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

8.92 This means that neither the innocent nor the guilty party are required to perform
any further primary obligations under the contract (though ancillary clauses,
dealing with matters such as arbitration, may survive). 35 If the guilty party has
been paying by instalments, the normal rule is that the insured remains liable for
any payments that fall due before the repudiation is accepted, 36 but not for
payments due after that date. The primary obligation to pay the instalments is
replaced with a secondary obligation to pay damages for loss of profits. This
contrasts with the rule for breach of warranty under section 33(3) of the 1906 Act,
under which only the insurer is discharged from liability: the insured remains
liable to pay future instalments of the premium. As we have seen, under the
current law if the insured breaches a payment of premium warranty, the insurer is
automatically discharged from further liability, but the insured must continue to
make payments. 37
8.93 The question is what would happen if we were to repeal section 33(3) and
replace it with an insurer’s right to accept repudiation? It is unclear whether the
normal rule would apply, so that the insured would cease to be liable for the
premium. The insurer might be able to argue that the separate instalments did
not constitute different payments for divisible periods of cover (with, for example,
each monthly instalment paying for each month’s cover). Instead, it could be said
that the premium was one single indivisible payment for one single period of
cover: it was just that the contract permitted the single premium to be paid over
the course of time.
8.94 This latter argument was accepted in Chapman v Kardirga. 38 Chadwick LJ
commented:
the Judge [at first instance] was wrong to hold that the effect of the
payment of premium clause [which allowed payment by quarterly
instalments]…was to apportion the premium payable under the policy
to discreet periods of the term of the policy; that is to say, to convert
what was (but for the payment of premiums clause) a premium
payable in respect of the entire risk into a series of premiums payable
in respect of risks during successive periods…The fact that the
successive instalments are due and payable on dates which occur at
three monthly intervals during the term of the policy does not, in my
view, lead to the conclusion that the premium, which comprises the
aggregate of those instalments, is itself divisible between successive
three month intervals. 39
35
See Yasuda Fire & Marine Insurance Co of Europe v Orion Marine Insurance Underwriting
Agency Ltd [1995] 1 Lloyd’s Rep 525.
36 Hundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129, where the party in
default was entitled to claim an instalment which fell due on 15 July despite the fact that
they had cancelled the contract on 6 September.
37
In JA Chapman v Kadirga and others [1998] CLC 860.
38 As above.
39 As above.
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