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A Study on the Types of Breach of the Insurer's Duty of Utmost Good Faith by Insurance Contract Stage

  • Legal Theory & Practice Review
  • Abbr : LTPR
  • 2026, 14(3), pp.383~408
  • Publisher : The Korea Society for Legal Theory and Practice Inc.
  • Research Area : Social Science > Law
  • Received : August 10, 2026
  • Accepted : August 27, 2026
  • Published : August 31, 2026

Hwang JungHye 1

1한국해양대학교

Accredited

ABSTRACT

An insurance contract is a special type of contractual relationship characterized by its aleatory nature and information asymmetry, and therefore requires a higher level of good faith than ordinary contracts. Although the duty of utmost good faith is imposed on both the policyholder and the insurer, considering the significant disparity in the information and expertise possessed by the two parties, the insurer should be subject to a more proactive duty of utmost good faith. This study examines the duty of utmost good faith not merely as a duty to provide explanations at the time of contract formation, but as a continuing obligation throughout the entire insurance relationship, from the pre-contractual stage through the maintenance and management of the insurance contract. On this basis, it discusses in detail the practical issues that may arise at each stage. Before the formation of an insurance contract, this study examined improper solicitation of insurance products, guidance provided in completing application forms, and violations of the insurer's duty to explain, particularly in the context of the solicitation process and the delivery and explanation of insurance terms and conditions. After the formation of the insurance contract, the relevant issues can be divided into the investigation of insured events, the payment of insurance proceeds, and the maintenance and management of the contract. In the investigation of insured events, problems may arise from complicated investigation procedures, prolonged investigations, and the use of medical consultations or loss adjustment procedures for the purpose of denying or reducing insurance benefits. In the insurance payment process, improper practices such as unjustified delays in payment, denial of coverage, inducement to settle, and the filing of lawsuits were identified. Finally, issues arising in the maintenance and management of insurance contracts, including lapse and termination, reinstatement, and renewal procedures, were primarily related to the exercise of the insurer's contractual powers. The analysis demonstrates that such powers must be exercised strictly within the limits prescribed by applicable law and the terms and conditions of the insurance contract. Based on the foregoing analysis, the duty of utmost good faith can serve as a standard for determining the scope and limits of an insurer's exercise of its powers in relation to the legal duties arising at each stage of the insurance relationship. Accordingly, whether an insurer has violated its duty of utmost good faith may be determined comprehensively by considering: (1) whether the exercise of its powers is authorized by applicable law and the terms and conditions of the insurance contract; (2) whether the decision is based on objective evidence and reasonable grounds; (3) whether the insurer's internal interests or business considerations have exerted an improper influence on the decision; and (4) whether the exercise of such powers has infringed upon the policyholder's legitimate rights and reasonable expectations. Developing these stage-specific criteria can contribute to protecting policyholders' interests and ensuring fairness in insurance contracts while respecting insurers' legitimate authority to assess risks and manage insurance contracts.

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This paper was written with support from the National Research Foundation of Korea.
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