Insurance Contracts CP - Law Reform Commission

terms to be construed by reference to a reasonableness standard, 6 but this is not a universally accepted
proposition. Such differences of judicial approach suggest that legislative intervention in Ireland is
overdue. The Commission notes that industry practices themselves seek to ameliorate the harsh
consequences that follow from a strict application of the law. Insurers may, through contract, place a
reasonable limitation on the matters a proposer may be required to warrant. McAleenan v
AIG(Europe)Ltd 7 demonstrates that a basis of contract clause may within its own terms qualify the
insurer‘s right to avoid the policy. In that case the recorded facts in the proposal form were declared to be
―the basis of the policy‖, but nevertheless the insurers undertook not to avoid the policy for non-disclosure
or misrepresentation of facts or untrue statements in the proposal form if the omission or statement was
―innocent and free of any fraudulent intent,‖ the onus of proof resting on the insurer. This industry
practice practice is to be welcomed, but the Commission do not see this as an acceptable substitute for
legislative intervention prohibiting the use of warranties in unacceptable or unjustifiable ways.
(1) Warranties and Representations
5.05 Lord Mansfield characterised a warranty as being a term which is part of a written policy
whereas a representation is external to the policy or contract. 8 Furthermore, while compliance with a
representation may be judged with a degree of flexibility, a warranty is strictly interpreted. In De Hahn v
Hartley 9 a policy of insurance was taken out in 1779 in respect of a ships sailing from Liverpool to the
West Indies. The ship was warranted to have a complement of 50 hands but on departure from Liverpool
only 46 hands were on board. The vessel stopped in Anglesey some hours later and took on six more
men. The ship was lost (with all 52 hands) off the coast of Africa when it was seized by brigands. Lord
Mansfield observed that:
―There is a material distinction between a warranty and a representation. A representation
may be equitably and substantially answered; but a warranty must be strictly complied with.
Suppose a warranty to sail on the 1st of August, and the ship did not sail till the 2nd, the
warranty would not be complied with. A warranty in a contract of insurance is a condition or a
contingency and unless that be performed, there is no contract. It is perfectly immaterial for
what purpose a warranty is introduced; but, being inserted, the contract does not exist unless it
be literally complied with‖. 10
5.06 It has been observed 11 that the word of ―warranty‖ in insurance law has a similar meaning to
that of ―condition‖ in sale of goods law, i.e. it is a term, ―the breach of which might give rise to a right to
treat the contract as repudiated‖. 12 While this is the case, should a warranted fact not be accurate at the
commencement of the cover, the result is that the insured was never on cover because the breach of
warranty, as a breach of a condition precedent, means there is no contract. Breach of warranty entitles
the insurer to avoid the contract ab initio, there being no requirement to show that the fact warranted was
material or that the breach was relevant to the circumstances of the loss, and, subject to contractual
provisions to the contrary, this rule is set out in the Marine Insurance Act 1906. 13 Such obligations are
sometimes described as contingent conditions, rather than promissory conditions, in general commercial
law.
6
7
8
9
10
11
12
13
Gorman v The Hand in Hand Insurance Co (1877) IR 11 CL 224.
[2010] IEHC 128.
Pawson v Watson (1778) 2 Cowp. 785; see also Lord Eldon in Newcastle Fire Company v Macmorran & Co
(1815) 3 Dow P.C. 255, both followed in Quin v National Assurance Co (1839) Jo. & Car. 316.
(1786) 1 TR 343.
(1786) 1 TR 343 at 345.
Law Commission, Report No. 104, paragraph 6.2
Sale of Goods Act 1893, s.11(2)
Section 33(3).
110