Misrepresentation, Non-Disclosure and Breach ... - Law Commission

Warranties of fact in the policy
4.224 In consumer insurance it would not be adequate merely to require that the
warranty must either be in the policy, or “contained in some document
incorporated by reference to the policy”. 99 If all the law required were a clause in
the policy that the insured warrants the truth of every statement made in another
document, consumers would be no more likely to understand the effect than if the
“basis of the contract” clause were in the proposal form. At the very least we think
that in consumer insurance warranties of existing fact should be effective only if
each fact warranted is specifically set out in the policy or in a schedule to it.
However, we would go further. For reasons we explain below, we think that even
warranties of specific fact in consumer policies should be of no effect.
The Law Commission’s 1980 proposals: specific warranties of past or
existing fact
4.225 The Law Commission’s 1980 report recommended that specific warranties as to
past or existing fact should remain effective, subject to three provisos:
(1) the fact warranted must be material (there would be a presumption that it
was material);
(2) once a claim had occurred, the insurer would not be entitled to refuse to
pay the claim if the insured showed that the warranty was not intended to
safeguard against the kind of event that materialised or that the breach of
warranty did not increase the risk of the event occurring in the way it
did; 100
(3) the insurer would not be permitted to rely on a breach of warranty unless
the insured was supplied with a written statement of the warranty either
at or before the contract was made, or as soon as possible thereafter. 101
4.226 It must be asked what purpose a warranty of this kind would serve. What rights
would it have given the insurer over and above its rights under the Law
Commission’s proposals on misrepresentation? The fact warranted would have to
be material in each case. Because of the requirement for a causal connection,
the right to refuse the claim (and also to cancel the policy) would be more
restrictive than the right to avoid for misrepresentation. So it seems that the only
advantage the insurer would get from obtaining a warranty of fact would be that
the liability for breach of warranty would be strict – in other words, it might be able
to avoid paying even though the insured was in no way at fault in giving the
incorrect information.
4.227 We have already argued that consumers should not lose their rights when not
only were they honest but they can show that they were not negligent. We have
also reported the general agreement at the working seminars that this rule should
be mandatory in consumer cases. It would undermine this to say that the insurer
may achieve the same result by use of a warranty.
99 To use the words of the Marine Insurance Act 1906, s 35(2).
100 Draft Bill, Clause 10 (5)(a).
101 Insurance Law, Non-Disclosure and Breach of Warranty (1980) Law Com No 104.
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