Reform of ‘non-disclosure’ in UK marine insurance law: Exotic Approach or Original Understanding?
"Reform of `non-disclosure' in UK marine insurance law: Exotic Approach or Original Understanding? " Mr. Poomintr Sooksripaisarnkit A marine insurance contract is a contract of utmost good faith (uberrimae fidei), which requires the duty of disclosure prior to the conclusion of a contract. This is essentially stated in ss. 17 and 18 of the Marine Insurance Act 1906. Despite the 100-year application of these provisions, the defects are shown and the injustice occurs. The voluminous case laws and their complexity suggest nothing else apart from that this area of law is highly problematic. The criticisms are essentially rested upon two grounds: (1) the material fact which rests upon the view of the `prudent insurer' makes it difficult for the assured to determine for himself the fact to be disclosed (2) in case of non-disclosure, the remedy of avoidance applies regardless of culpability of the party in breach. As such, the reform to the law is inevitable and the purpose of this thesis is to suggest how reform can be achieved. Two possible ways to bring the change to the law are considered. These are (1) to adopt the alternative solutions identified in other jurisdictions or (2) to re-consider whether the law on duty of disclosure as has been recognised since the seminal judgment of Lord Mansfield in Carter v. Boehm (1766) 3 Burr. 1905 has been correctly applied. This thesis concludes that the judgment of Lord Mansfield has been misunderstood in the UK and that, to constitute non-disclosure, only the deliberate intention is required and that the remedy of avoidance is justifiable upon the public policy ground. Such duty should be based upon the broad notion of good faith (bonge fide: ), a flexible concept of fairness and justice. In the end, the draft provisions are formulated to reflect these suggestions. Table of
Of reciprocity and remedies—duty of disclosure in insurance contracts
One of the most distinguishing features of an insurance contract (being a contract uberrimae fidei) is that it attracts the duty of disclosure. As it presently stands, this duty unfortunately has drawn such criticism from many quarters for inflicting what is arguably one of the most onerous burdens upon the insured. The irony of the situation is that the original intention of the doctrine, as had been expressed by Lord Mansfield himself in the celebrated eighteenth century case of Carter v Boehm, was for both contractual parties–and not just only the insured–to exercise the utmost good faith in their dealings. However, all through the intervening years, the tide had almost entirely flowed in one direction. There has, hitherto, not really been any case law developing, or even spelling out, the insurer's duty of good faith. On the contrary, landmark cases such as CTI v Oceanus and Lambert v CIS have been only too generous in showering the insurer with so many privileges that from the perspective of the hapless insured the duty becomes almost like ‘an engine of oppression’.
The Case for Punitive Damages in Contracts
The majority of American jurisdictions do not allow punitive damages for breach of contract unless the breach constitutes an independent tort. Increasingly, courts and commentators have relied on the theory of “efficient breach” to explain the rule against punitive damages in contracts. In this Article, Professor Dodge argues that economic efficiency supports a different rule — one allowing punitive damages for any willful breach of contract.Willful breaches fall into two categories: those that are “opportunistic” and those that are “efficient.” An “opportunistic” breach does not increase the size of the economic pie; the breaching party gains simply by capturing a larger share of the pie at the expense of the nonbreaching party. An “efficient” breach, by contrast, increases the size of the pie, allowing the breaching party to compensate the nonbreaching party and still come out ahead. Deterring opportunistic breaches with the threat of punitive damages is efficient because such breaches by definition do not increase societal wealth. Thus, punitive damages should be routinely available in cases of opportunistic breach, such as pretextual termination, stonewalling, and bad faith refusal to pay a debt.Efficiency also supports extending liability for punitive damages to those breaches that are, in theory, “efficient.” The threat of punitive damages will not require inefficient performance because the potentially breaching party may negotiate with the other party for a release. Relying on Calabresi and Melamed’s distinction between “property rules” and “liability rules,” Professor Dodge shows that requiring the potentially breaching party to negotiate for a release is more efficient than allowing her to breach and pay damages because the transaction costs of negotiation, while not negligible, are generally lower than the assessment costs of litigation. He also explains why other forms of “property rule” protection, like specific performance and penalty clauses, are insufficient to ensure that negotiation occurs before breach.