When an insurance agent or broker promises to obtain a particular type of insurance for a customer, he must keep that promise. If the agent or broker fails to keep the promise, he will be found liable to the person insured to provide the protection promised. This was first stated in a reported decision in Carter v. Boehm (S.C. 1 Bl.593, 3 Burr 1906, 11th May 1766), where Lord Mansfield opined:
The reason of the rule which obliges parties to disclose, is to prevent fraud, and to encourage good faith. It is adapted to such facts as vary the nature of the contract; which one privately knows, and the other is ignorant of, and has no reason to suspect. The question therefore must always be “whether there was, under all the circumstances at the time the policy was underwritten, a fair representation; or a concealment; fraudulent, if designed; or, though not designed, varying materially the object of the policy, and changing the risks understood to be run.
The covenant first reported in 1766 applies to today's insurers, brokers, agents and insureds. Everyone involved in transacting insurance must treat the other parties fairly and in good faith or be punished if the other is damaged.
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