Continuous Responsibility and Non-disclosure in Marine Insurance

Duty of Utmost Good Faith
Shipowner, freight forwarder or cargo owner to an insurance contract make statement of fact, belief, expectation to insurer before or at the time of a contract. The assured must disclose to the insurer every material circumstance before the contract is concluded . The provision of the Ordinance continues to stipulate that a material circumstance is one which is known to the assured and the assured is deemed to know every circumstance which in the ordinary course of business ought to be known by him . The result of non-disclosure of a material circumstance is that the contract may be avoided by the other party i.e. insurer because a contract of marine insurance is a contract based upon the utmost good faith . The consequence is very serious to an assured due to the fact that if the assured fails to make such disclosure, the insurer may avoid the contract ab initio i.e. from the time of inception of the contract . The issues arise are whether the duty of utmost good faith is a pre-contractual or post-contractual duty and how a breach may affect a claim in insurance contract. This paper summarizes recent studies and discussions on the issues.

Pre-contractual or post-contractual duty
The wording of s.17 of the Marine Insurance Ordinance does not limit the duty of utmost good faith only to pre-contractual situations and it is possible to interpret it as a continuing duty of disclosure throughout the duration of an insurance contract. The consequence of a breach of s.17 is clear that the entire contract may be avoided to non-disclosure before and during the currency of the contract . However, such a remedy is inappropriate in the post-formation context when examined against the general purpose of the duty of disclosure in insurance law. The authority of a post-contractual duty of good faith was established in the case of The Litsion Pride and the implied term theory was