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

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7.65 John Hare, Professor of Shipping Law at the University of Cape Town is even more outspoken. He describes the Anglo-American marine insurance warranty as “a prodigal aberration from the European ius communis of marine insurance”. He suggests that “the prodigal, in whatever systems it has raised its unwelcome head, ought to be brought back into the fold in the interests of the very fairness, justice and equity to which English law so properly aspires”. 44 7.66 UK warranty law is inconsistent with the mandatory, but milder, provisions concerning alteration of risk in several Civil Law countries. Wilhelmsen comments that if there are to be attempts towards harmonisation, it is unlikely that many other European States will move towards the British model: The mandatory provisions in Danish and Swedish [Insurance Contract Acts] concerning alteration of risk do not seem to permit the far more harsh regulation of warranties. Also the French and Italian legislations are more favourable towards the assured than the common law principle of warranties. In an attempt towards harmonisation, this implies either that the common law systems are willing to soften their regulation, or that a double set of clauses are suggested. It does not seem realistic that the legislators in the four mentioned civil law countries will open the door for the stricter principle of warranties, the Norwegian political attitude on this point. Also it would seem to go backwards into the future to adopt legal principles from 1906 instead of the principles of the far more modern insurance legislation in the civil law countries. 45 CONCLUSION 7.67 We conclude that the law on breach of warranty requires reform in both consumer and business insurance. The question is exactly what shape the reform should take. 44 John Hare, The Omnipotent Warranty: England v The World, paper presented at International Marine Insurance Conference, November 1999, http://web.uct.ac.za/depts/shiplaw/imic99.htm (last visited 23 May 2006). 45 Duty of Disclosure, Duty of Good Faith, Alternation of Risk and Warranties: An Analysis of the Replies to the CMI Questionnaire”, CMI Yearbook 2000, p 393. 186
PART 8 WARRANTIES AS TO THE FUTURE AND SIMILAR TERMS: PROPOSALS FOR REFORM INTRODUCTION 8.1 In this Part we make two principal proposals for reform of the law on breach of warranty, for both consumer and business insurance. The first is that the insurer should not be entitled to rely on a breach of warranty unless the insured has been provided with a written statement of what they have undertaken. The second is that the insurer should not be entitled to reject a claim on the ground that the insured has broken a warranty unless there was a causal connection between the breach and the loss. However a breach of warranty would give the insurer the right to cancel the contract for the future. 8.2 For consumer insurance, the rule requiring a causal connection would be mandatory. For business insurance it would be possible for the parties to agree on the effect a breach of warranty should have, provided they use clear language to express their intentions. Where the insured contracted on the insurer’s standard terms, there would also be controls to ensure that the cover was not substantially different from what the insured reasonably expected. 8.3 We have considered whether these proposals should apply only to warranties, or whether they should also apply to other terms, such as exclusions, which have a similar effect. In our second Issues Paper on Warranties, we suggested following the New Zealand model. This approach applies a causal connection test not just to warranties but to any term that excludes liability because of events or circumstances likely to increase the risk of a loss occurring. However, such a test would need to provide for certain exceptions: it should not require a causal connection for terms which, for example, limit the age of a driver or the geographical coverage of the policy. Concerns were expressed that the New Zealand model would be unduly complex. 8.4 On balance, we think that it would be preferable to confine the causal connection test to warranties in the narrow sense: that is, to terms by which the insured promises that a certain thing should or should not be done, or that some condition shall be fulfilled. The causal connection test should not apply to exceptions or to definitions of the risk. Where insureds and insurers negotiate terms, narrow definitions of the risk are not a problem: policyholders know what they are getting. In the case of consumers, the problems caused by such terms are already dealt with under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). The main difficulties arise where businesses contract on the insurer’s standard terms. We think that these are best addressed through specific controls on standard terms that do not meet the insured’s reasonable expectations. 8.5 We consider first the written statement, then the need to introduce a causal connection between the loss and a breach of warranty. We discuss what terms the causal connection test should apply to and how the test should be phrased. 187
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The Law Commission Consultation Pap
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THE LAW COMMISSION THE SCOTTISH LAW
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v Paragraph Page Innocent misrepres
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vii Paragraph Page Marine Insurance
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OUTLINE 1.1 This Consultation Paper
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• At present, consumers have a du
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• Any warranty should be set out
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PART 1 INTRODUCTION OUTLINE OF THE
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1.11 The 1906 Act therefore imposes
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(1) The insurer may use warranties
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1.17 When in 1980 the English Law C
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1.28 For most consumers with disput
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“Fairness” and reasonable expec
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1.50 The parties should be free to
