The Supreme Court of Queensland has held that section 13 of the Insurance Contracts Act 1984 (Cth) is to imply a term into contracts of insurance requiring each party to the contract to act towards the other party with utmost good faith. The section does not create a concurrent tortious or statutory duty.

While previous authorities had held that the section does not give rise to a tortious duty, this case is important because it expressly considered the issue whether a tortious or statutory duty arises in the context of the 2013 amendments to the Act which introduced section 13(2) which makes a breach of the duty of utmost good faith by an insurer a breach of the Act. Some legal commentators had suggested that the addition of that sub-section might give rise to a tortious or statutory duty. That argument has been firmly rejected by the Court.

The Court noted that the intention of sub-section 13(2) was to provide regulatory sanctions for a contravention of the duty and to allow ASIC to provide assistance to affected insureds in seeking contractual remedies. Given that an action for breach of statutory duty might more readily be inferred in circumstances where there is no alternative cause of action available, the introduction of sub-section 13(2) does not support the implication of such duty.

The decision also provides useful guidance on policy construction and, in particular, the term 'accidental, sudden and unforseen' in property policies.

For our detailed case note on this decision click here.

For a full copy of the judgment click here.