Utmost Good Faith in Reinsurance Contracts: Difficulties and Problems of Its Operation in an Evolution Time
Date: 31 March 2015
University of Exeter
PhD in Law
Reinsurance contract as a contract of uberrimae fidei, in contrast to ordinary commercial contracts, attracts a duty of utmost good faith requiring both parties to exercise their best effort and endeavor to help each other to make an informed decision and perform the contract concluded thereon without any dishonesty or deceit. There ...
Reinsurance contract as a contract of uberrimae fidei, in contrast to ordinary commercial contracts, attracts a duty of utmost good faith requiring both parties to exercise their best effort and endeavor to help each other to make an informed decision and perform the contract concluded thereon without any dishonesty or deceit. There are various forms of reinsurance which adopt different ceding methods and have specific characters in the placing progress. The unique placing process in London subscription market of such complex and complicated reinsurance contracts by specialist brokers has to certain degree modified the operation of the doctrine of utmost good faith in reinsurance context. Moreover, from partial codification by the MIA 1906 to significant changed by Insurance Act 2015, it is fair to that the doctrine of utmost good faith has experienced one hundred years long revolution. The courts have taken many opportunities to structure the doctrine, establish rules of the tests, confine the scope and clarify remedies for qualifying breach. Such development of the doctrine itself has important affect upon its operation in reinsurance context too. Modification of the doctrine in reinsurance occurs due to several reasons. First, the special placing process in London subscription market affects the formation procedure of reinsurance contracts, consequently reshapes operation of the doctrine. Secondly, the characters of reinsurance contracts distinguished from underlying insurance would have some impact on operation of the doctrine in reinsurance context. In addition, other significant common law rules such as the principle of waiver, which is in extensive use in the reinsurance market practice, will also modify the operation of the doctrine in reinsurance context. Moreover, evolution of the duty itself, from an absolutely strict duty to a duty only requiring fair presentation, and a proposal of a new proportionate regime of remedies brings potential problems of its operation in reinsurance context. Consequently, notwithstanding there has been a long history of the doctrine and clarification of many aspects of the doctrine comes from a reinsurance cases, difficulties and problems still exist in operating such duty smoothly and directly in reinsurance like in direct insurance context. Such problems extend to every specific aspect of operation of the duty in reinsurance context, from the formation to performance, and then remedies for qualifying breach of the duty in claim stage.
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