Insurance Contracts CP - Law Reform Commission

3.92 In the two subsequent reports the New Zealand Law Commission has sought to restrict the
insurer‘s common law right to avoid a contract of non disclosure to cases where:
the insurer seeks to avoid the contract within 10 working days of the risk attaching, giving an
insurer time to inquire into facts, especially on provisional insurance matters;
the contract is one of re-insurance;
the non disclosure relates to a fact that the proposer either knew, or that, a reasonable person in
the circumstances would have known would have influenced the judgment of a prudent insurer in
fixing the premium or deciding to take the risk on substantially the same terms;
the answer given to a question that was expressly asked is substantially incorrect, because of
the non disclosure;
In the case of a prospective avoidance, ie the insurer seeks to exercise the common law right
before the risk materialises, such a common law right should not be affected.
3.93 The New Zealand Law Commission, in its 1998 Report examined the Australian reforms of
1984 but did not recommend that New Zealand law should be reformed along Australian lines, concluding
that these provisions in Australia made the scope of the duty uncertain and that the proportionality
remedies ―involve difficult assessments as to the insurers likely response had the insured disclosed the
information.‖ 116 These New Zealand proposals were described in the 2004 Report as ―provisional
measures‖, 117 pending a fuller review when the 2003 Australian Treasury Review of the 1984 Act was
completed. 118
(12) The Principles of European Insurance Contract Law (PEICL)
3.94 The PEICL authors have set out a number of proposals that qualify the duty of disclosure and
restrict the insurer‘s right to avoid the policy save in cases of fraudulent breach. The applicant‘s precontractual
information duty, insofar as the provisions are relevant to this chapter are as follows:
Article 2:101
Duty of Disclosure
(1) When concluding the contract, the applicant shall inform the insurer of circumstances of
which he is or ought to be aware, and which are the subject of clear and precise
questions put to him by the insurer.
(2) The circumstances referred to in para.1 include those of which the person to be insured
was or should have been aware.
(3) The insurer shall not be entitled to terminate the contract if the policyholder is in innocent
breach of Article 2:101, unless the insurer proves that it would not have concluded the
contract, had it known the information concerned.
Article 2:102 sets out provisions governing breach of Article 2:101, specifically an insurer‘s right to
propose a reasonable variation of the contract or elect to terminate the contract. Termination for innocent
breach requires the insurer to prove that it would not have concluded the contract had it known the
information concerned. Where the insured event occurs prior to variation or termination, and it is caused
by an element of the risk that was the subject of negligent non-disclosure or misrepresentation by the
policyholder, no insurance money is payable if the insurer would not have concluded that contract.
Where the premium would have been adjusted however, a proportionality remedy will be available to the
insurer. Article 2:102 is governed by Article 3:103:
116
117
118
Some Insurance Law Problems (NZLC R-46)(1988). The second report, from 2004 Life Insurance (NZLC R-
87)(2004) with text of a draft Bill appended. For the text of these proposals see Draft Bill, clauses 14 and 15.
See the 1988 Report, para. 23; 2004 Report, para. 8.33.
Paragraph 8.40
86