The Pre-Contractual Duty of Good Faith - A Comparative Analysis of the Duty of Utmost Good Faith in the Marine Insurance Contract Law with the Duty of Good Faith in the General Contract Law

Abstract: The duty of utmost good faith in the marine insurance contract law and the duty of good faith in the general contract law are quite similar in nature. Former recognises that the parties must make true representation and must disclose all material information while latter recognises the duty of representation only and does not at all recognise the duty of disclosure. The parties in the marine insurance contract are required to observe the duty of utmost good faith. Nevertheless, it is mainly the duty of the prospective assured to observe the duty of utmost good faith. The prospective assured is required to fully disclose and truly represent the facts about the subject matter to be insured to the insurer, so he could take informed decision about risk taking and premium. The expression ‘utmost good faith’ in the marine insurance contract law indicates that strict duty of good faith is required to be observed by the parties. Although word ‘utmost’ is used to highlight the significance of good faith in a particular contact, the duty of good faith is essential part of every contract but degree of good faith may vary in each case. Likewise, no insurance contract can be made in bad faith. The common impression that the general law of contract does not recognize the duty of good faith is well founded but not entirely true, as it recognizes the duty of true representation, which is one element of the duty of good faith. In the general contract law, parties are not under any obligation to disclose information because each party is free to protect his own interest. Nevertheless, they are not allowed to induce the other party to enter into the contract by misrepresentation because that is deceit. If one party fails to observe the duty of good faith, the other party may avoid the contract. This means that contract is not void automatically, and if the innocent party wants to continue with the contract, this is his own free will. Furthermore, avoidance is not the only remedy; the innocent party may claim damages in case of negligent or fraudulent misrepresentation.