In the recent Court of Appeal decision in Drake v Provident (2003), the Court once again had to consider the extent to which the duty of good faith continued post contract, this time from the insurer’s stand point.
The facts in Drake are so full of twists and turns they could have stepped straight out of a Bar Finals exam. At risk of oversimplification, however, the case involved an attempt by an insurance company to avoid a motor policy. The insured had renewed his motor policy without declaring on the proposal form a speeding conviction which he had picked up in the previous year.
Further, the proposal form had also incorrectly declared a separate incident (incurred by the insured’s wife who was a named driver on the policy) as a "fault" accident. This was a carry-on from the previous year’s proposal but subsequently the accident had been recatagorised as a "no fault" accident. The significance of this was that the combination of a "fault accident" and a speeding conviction would have led to an increase in premium on the basis of Provident’s computerised rating system. A no fault accident together with a speeding conviction would not however, have resulted in a premium increase.
Had the insurance company known of the full facts regarding the so-called "fault" accident, it would therefore have renewed the policy on existing terms on the basis of the standard rating criteria which it operated at the time.
The majority of the Court of Appeal (Rix and Clarke LLJ) decided that in the circumstances the insurance company had not been induced by the non-disclosure of the speeding offence and it therefore could not avoid coverage. Rix and Clarke LLJ also expressed the view that the doctrine of good faith should be capable of limiting the insurers’ right to avoid in circumstances where that remedy, which is draconian, would operate unfairly. As Rix LJ stated "I would hazard the opinion that knowledge or shut-eye knowledge of the fact that the accident was a no-fault accident would have made it a matter of bad faith to avoid the policy." He stated that it may be necessary to give wider effect to the doctrine of good faith and recognise that ultimately regard must be had to a concept of proportionality "implicit in fair dealing".
Pill LJ went further and found that Provident were sufficiently put on notice of the true facts to make it a breach of its duty of good faith to avoid the policy without making a "simple" enquiry as to the true position so far as the earlier accident was concerned. This would appear to be an example of a continuing postcontractual duty of utmost good faith imposed upon the insurer.
This was of course a decision in relation to a personal lines insurance where wider issues of public policy came into play. It rather remains to be seen whether this apparently novel approach gains any ground in the area of reinsurance dispute.
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