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

7.50 Large businesses are more able to protect themselves. They have the resources
to employ staff who understand the issues, and the bargaining position to
renegotiate terms. We were told, for example, that one large company refuses to
agree to warranties in any circumstances. This does not suggest, however, that
reform is unnecessary for large businesses. Rather it suggests that all
businesses might benefit from the change we are proposing. The fact that
businesses which are able to do so exclude the rule, and presumably pay any
resulting increase in premium, suggests that it is a poor rule in the first place.
7.51 Finally, as we explore below, the UK approach to warranties is out-of-line with the
expectations of an international market. The notion of a warranty is unknown to
civil law systems, and increasingly is being abandoned by other common law
systems. It no longer accords with international conceptions of fairness.
COMPARATIVE LAW
Common law jurisdictions
7.52 We note that the effect of a breach of warranty under UK law is now out-of-step
with the majority of other jurisdictions we have looked at.
7.53 Both Australia and New Zealand have attempted to correct the perceived defects
in the law by legislation to curb the insurer’s right to refuse claims for a breach of
warranty. The provisions are considered in detail in Part 8, when we consider
what reforms might be appropriate in this country. The Australian legislation does
not apply to marine insurance, but the Australian Law Reform Commission has
recommended reform in that area also.
7.54 In Canada, the Marine Insurance Act 1993 is based on the 1906 Act. However
courts have limited its application “to situations where the warranty is material to
the risk and the breach has a bearing on the loss.” 31 Where cases do not meet
this criterion, the courts tend to find that the clause is not a true warranty at all.
The leading case is the Supreme Court decision in Century Insurance Company
of Canada v Case Existological Laboratories Ltd. (“The Bamcell II”). 32 The
Bamcell II was a converted barge used for oceanographic experiments. The
owners had negotiated a policy, which included the following term
Warranted that a watchman is stationed on board the BAMCELL II
each night from 2200 hours to 0600 hours with instructions for
shutting down all equipment in an emergency.
7.55 In fact, the owners never placed a watchman on board. However, there were no
problems at night. The loss occurred mid afternoon, and therefore the breach had
“absolutely no bearing whatever on the loss” 33 . As a result, Ritchie J held:
31 Christopher Giaschi, “Warranties in Marine Insurance” (10 April 1997), Association of
Marine Underwriters of British Columbia, Vancouver,
http://www.admiraltylaw.com/papers/warranties.htm (last visited 23 May 2007).
32
[1984] 1 WWR 97.
33 Above at 104, by Ritchie J.
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