Development of the duty of good faith in insurance in Saudi Arabian law; recommendations for Saudi legislators and regulators.

Abstract

The doctrine of utmost good faith is applied to denote a minimum standard which holds parties to specified contracts to behave in an honest way and disclose all relevant material information. This doctrine underpins insurance law. Its importance is fundamental because it is by acting in utmost good faith that provides the basis upon which parties decide whether or not to enter into an insurance contract. This study reflects on the duties of the insurer and the insured to critically examine the duty of utmost good faith. The English system for commercial insurance contracts clearly specifies the obligations of the insured as well as the available remedies. In contrast, the Saudi regime does not clearly set out the relevant obligations and adopts a strict line with insurance companies. Nor does it suggest suitable remedies for a scenario in which there is a breach of good faith by the insured or the insurers that could adversely affects the parties’ obligations. Further, unlike the Australian and Saudi systems, the English Insurance Act 2015 does not clearly set out the insurance companies’ obligations. Therefore, the current study concludes that in order for the situation to be fair for both parties, it is necessary to have an agreed definition of the scope of the duties of the insured and the insurance company. In addition, it is suggested that both the insured and the insurance company would be more inclined to adhere to their obligations if there were clearly specified remedies in place. There are aspects of Australian law that could be adopted regarding insurance companies’ duties and the remedies in the event that the duty of good faith is breached. If these measures were to be adopted, the Saudi insurance system would have an effective legal framework for the doctrine of utmost good faith that provides a suitable balance between the rights and interests of the parties involved.