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“Moral hazard” and the need for
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1.71 We think that consumers would
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1.80 We ask what the appropriate re
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(2) Appendix B is a report commissi
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Although the issues arise under a p
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Thus if, when a claim is made, the
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2.21 In both jurisdictions the vict
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(2) Before an insurer may avoid a c
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Subject to the provisions of this s
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Despite some contrary suggestions,
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Held covered in case of any breach
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(2) The warranty is relevant to onl
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2.61 Classification of the term is
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2.68 Such clauses elevate the answe
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These are often referred to as “c
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2.82 We accept that an exception to
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(d) readily available to any person
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2.101 If the term were not sufficie
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2.111 The law on warranties is simi
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(1) Each proposal form was required
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3.14 TCF is a valuable initiative w
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THE FINANCIAL OMBUDSMAN SERVICE 3.2
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Research project 3.32 When we start
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Case study: clear questions should
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3.43 These examples look only at th
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Warranties of fact 3.50 We did not
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(9) The FOS has more experience tha
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3.63 There might of course be some
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The risk of legal challenge 3.72 We
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(3) BOTH HONESTLY AND CAREFULLY (OR
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4.10 Some consultees have asked how
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4.18 The FOS’s requirement that t
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General questions 4.21 As we have s
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4.32 We provisionally propose that
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4.43 We would also point out that a
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Criminal fraud 4.55 First, some ins
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4.62 We stress this point, because
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4.70 The issue is further confused
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Relevance 4.80 Secondly, our defini
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4.92 However, we are not sure that
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Different ways in which policyholde
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Judging what is “reasonable” fo
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4.121 We ask whether the legislatio
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...the reasonable expectation of th
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4.142 The proposer should take care
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4.154 Few of the legal systems that
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4.162 We accept the first argument
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No reinsurance 4.173 It may occasio
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Effect on future cover 4.183 The fo
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Reactions 4.195 This question excit
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4.206 In Part 3 we identified one p
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4.218 We provisionally propose that
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Our proposals 4.228 Therefore we pr
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5.5 We have therefore sought soluti
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(2) Similar protections would apply
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(1) The duty of disclosure has beco
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Thus if a business insured ought to
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5.46 On the one hand, it seems righ
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5.57 Insurance law is currently har
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5.67 This is the same rule that we
Page 149 and 150: 5.76 We were told, for example, abo
Page 151 and 152: 5.86 We have already set out our pr
Page 153 and 154: Proving that an action was delibera
Page 155 and 156: Cancelling for the future 5.105 We
Page 157 and 158: (1) The law could allow statements
Page 159 and 160: 5.124 Is one approach better than t
Page 161 and 162: Controlling the use of standard ter
Page 163 and 164: However, the provenance of the term
Page 165 and 166: Reinsurance 5.153 Our starting poin
Page 167 and 168: 5.163 It is important to bear in mi
Page 169 and 170: 5.170 The same issues arise here. A
Page 171 and 172: PART 6 GROUP INSURANCE, CO-INSURANC
Page 173 and 174: 6.9 There may, however, be cases wh
Page 175 and 176: 6.18 We were told that whatever the
Page 177 and 178: 6.31 There is one question on which
Page 179 and 180: (1) Where a member has made a delib
Page 181 and 182: The FOS approach 6.48 In our survey
Page 183 and 184: 6.59 In Part 4 we provisionally pro
Page 185 and 186: 6.73 In business contracts, we prop
Page 187 and 188: (3) The policy may contain exceptio
Page 189 and 190: Statements of Insurance Practice 7.
