'Utmost good faith and accountability in the spotlight of the Banking Royal Commission: Time to revisit the scope, applicability and enforcement of the duty'

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry considered the insurance industry by reference to case studies involving all stages of the insurance process. This examination revealed serious problems and issues within the life and general insurance industries in relation to the handling and settling of insurance claims, the sale of insurance products including direct selling techniques, unfair contract terms including outdated definitions and misleading and deceptive conduct. This misconduct by a broad cross section of insurers demonstrates a deliberate disregard and/or ignorance of the statutory obligation upon the parties to an insurance contract that they observe utmost good faith towards one another in the formation and performance of an insurance contract. This inalienable obligation is rooted in the common law and is enshrined in the Insurance Contracts Act 1984 (Cth). The duty of utmost good faith requires parties to act toward one another with fairness, reasonableness and decency and to have regard to the other party’s reasonable expectations. Clearly any organization voluntarily embracing such good faith contracting and performance standards as part of their standard business practices will be setting a high standard of ethical behavior. This in turn will have the potential to enhance trust and address the deficiencies of culture, governance and risk management within entities that the Banking Royal Commission highlights as being core to many of the problems and concerns it identifies. This article examines the current scope, applicability and enforcement of the duty of utmost good faith and concludes with recommendations arising out of the Banking Royal Commission and otherwise. As the intrinsic value of any insurance product lies in the ability to make a successful claim when an insured event occurs, particular attention is given to claims handling and settlement and to the enforceability of utmost good faith duties. Furthermore, consideration also is given to recent case law that reveals continuing uncertainty around the operation of the duty in circumstances when it is very difficult to conclude that the insured, or the insurer, is acting in accordance with this overarching duty.