Insurance Contracts CP - Law Reform Commission

will no doubt arise in the future. On the other hand, greater legal certainty will be engendered via a
statutory solution.
4.12 The Australian judiciary has adopted what the 1982 ALRC Report 21 described as a rule of fair
and reasonable construction, an approach that the Privy Council endorsed in Condogianis v Guardian
Assurance Co, 22 in contrast to an approach endorsed by Isaacs J in the High Court of Australia in which it
was argued that a question which the proposer bona fide believes to have a certain meaning should be
favoured, as long as that meaning was not beyond the bounds of reason. This issue has been resolved
in the Australian 1984 Act, s.23 of which provides in part that:
―Where:
(a) a statement is made in answer to a question asked in relation to a proposed contract
of insurance…and
(b) a reasonable person in the circumstances would have understood the question to
have the meaning that the person answering the question apparently understood it to
have;
that meaning shall, in relation to the person who made the statement, be deemed to be the
meaning of the question.‖
4.13 In commenting on s.23 Professor Merkin noted that the section represents a departure from
contra proferens interpretation and that it applies regardless of whether the proposal form is drafted by
the insurer or the broker. 23
4.14 The Commission provisionally recommends that legislation should provide that the insurer shall
ensure that any question posed in writing to the proposer is drafted in plain , intelligible language; that any
such question should be specific as to the information being sought by the insurer; and that where there
is a doubt about the meaning of any question, it should be interpreted by reference to a standard of what
is fair and reasonable.
(5) Interpretation of Ambiguous Answers
4.15 In Condogianis v Guardian Assurance Co 24 the Privy Council expressed the view that the rule
of fair and reasonable construction was also to be applied to answers given in response to questions. A
literal interpretation will not be applied if answers given in relation to a question relating to past or existing
fact, as distinct from future intention or events, are in substance false. Contrast Holt's Motors Ltd v South
East Lancashire Insurance 25 with Re Sweeney & Kennedy's Arbitration. 26
(6) Are questions asked presumed to be seeking to identify material facts?
4.16 Where specific questions are contained in a proposal form and the question is answered
incorrectly, can the insurer avoid the policy on the ground that the answer was false? This is certainly
likely to be the case if a warranty or basis of contract clause is present, but a false answer per se will not
necessarily allow avoidance, save in relation to matters of fact – see section 20(5). The Materiality
question will also be relevant. Section 20(1) of the Marine Insurance Act 1906 requires the
representation to be material, that is, it would influence the prudent insurer in deciding to fix the premium
or take the risk.
21
22
23
24
25
26
Report No. 20 Insurance Contracts para 169.
(1921) 29 CLR 341. See also Revell v Lords General Insurance Company Ltd [1934] 50 Lloyd‘s List LR 114
and R & R Developments Ltd v Axa Insurance Plc [2010] Lloyd‘s Rep 521.
Merkin, ―Reforming Insurance contract Law: Is there a case for Reverse Transportation?‖ Para 4.29.
(1923) 29 CLR 341.
(1930) 35 Com. Cas 281.
[1950] IR 85.
94