Aggravated, Exemplary and Restitutionary ... - Law Commission

... [c]ontracts should only be held unenforceable on public policy
grounds in very plain cases. 795
1.244 This observation is particularly apt given that, as the diversity of responses which
we received demonstrated, the case of insurance against punitive damages is by no
means a ‘very plain’ one.
1.245 Such judicial caution has been demonstrated in relation to both the interpretation
and extension of any common law bar and the construction of statutes which may
have the effect of rendering a contract ‘illegal’ and so potentially unenforceable. 796
Thus in St John Shipping Corporation v Joseph Rank Ltd 797
Devlin J dealt with the
correct approach to statutory construction where in the performance of a contract
statutory provisions have been breached, and it is alleged that the contract is (by
that statute) impliedly rendered ‘illegal’ and unenforceable:
[Without a clear implication of statutory intention, courts should be]
very slow to hold that a statute intends to interfere with the rights and
remedies given by the ordinary law of contract. 798
1.246 At a more specific level we would argue that if insurers accept a premium to cover
a certain risk, they should meet it. This point was also made by Simon Brown LJ
in Lancashire County Council v Municipal Mutual Insurance Ltd. 799
(iv) ‘Self-insurance’ and ‘gifts’: comparisons
1.247 We were also impressed by two arguments put forward by consultees to the effect
that a bar on insurance would be inconsistent or unfair in its effects, owing to some
alternative ways in which a liability to pay punitive damages could be met without
the need to insure, and even if insurance against such liability was to be barred.
The first argument was that a bar on insurance is objectionable because it
produces inequality between the impact of punitive damages awards on
organisations which are able to ‘self-insure’ and those which cannot. The second
was that no objection is made to allowing another person or organisation to meet a
defendant’s liability to punitive damages by way of a gift.
(v) Avoiding conflict between defendant and insurer
1.248 A final point is that to permit insurance against punitive damages may minimise
the number of occasions on which defendants and their insurers come into conflict -
in the settlement process, or in court. Such conflict might arise in a case where
the defendant is insured against the non-punitive part of any award, but did not or
could not obtain insurance against the punitive award. In this situation, the
795 [1996] 3 WLR 493, 504C.
796 More recently, following the lead of Devlin J in St John Shipping Corpn v Joseph Rank Ltd
[1957] 1 QB 267, courts been more reluctant to bar enforcement of an ‘illegal’ contract:
see eg Shaw v Groom [1970] 2 QB 504; Euro-Diam Ltd v Bathurst [1990] 1 QB 1; Howard v
Shirlstar Container Transport Ltd [1990] 1 WLR 1292.
797 [1957] 1 QB 267.
798 [1957] 1 QB 267, 288.
799 [1996] 3 WLR 493, 504A.
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