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

8.87 If the policyholder’s breach of warranty was a serious one, we see no reason why
the insurer should have to give notice. The insured’s predicament was its own
fault. If the breach was minor, we can see a case for requiring notice. On the
other hand, we do not wish to interfere with freedom of contract. Under our
proposals, in business insurance, the parties would be free to negotiate
alternative outcomes for breach of specific terms, and could include cancellation
clauses within their contracts.
8.88 On balance, we do not think it is necessary to make specific provision for notice
periods. In a consumer contract, a cancellation clause would be subject to the
fairness test of UTCCR. In a business insurance policy where the term in
question is one of the standard policy terms, the insurer would not able to rely on
it if it would make the cover substantially different from what the insured
reasonably expected. A clause hidden in the small print might well have that
effect and would therefore be invalid.
8.89 We provisionally propose that a breach of warranty or other term should
give the insurer the right to terminate the contract, rather than
automatically discharging it from liability, but (unless otherwise agreed)
only if the breach has sufficiently serious consequences to justify
termination under the general law of contract.
Liability for premiums
8.90 If the reforms were to provide that a breach of warranty gives an insurer the right
to bring a contract to an end, this raises a further question: should the insured
continue to be liable to pay premiums after the contract is terminated?
Future premiums
8.91 Under general contract law, where one party accepts the other’s wrongful
repudiation, the effect is to bring to an end both parties’ primary obligations under
the contract. As Lord Diplock put it:
(a) there is substituted by implication of law for the primary obligations
of the party in default which remain unperformed a secondary
obligation to pay money compensation to the other party for the loss
sustained by him in consequence of their non-performance in the
future and (b) the unperformed primary obligations of that other party
are discharged. 34
34 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 849.
204