Section 14 of the Insurance Act 2015 modernised the ancient principle that insurance is a contract of the utmost good faith. It did not abolish good faith, but it removed the drastic remedy that used to attach to it.
Section 17 of the Marine Insurance Act 1906 declared insurance to be a contract based on the utmost good faith, and provided that if utmost good faith was not observed by either party the other could avoid the contract. Avoidance meant unwinding the policy from inception, an all-or-nothing remedy that could be triggered by conduct at any stage of the relationship.
Section 14(1) provides that any rule of law permitting a party to avoid an insurance contract on the ground that the utmost good faith has not been observed by the other party is abolished. Section 14(2) amends section 17 of the 1906 Act by removing the reference to avoidance. Good faith survives as an interpretive principle informing how the contract and the parties' obligations are read, but breach of it no longer gives either side a free-standing right to avoid.
The practical content of good faith is now delivered through the targeted regimes the Act created: the duty of fair presentation and its proportionate remedies in sections 3 to 8, the suspensory treatment of warranties in section 10, and the fraudulent-claims remedies in section 12. Rather than a single catch-all doctrine with a nuclear remedy, the obligations are spread across defined provisions with defined consequences.
For a professional firm the removal of avoidance-for-bad-faith closes off a route by which an insurer could once have sought to escape the policy entirely on broad equitable grounds. The insurer must now bring itself within one of the specific statutory remedies, each of which has its own threshold and, in the fair-presentation context, its own proportionate outcome.
Good faith continues to matter. It shapes how ambiguous terms are construed and reinforces the honesty expected in claims handling, which section 12 then enforces. For regulated professionals the overlap with their own conduct duties is close: an independent financial adviser owes clients a duty of care and their regulator a duty of candour, and an insurance broker owes similar obligations to both client and insurer. Solicitors face the same in their dealings. Apex helps firms understand where these general principles bite on their PI arrangements.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.