The duty of utmost good faith (known as Uberrima Fides) requires essential elements of ‘honesty’, ‘good faith’ and ‘integrity’. It is an obligation placed on certain groups to ensure that they are held to a higher duty than that which is reasonably expected with community standards. This duty ensures that parties to a contract for insurance are prevented from relying on certain provisions if relying on such would result in a breach of the duty of utmost good faith.
This is a reciprocal duty which ensures that both an insurer as well as an insured maintain respective duties of utmost good faith. This duty was espoused in the authorities of Carter v Boehm (1766) 3 Burr 1905 and Boulton v Holder Brothers (1904) KB 784 and has been incorporated in the Insurance Contracts Act 1984 (Cth) (“IC Act“) under section 13 which requires that any party to a contract for insurance must:
“act toward the other party, in respect of any matter rising under or in relation to, with the
utmost good faith.”
Interestingly, the duty is not defined within the IC Act and there is no complete or determinative definition of the duty. The Courts, however, have made various comments surrounding the duty, suggesting that it is one that ensures that anything deemed ‘unfair’ or ‘unreasonable’ is in contravention of such a duty.
The High Court of Australia in CGU Insurance Ltd v AMP Financial Planning Pty Ltd  HCA 36 has revealed interesting insight into the manner in which the Court deals with the duty to act in utmost good faith. The High Court considered that this duty is a mutual one between both the insured and the insurer and equates such a duty to the equitable duty to “come with clean hands”. The High Court provided that breach of such a duty does not necessarily require proof of dishonesty, but may extend to delays in making a decision on an insurance claim.
The duty of utmost good faith has been one that has been difficult to define, however, the High Court has assisted in offering some guidance on the extent of such a duty and how easily it can be breached. Accordingly, the effect of this decision was that both the insurer and the insured must be cautious and vigilant in its conduct to ensure that it fulfils its duty of utmost good faith and ensures that proper accord is given in ensuring the claims are assessed in a timely manner, with accord to good faith and with utmost integrity.