

fairly, reasonably and honestly when investigating, assessing and settling claims. Bad faith in

this process should not be ignored. The mutual duty of utmost good faith was developed to

facilitate the operation of insurance and even the playing field between the parties at times of

vulnerability. The concept is “better described than defined”, but his report contend that

insurers should owe duties of fairness and reasonableness during the claims process. Given

that a purpose of insurance is to provide security and peace of mind for the insured, it is

arguable that those obligations should become enforceable. This could protect the interests of

the insured and constrain abuses of the insurer‟s power.

REFERENCES

Cummins, J. David, and J. Francois Outreville. "An international analysis of underwriting

cycles in property-liability insurance." Journal of Risk and insurance (1987): 246-262.

Neil Campbell "A Sceptical View of Good Faith in Insurance Law" in Duncan Webb and

David Rowe (eds) Insurance Law: Practice, Policy & Principles, (The Centre for

Commercial & Corporate Law, Christchurch, 2004) 205.

Malcolm A Clarke, Julian M Burling and Robert L Purves The Law of Insurance Contracts

(5th ed, Informa Law, London, 2006).

James Edelman "In Defence of Exemplary Damages" in Charles EF Rickett (ed) Justifying

Private Law Remedies, (Hart Publishing, Oxford, 2006) 225.

John Lowry, Philip Rawlings and Robert Merkin Insurance Law: Doctrines and Principles

(3rd ed, Hart Publishing, Oxford, 2011).

H K Lücke "Good Faith and Contractual Performance" in P D Finn (ed) Essays on Contract,

(The Law Book Company, Sydney, 1987) 155.

Peter Mann and Candace Lewis Annotated Insurance Contracts Act (The Law Book

Company, Sydney, 1994).

Edwin Peel The Law of Contract (13th ed, Sweet & Maxwell, London, 2011).

Greg Pynt Australian Insurance Law: A First Reference (LexisNexis Butterworths,

Chatswood (NSW), 2008).

John Smillie "Trespassing on Land" in Stephen Todd (ed) The Law of Torts in New Zealand,

(5th ed, Thomson Reuters, Wellington, 2009) 423.

Anthony A Tarr, Julie-Anne R Tarr and Malcolm Clarke Insurance: The Laws of Australia

(Thomson Reuters, Sydney, 2009).

Stephen Todd "General Introduction" in Stephen Todd (ed) The law of torts in New Zealand,

(5th ed, Thomson Reuters, Wellington, 2009) 1.

Stephen Todd "Negligence: The Duty of Care" in Stephen Todd (ed) The Law of Torts in

New Zealand, (5th ed, Thomson Reuters, Wellington, 2009) 133.

Stephen Todd "Remedies for breach of contract" in John Burrows, Jeremy Finn and Stephen

Todd (eds) Law of Contract in New Zealand, (4th ed, LexisNexis NZ, Wellington, 2012) 819.

Merkin R and George M, „The Continuing Duty of Utmost Good Faith‟ (1998) 10 SA Merc

LJ 135.

http://www.sundaytimes.lk/070218/FinancialTimes/ft339.html

http://www.investopedia.com/terms/d/doctrineofutmostgoodfaith.asp

http://www.thefreedictionary.com/utmost+good+faith

http://www.claimshelp.co.nz/utmost-good-faith

http://www.cila.co.uk/files/Certificate/Chapter%206.pdf

http://dictionary.reference.com/browse/utmost+good+faith

http://thismatter.com/money/insurance/utmost-good-faith.htm

http://www.sjol.co.uk/issue-1/good-faith-in-insurance-law

http://www.herbertsmithfreehills.com/-/media/HS/HK241110416.pdf

http://en.wikipedia.org/wiki/Uberrima_fides

http://www.lexology.com/library/detail.aspx?g=0eebf187-2c37-4c09-8f51-4900b2a74e39

https://www.aila.com.au/docs/default-source/speaker-papers/insurance-gangnam-style---

associate-professor-dr-brenda-mcgivern--ica-post-contractual-ugf-(1).pdf?sfvrsn=6