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

2.61 Classification of the term is a matter of interpretation of the contract. There are
many statements within the cases that any ambiguity should be resolved in
favour of the insured. 65 If the insurer wishes to treat a condition as a warranty or
condition precedent to the contract as a whole, they must use clear words. 66 They
should not escape liability unless terms are put before policyholders “in words
admitting of no possible doubt”. 67 However, in principle a term that is clearly
stated to be a warranty has to be treated as such. 68 There is thus a limit to the
extent the courts can find ways of avoiding application of the warranty regime.
How far can interpretation be used to remove unfairness? Kler Knitwear
2.62 A difficult question is how far the courts can disregard the clear language of the
policy in order to achieve justice between the parties. In Kler Knitwear v Lombard
General Insurance Co 69 the policyholders had agreed that their sprinkler system
would be inspected 30 days after renewal. In fact, the inspection was about 60
days late and showed that the system was working. The factory later suffered
storm damage (which was wholly unconnected with the sprinklers). Mr Justice
Morland accepted in principle that if, on a proper construction of the clause, the
parties intended it to be a warranty then the Court “must uphold that intention”
however harsh and unfair the consequences. However, this particular clause was
merely “a suspensive condition”, limiting the risk.
2.63 The surprising thing about Kler Knitwear was that the term was clearly stated to
be a warranty and the policy later went on to spell out the consequences, namely
that non-compliance would bar any claim, “whether it increases the risk or not”.
Birds and Hird comment that
It is difficult to see how the insurer could have stipulated this in any
clearer terms. The term itself was called a warranty and was drafted
in clear and intelligible language and the consequences of noncompliance
were spelled out. 70
2.64 In Kler Knitwear, the judge would appear to be going further than merely
resolving an ambiguity in contractual drafting in favour of the insured. Instead he
is replacing a consequence that “would be utterly absurd and make no business
sense” 71 with one that is fairer to the insured.
65 Provincial Insurance Company v Morgan [1933] AC 240.
66 Above at 255 by Lord Wright.
67 Above at 250 by Lord Russell.
68 Subject to possible challenge, in consumer cases, under the Unfair Terms in Consumer
Contracts Regulations 1999. See para 3.000 below.
69
[2000] Lloyd’s Rep IR 47.
70 J Birds and NJ Hird, Birds Modern Insurance Law (6 th ed 2004) p 161.
71 Kler Knitwear v Lombard General Insurance Co [2000] Lloyd’s Rep IR 47, 48
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