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

(3) The policy may contain exceptions that have similar effects to warranties.
For example, a warranty that a vehicle is “kept in a roadworthy condition”
may be re-written as an exclusion, that an accident will not be covered
“unless the vehicle is in a roadworthy condition”. The difference is a
warranty applies if the car becomes unroadworthy even if it is then
repaired; exclusion applies only to accidents where the vehicle was
unroadworthy at the time. However, an exclusion may well apply even in
the absence of a causal connection. For example, if a car has broken
headlights the exclusion would apply, even if the accident took place in
daylight, and the defective headlights played no part in it.
7.4 The legal effect of warranties has been heavily criticised. In this Part we begin by
analysing the particular difficulties caused by warranties. However, it is important
to see these within a broader framework of techniques that may be used to
achieve the same ends. It is not always possible to distinguish clearly between
warranties and other terms.
WARRANTIES AS TO FUTURE CONDUCT OR CIRCUMSTANCES
Criticisms of the current law
7.5 We set out the current law on warranties in Part 2. The principal criticisms of
warranties as to the future have been that, because a breach of warranty
automatically discharges the insurer from liability, insurers may refuse to pay a
claim because of actions or omissions that:
(1) are immaterial to the risk. For example, an insurer may refuse to pay a
claim because the insured innocently said that a lorry was (or would be)
kept at the wrong address, even though this did not increase the risk. 3
(2) are irrelevant to the loss that has occurred. For example, a failure to
employ watchmen may discharge an insurer from liability for a claim for
storm damage that no watchman could have prevented. 4
(3) have already been remedied. For example, 5 if the warranty requires an
alarm system to be kept operational the whole time and for some weeks
it breaks down, there is no cover even after the alarm has been repaired.
7.6 These rules are unfair, we argued earlier, because they are contrary to what the
insured who does not have a specialist adviser at their elbow would reasonably
expect.
3 Dawsons Ltd v Bonnin [1922] 2 AC 413, 1922 SC (HL) 156.
4 See Forsikringsaktieselskapet Vesta v Butcher [1989] AC 852.
5
Likewise, once a ship has entered an excluded zone, it remains uninsured even if it leaves
that zone as soon as possible: Bank of Nova Scotia v Hellenic Mutual War Risks (“The
Good Luck”) [1992] 1 AC 233.
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