Insurance Contracts CP - Law Reform Commission

(10) Limiting the scope of the warranty
5.23 According to the Privy Council, in Zeller v British Caymanian Insurance Co plc 56 a warranty
need not contain a reference to a basis of contract clause for an inaccurate warranty of existing facts to
justify an insurer‘s refusal to honour the policy. In many cases the issue will be the scope of the warranty
itself. Even if the warranty is qualified by the facts being warranted ―to the best of the proposer‘s
knowledge or belief‖, the qualification will not be enough to excuse all factual inaccuracies and merely
guessing whether a given state of affairs existed will not be excused 57 although an honest belief that a
property is in good repair, for example, may not be such as to allow an insurer to avoid the contract ab
inito if investigation of the facts, on an objective basis, reveals that it was not in good repair at the
commencement of cover: Wilkie v Direct Line Insurance .58 The cases on health insurance and pre
existing conditions suggest that the warranties as to the health of the life in question which are based on
a question such as, ―are you in good health?‖ raise questions about whether the insurer is seeking an
expression of opinion or a statement of fact. In the leading Irish case of Keating v New Ireland Assurance
Company 59 the Supreme Court subjected an alleged warranty that answers were ―true and complete‖ to a
contra proferens interpretation, observing that because the life to be insured was unaware of his true
medical condition he had not breached any warranty. The Supreme Court thus appears to have equated
―true‖ as meaning ―accurate to the knowledge of the proposer‖. McCarthy J. observed:
―If the proposal form were to contain a statement by the proposer that the statements and
answers written in the proposal together with the written statements and answers made to the
company‘s medical examiner shall form the basis of the proposed contract ―even if they are
untrue and incomplete for reasons of which I am totally unaware‖, would there be any takers
for such a policy?‖ 60
5.24 Coleman v New Ireland Assurance Plc 61 provides the most recent demonstration of the fact
that where a declaration that facts disclosed by a proposer are declared to be true ―to the best of my
knowledge‖, the declaration will not necessarily provide the insurer with a right of avoidance, ―even in the
face of the proposer‘s ignorance or obtuseness‖. If the circumstances however suggest suppression of
facts, i.e. the proposer falsely states he is in good health when he has recently had an epileptic attack, or
promises that he has not been treated for a disease, the contract may be void under the warranty. 62
(11) Basis of Contract Clauses
5.25 An insurer who seeks to persuade a court that a strict warranty was intended, even absent a
policy document, will seek to do so by inserting into the pre contractual document a basis of contract
clause. 63 A provision that states that all answers given are true and complete, and/or that the answers
are the basis of the contract, can fulfil a number of purposes.
(1) the accuracy of the answer is warranted and, as such, it provides a contractual basis for refusing
to pay out on the policy rather than leaving the insurer to reply on misrepresentation;
(2) the inaccuracy of the answer may provide an alternative to avoiding the policy on the grounds of
non-disclosure;
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[2008] UKPC 4.
Unipac (Scotland) Ltd v Aegon Insurance Company UK Ltd [1999] 1 Lloyd‘s Rep.502.
[2007] CSOH 145.
[1990] 2 IR 383; Fowkes v Manchester and London Assurance (1863) 3 B&S 917.
Ibid at 399; FBD Insurance plc v Financial Services Ombudsman [2011] IEHC 315
[2009] IEHC 273.
Curran v Norwich Union Life Insurance Co [1987] IEHC5; Abbot v Howard (1832) Hayes 381.
Hasson (1971) 34 MLR 29; basis of contract clauses can be open to review under the Unfair Contract Terms
Regulations (SI No. 27 of 1995) in consumer insurance contracts and there are some regulatory statements
about basis of contract clauses but the Scottish case of Unipac (Scotland) Ltd v Aegon Insurance [1996] SLT
1197 shows that such clauses are still legally effective.
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