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

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.
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