REFORM OF THE DOCTRINE OF UTMOST GOOD FAITH: A COMPARATIVE ...

REFORM OF THE DOCTRINE OF UTMOST

GOOD FAITH: A COMPARATIVE STUDY

BETWEEN THE UK AND SAUDI ARABIA

Submitted by Dina Esmaeil M Abuzaid

to University of Stirling as a thesis for the degree

of Doctor of Philosophy in Law

June 2018

ABSTRACT

In the UK and Saudi Arabia, it is necessary for the contracting parties in insurance

contracts to comply with the requirement of the doctrine of utmost good faith. In

recent years, the doctrine of utmost good faith and the mutual duties of the

contracting parties have developed in different ways in each jurisdiction. Both

jurisdictions provide consumer protection in insurance markets by Consumer

Insurance (Disclosure and Representation) Act 2012 in the UK and Insurance

Consumer Protection Principles 2014 in Saudi Arabia. However, there are many

differences between the conduct of each jurisdiction since the coming into force of

the Insurance Act 2015 in the UK, which revolutionised the insurance law in several

key areas. This thesis particularly aims to critically analyse the reform of the

doctrine of utmost good faith and looks at how the current reform impacts on the

interpretation of this doctrine between the UK and Saudi jurisdictions. This study

critically analyses the insureds¡¯ pre-contractual duties for consumers and businesses

in the UK with a comparison to Saudi jurisdiction. Uncertainty of mutual duties

especially for specific insurers¡¯ pre and post-contractual duties and the insureds¡¯

post-contractual duties can easily be found in both jurisdictions. Accordingly, this

study critically analyses the mutual duties of insurers and insureds. Finally, this

thesis intends to develop recommendations to fill legal gaps, significantly, for the

Saudi jurisdiction in respect of the doctrine of utmost good faith which should

respectively contribute to developing insurance law in Saudi Arabia. Several

outcomes for the UK jurisdiction are produced to contribute towards developing

insurance law with respect to the doctrine of utmost good faith.

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Acknowledgement

¡®In the name of God, the compassionate and the merciful¡¯

First of all, I am thankful to Allah almighty for guiding me to complete this thesis, and a

part of thanking Allah is to thank all who have supported me throughout my years of study

complying with the tradition of Prophet Mohammed, peace and blessings be upon him,

who said: ¡°He/she has not thanked Allah who has not thanked people.¡± Sunan Abi

Dawud 4811.

I would like to express my sincere gratitude to my supervisor Professor Rob Merkin QC

for his continued support, advice, guidance, and encouragement throughout the writing of

this thesis.

I would like also to express my deepest thanks to Professor Fraser Davidson, as he was my

first supervisor before his retirement, to Lorraine Wilson for all her ultimate support and

encouragement as a second supervisor throughout the second and third years of my study,

to Dr Oles Andriychuk for his continued support as a second supervisor throughout the

final year of my study, to Dr Hong-Lin Yu as she provided advice, encouragement, and

support, Dr David McArdle and Dr ?zlem G¨¹rses for examining my thesis; and to Dr

Mohammed Alothman for his support when conducting an interview with him as the

Chairman of the Appeal Committees for Resolution of Insurance Disputes and Violations

in Jeddah, Saudi Arabia.

I would like to thank my sponsor, King Abdul-Aziz University, for giving me this

opportunity to complete my study in the UK. Special thanks to University of Stirling for

arranging the supervision with Professor Rob Merkin. Also, to my colleagues in King

Abdulaziz University and University of Stirling.

I would not have been able to undertake this work without the support of my family. I

would like to express my deepest thanks to my mother, Samira Abuzinadah. It would not

be possible to have achieved this without her, her emotional support, unconditional love,

encouragement, and genuine care when things got tough especially throughout my illness.

To the soul of my father, Esmaeil, I wish you were here. To my brothers, Wael and Rami,

and my sister, Nada, for their continued support and love.

I would further like to express my genuine thanks to my friends Jawaher Jaber and Asmaa

Fallatah who believed in me and provided me care, support, love, and encouragement. To

Raghda Alaql, my friend on this journey, there were memorable moments that we spent in

London and Exeter. Your support, care and encouragement are unforgettable.

Finally, I would like to express my deepest thanks and love to my husband, Ibrahim Alotibi,

for all the love, care, patience, understanding, and support. It was a chapter of our life to

remember and to appreciate each tough moment throughout years of study. To my son,

Abdulrhman, you lightened up my world and filled it with love and happiness. Thanks my

little man for your patience, love, and your attempts to understand.

