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

2.82 We accept that an exception to cover may be taken as defining the cover: for
example, a clause that states cover is limited to roadworthy vehicles has the
potential to be a core term. However, it does not follow that all exceptions are
exempt from review as being core terms. There are two restrictions. First, the
definition of the main subject matter of the contract is only exempt from review
“so far as it is in plain intelligible language”. Secondly, a term cannot be “the
definition of the main subject matter of the contract” if it is substantially different to
what the consumer reasonably expected.
2.83 We take these points in turn in the paragraphs that follow.
Does an exception have to be in plain language?
2.84 The exclusion from review only applies to core terms “in so far as these terms are
in plain intelligible language”. If an exclusion is not clearly worded, it will not be
treated as a core term, and will be subject to review for fairness. As MacGillivray
states, “failure to word a core term of the insurance clearly will result in it losing
its exemption from assessment for fairness”. 102
2.85 This requirement of the Directive is not universally accepted. Clarke, for example,
includes a footnote in which he refers to the argument that “if core terms are not
plain and intelligible they shall be assessed for fairness”. He describes this result
as “startling”, “new” and having “no basis in the Directive”. He refers to the
opening words in Recital 19, that “assessment of unfair character shall not be
made of terms which describe the main subject matter of the contract”. He points
out that this opening phrase is “unqualified”, and does not state that the term
must be in plain intelligible language. 103 We do not think this view is correct.
Recital 19 must be subject to the clear words of Article 4(2), which states that the
exemption from assessment only applies “in so far as these terms are in plain
intelligible language”. Furthermore Recital 19 itself is confined to terms which
“clearly define or circumscribe the insured risk”.
Exceptions that are substantially different from what the consumer
reasonably expects
2.86 Recital 20 suggests that the requirement is not just one of plain language. It says
that contracts should not only be drafted in plain, intelligible language but also
that “the consumer should actually be given an opportunity to examine all the
terms”.
2.87 This leads to the question of whether a term that is itself clearly worded can be
exempt from review as a core term if it is not what the consumer reasonably
expected, for instance if it is hidden among the small print of a contract where
consumers are extremely unlikely to read it. When the two Law Commissions
examined the law on unfair terms in contracts, we endorsed the view put forward
by the Office of Fair Trading (OFT) that a term only defines the main subject
matter of the contract if it is part of the way consumers perceived the bargain. As
the OFT put it:
102 J Birds and N Legh-Jones, MacGillivray on Insurance Law (10 th ed 2003) para 11-36, 294.
103 M Clarke, The Law of Insurance Contracts (4 th ed 2002) para 19 –5A, 614, note 13.
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