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

6.45 The reason co-insureds under joint and composite policies are treated differently
is a technical one. A joint policy creates a single contract whereas a composite
policy represents a bundle of contracts. 7 This is significant because a contract
cannot be rescinded unless total rescission can be achieved. 8 It is not, therefore,
possible to rescind a joint contract of insurance in respect of the culpable coinsured
but affirm it in relation to the innocent co-insured. The whole contract
must be avoided, leaving nothing for the innocent co-insured to found an action
on. In the case of composite insurance the insurer can avoid their contract with
the culpable co-insured without affecting their contract with any innocent coinsureds.
6.46 Whether a policy is joint or composite is a matter of interpretation. The courts
have placed significant emphasis on the nature of the interests or rights held by
the co-insureds. 9 Co-insureds who share the same interest or rights in the subject
matter of the insurance, such as joint owners or, in Scotland, co-owners, 10 will be
considered to have a joint policy. Where the interests or rights are different, such
as a mortgagor and mortgagee (standard security grantor and holder in Scotland)
or landlord and tenant, the policy is said to be composite in nature. This means
that where a husband and wife insure the possessions which they own jointly or,
in Scotland, in common, they will normally be considered to have a joint policy.
However, if flat sharers joined together to insure their separate possessions in a
single policy, the policy would normally be considered to be composite.
6.47 It is not certain whether a policy that is composite in nature can be made joint by
clear and unambiguous wording to that effect. 11 We have not found any cases in
which the wording is sufficiently clear and unambiguous to make insurance on
different interests or rights into a joint policy.
7
In Arab Bank Plc v Zurich Insurance Co [1999] 1 Lloyd’s Rep 262, at p 277, Rix J clarified
that “in a typical case of a composite policy where there are several assureds with
separate interests, the single policy is indeed a bundle of separate contracts. That is the
prima facie position”. See also M Clarke, The Law of Insurance Contracts (4 th ed 2002) at
para 27-2C6.
8 See Sheffield Nickel v Unwin (1877) 2 QBD 214 (“a contract cannot be rescinded in part
and stand good for the residue. If it cannot be rescinded in toto, it cannot be rescinded at
all.” Lush J at p 214) and United Shoe Machinery v Brunet [1909] AC 330 (“The party
defrauded cannot avoid one part of a contract and affirm another part, unless indeed the
parts are so severable from each other as to form two independent contracts”, Lord
Atkinson at p 340).
9
10
In a passage which has been followed, Sir Wilfred Greene MR explained the difference
between joint and composite policies in General Accident Fire & Life Assurance Corp Ltd v
Midland Bank Ltd [1940] 2 KB 388 at p 405.
In English land law, a distinction is made between co-owners who hold as “joint tenants”
and those who hold as “tenants in common”. Joint tenants would be presumed to take out
joint insurance. Tenants in common may be co-insureds under a composite policy.
11 New Hampshire Insurance Co v MGM Ltd [1997] LRLR 24 and Directline Insurance Plc v
Khan [2002] Lloyd’s Rep IR 364 seem to assume that this is possible. This would be
consistent with the English law of joint and several obligations generally, which is
characterised by the rule in Slingsby’s Case (1587) 5 Co Rep 18b. Parke B described the
rule as follows: “a covenant will be construed to be joint or several according to the
interests of the parties appearing upon the face of the deed, if the words are capable of
that construction; not that it will be construed to be several by reason of several interests, if
it be expressly joint”: Sorsbie v Park (1843) 12 M & W 146 at p 158.
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