Tales from the Tube # 1

During my trip to London I caught the tube from Farrington Tube Station which was the first of the Tube Stations to be built with the first trains running 150 years ago.

The Tube has played such an important role in the development of London and still plays a crucial part. While the Tube conjures up thoughts of the Blitz, the London Underground Bombings and so many other images, two things come to mind.

The one that I cover in this posting is that a case involving the Tube played an important part in expanding the underlying principle of utmost good faith that is inherent in all contracts of insurance.

Initially it was thought that this principle only applied at the time the insurance was taken out. It was extended to alteration of the risk mid-term by various judges in a series of cases.

Over time, this principle of acting with utmost good faith was extended so that not only does it apply at the time the insurance is taken out, but right through to claim time. In fact, based on a decision that arose from a claim that occurred during the construction of the Tube 101 years ago.

The case in question was British Westinghouse Co Ltd v Underground Electric Railways (1912) AC 673. Lord Haldane, the presiding judge, stated: “The duty of taking all reasonable steps to mitigate the loss and debars the claimant from claiming any part of the loss which is due to his neglect to take such steps”. What the judge went on to say was that: The duty to mitigate is not to ‘take any step which a reasonable and prudent man would not ordinarily take in the course of his business.’ Only reasonable steps.

Over time, this duty of mitigating the loss as part of the Insured’s duty to act with utmost good faith was again extended to the point where all questions asked of an Insured need to be answered honestly, and amounts claimed need to be as accurate as possible.

Of course the duty of utmost good faith is not a one way street. The duty, as Lord Mansfield said in one of the very first cases on the subject of utmost good faith, that of Carter v Boehm (1766) 97 ER 1162 that it applies to all parties to the contract of insurance.

What of course this shows is that insurance is involved in just so many facets of the economy. The presence of insurance which allows risk to be transferred away from the owners and or contractor to an insurer for a predetermined cost has allowed what would have been considered high risk ventures like the building of the tube to take place.

The importance of insurance and the underlying principle of utmost good faith are as important today as they were before the 150 year old tube had even been conceived.

Happy 150th birthday, Underground.

I will bring another tale next week.