Table of contents - this section

· All parties' duty of utmost good faith
· The insured's duty of disclosure

8. Utmost good faith

It has long been the case that each party owed the other the duty of utmost good faith in respect of insurance policies / contracts at all times. In Latin, the principle is known as "uberrima fides".

Although the duty of utmost good faith is sometimes shortened to "good faith" it is important to notice the distinction. It does not mean a measure of good faith. It means the utmost good faith.

The Insurance Contracts Act 1984 (Cth) ("the Act") restates this principle.

The duty of utmost good faith applies both to insured and insurer. Although often applied to the insured only, the insurer must also be aware of its duties. For example, if the insurer has failed to act in the utmost of good faith toward the insured by not bringing it to his/her notice the possible consequences of not telling it about wheel and suspension modifications on a motor vehicle, the insurer may not be able to avoid the claim and have to pay it in full.

9. The duty of disclosure

The duty of disclosure follows on as a natural consequence of the overriding duty of utmost good faith as to insurance contracts. The insured should before executing the contract (such as, before signing the proposal or renewal form), notify the insurer of all he/she knows to be relevant.

The knowledge of the insured may be either actual or constructive. If the insured states that he or she did not know of a material fact, the court may consider what a reasonable insured in those circumstances could be expected to know and impose that level of knowledge on the insured.

The insured may does not have to notify the insurer of information such as:

• In the insurer's possession by prior dealings with the same insured;
• That could have been found out as it was put on an enquiry through its dealings with the insured; or
• The fact is of such common knowledge that the insured could not have been expected to notify the insurer of it.

The insured's duty of disclosure is restated in the Act and the concept is further refined.

As with any concept of the Act, for interpretation relating to an individual set of circumstances, it is necessary to consult a solicitor. Please see our Legal Help page if you have any needs in this area.