Page 191 and 192: TREATING CUSTOMERS FAIRLY 7.22 In P
Page 193 and 194: 7.31 Case 14 concerned a critical i
Page 195 and 196: 7.40 Insurers have told us that the
Page 197 and 198: 7.50 Large businesses are more able
Page 199: Civil law jurisdictions 7.61 The no
Page 203 and 204: 8.12 We provisionally propose that
Page 205 and 206: 8.24 Although our general policy is
Page 207 and 208: 8.33 It may be helpful to illustrat
Page 209 and 210: 8.41 We have considered whether the
Page 211 and 212: 8.51 For business insurance it is a
Page 213 and 214: 8.62 These provisions require the c
Page 215 and 216: (1) The protection only applies to
Page 217 and 218: …subject to any express provision
Page 219 and 220: 8.92 This means that neither the in
Page 221 and 222: Waiver and affirmation 8.101 The ch
Page 223 and 224: 8.107 Scots law has not developed a
Page 225 and 226: The implied marine warranties 8.116
Page 227 and 228: Implied voyage conditions 8.127 The
Page 229 and 230: PART 9 PRE-CONTRACT INFORMATION AND
Page 231 and 232: 9.6 The issue is far from new. Repo
Page 233 and 234: THE CURRENT LAW Introduction 9.16 R
Page 235 and 236: The broker as agent for the insured
Page 237 and 238: There must be every day thousands o
Page 239 and 240: (1) on the basis of a fair analysis
Page 241 and 242: 9.47 The problem is particularly ac
Page 243 and 244: Transcribing information to screen
Page 245 and 246: 9.61 However, the case law suggests
Page 247 and 248: However, it is not obvious that thi
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It seems to me, both from a reading
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CONSUMERS - THE CURRENT POSITION In
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9.101 For these types of activity,
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(3) whether the firm has or will pr
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9.118 This was the view taken by a
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Unfortunately, the firm has contemp
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PART 10 PRE-CONTRACT INFORMATION AN
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10.9 Some intermediaries fall outsi
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10.19 We think this is a less attra
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10.25 Insurers may find it more dif
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Completion of proposal forms: the N
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Marine Insurance Act 1906, section
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10.56 The great majority of busines
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10.70 We welcome views on whether p
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Cases brought to the Financial Ombu
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11.18 When we commissioned this mod
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The overall effect 11.27 The model
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11.39 Unlike our other proposals, t
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12.9 Do consultees agree that the d
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12.22 We provisionally reject the p
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Contracting out of the default regi
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Consumer insurance: “joint lives,
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12.68 If the voyage conditions are
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ASSESSING THE COSTS AND BENEFITS OF
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THE STATEMENTS OF PRACTICE 1977 A.4
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Voluntary measures unsatisfactory A
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In such circumstances, it was also
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A.39 In 1984 the DTI put forward a
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GENERAL INSURANCE STANDARDS COUNCIL
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A.63 This report is of particular i
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In order to allow flexibility and t
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A proposed model for assessing the
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Tables & Figures Page Table 1: Illu
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Section 1 Introduction and Terms of
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Section 2 What are the primary chan
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Section 3 Economic incentives in in
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Section 4 Baseline analysis of insu
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Section 5 Identification of the pot
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Section 6 Case Study - Critical Ill
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Annex 1 References Cockburn, B. (20
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APPENDIX C THE FOS APPROACH TO ISSU
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Table 2: Consumer cases: main infor
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Table 4: Consumer cases: time of no
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C.27 The FOS has explained that in
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Have you any physical defect or inf
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The FOS approach to unclear questio
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Deliberate Customers deliberately m
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C.65 A further complication of the
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I cannot accept that the complainan
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(2) W failed to disclose an eating
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C.89 One problem with relying on om
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When does the FOS apply the consume
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The overall success rate C.107 The
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Institute of Actuaries Healthcare C
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