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TABLE OF CONTENTS

ABSTRACT¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­2

ACKNOWLEDGMENT¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­..3

TABLE OF CONTENTS¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...4

LIST OF CASES¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...8

LIST OF LEGISLATIONS¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.17

LIST OF ABBREVIATIONS¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..............19

CHAPTER 1: INTRODUCTION¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..20

1.1. Background¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­...20

1.2. Aim and Objectives¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­..24

1.3. Scope and Research Questions¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­.¡­¡­¡­¡­¡­¡­.....25

1.4. Methodology and Structure¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­...27

CHAPTER 2: BACKGROUND OF THE DOCTRINE OF GOOD FAITH IN THE

DOCTRINE OF GOOD FAITH IN THE UK AND SAUDI INSURANCE

LAWS¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...............¡­¡­¡­.32

2.1. The Developments of the Doctrine of Good Faith in the General Law of Contracts in

the UK¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­.¡­..32

2.2. The Developments of the Doctrine of Utmost Good Faith in Insurance Law in the

UK¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..38

2.3. The Developments of Insurance Law in Saudi Arabia¡­¡­¡­¡­¡­¡­¡­¡­..¡­¡­¡­.40

2.3.1.

Saudi Legal Structure¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...¡­¡­¡­¡­¡­...¡­..40

2.3.2.

Prohibition of Conventional Insurance¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.42

2.3.3.

Permission of Takaful Insurance¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..47

2.4. The Doctrine of Good Faith in the General Law of Contracts in Saudi

Arabia¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­..51

CHAPTER 3: THE MEANING OF THE DOCTRINE OF UTMOST GOOD

FAITH¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...55

3.1. Introduction¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­.¡­¡­¡­¡­¡­..55

3.2. Origin and Meaning of Utmost Good Faith¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­.¡­¡­.55

3.3. Continuing of the Doctrine of Utmost Good Faith¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­....59

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3.4. Remedies upon Breach of the Doctrine of Utmost Good Faith¡­¡­¡­¡­¡­....¡­¡­..64

3.5. Conclusion¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...¡­¡­¡­¡­¡­¡­¡­¡­..70

CHAPTER 4: CRITISMS OF THE DOCTRINE OF UTMOST GOOD

FAITH¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..¡­¡­¡­74

4.1. Introduction¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­....74

4.2. The Misapplication of Lord Mansfield¡¯s Judgment in UK Insurance Law¡­............74

4.3. Takaful Insurance: Should Be a Commercial or a Donation Contract?¡­¡­..¡­¡­....77

4.4. Utmost Good Faith versus Good Faith: Which should be applied in insurance

Contracts?....¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­....¡­¡­¡­¡­¡­¡­¡­¡­¡­84

4.4.1.

In the UK¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­...84

4.4.2.

In Saudi Arabia¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­.¡­..87

4.5. The Adoption of Utmost Good Faith as an Interpretative Principle¡­¡­..¡­¡­¡­.....91

4.6. Conclusion¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­.96

CHAPTER 5: CONSUMER¡¯S PRE-CONTRACTUAL DUTIES¡­¡­¡­¡­¡­¡­¡­..99

5.1. Introduction¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­.......99

5.2. The Scope of Consumer Insurance: Who is a Consumer? ¡­¡­¡­¡­¡­¡­..¡­¡­....100

5.3. The Duty of Reasonable Care to not Make Misrepresentation¡­¡­¡­¡­¡­¡­¡­¡­106

5.4.

Legal Remedies¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­..¡­¡­..110

5.4.1.

Deliberate or Reckless Misrepresentation¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...111

5.4.2.

Careless Misrepresentation¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.114

5.5. Conclusion¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­.¡­¡­..116

CHAPTER 6: INSURED¡¯S PRE-CONTRACTUAL DUTIES FOR BUSINESS

INSURANCE¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­.....118

6.1. Introduction¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­....118

6.2. Separation of the Insured¡¯s Pre-Contractual Duties from the Doctrine of Utmost Good

Faith¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­¡­¡­...............119

6.3. The Duty of Fair Presentation¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­¡­¡­...¡­¡­¡­..120

6.4. The Duty of Disclosure¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­...¡­¡­¡­¡­¡­..¡­..126

6.5. Misrepresentation¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­¡­¡­¡­..¡­¡­¡­..130

6.5.1.

Fraudulent Misrepresentation¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..¡­¡­¡­..¡­¡­¡­..131

6.5.2.

Innocent Misrepresentation¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...¡­¡­¡­¡­..133

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