THE SHAPE OF THE DUTY OF UTMOST GOOD FAITH

Updated: Mar 4

A recent decision of the Supreme Court of Queensland concerned the collapse of a crane’s boom, the reasons for that collapse and whether the owners of the crane were entitled to indemnity under a Contractors and Plant Insurance policy held in respect of that crane. 


The Court found that the owner of the crane had caused the boon's collapse by not observing the manufacturer’s guidelines, failed to fall within the policy’s terms and conditions and triggered a number of the policy’s exclusions. That should have been sufficient to dispose of the matter but, the Court still looked at a number of issues placed before it in the event that its findings were overturned. One issue was the shape of the duty of utmost good faith. 


While the provisions of the Insurance Contracts Act enliven an implied contractual obligation between the parties to act towards each other in good faith, the Insured argued that the same provisions also enlivened a statutory duty of utmost good faith.  If they did, then any breach entitled the Insured to damages causally connected to the breach.



The Court found that the provisions of the Insurance Contracts Act did not enliven any statutory duty of utmost good faith.


Why? The Court’s reasons included the following:

  • The language of the relevant provisions speaks simply of implying a term into the contract of insurance requiring each party to act towards the other with the utmost good faith. Nothing more.Normally a statutory duty will be imposed when no alternative remedies are available.

  • Here there are a number of alternative remedies including an ability to sue on the contract for breach of an implied term.The relevant provisions of the Insurance Contracts Act are expressed too generally to determine the scope of any statutory duty.

  • This judgment powerfully makes the point that whenever the question of the duty of utmost good faith is considered, that consideration is limited to the terms of an implied term of the contract of insurance. There is no separate statutory duty. 

The duty of utmost good faith comes in one shape only – contractual.


The name of the case is Matton Developments Pty Ltd v CGU Insurance Limited (No 2) [2015] QSC 72


0 views0 comments