Insurance Contracts CP - Law Reform Commission

(b) that even though the loss was of a type which the broken warranty was intended to make
less likely, the insured‘s breach could not have increased the risk that the loss would occur in
the way in which it did in fact occur.‖ 94
5.50 The effect of the insured being able to make out either or both of these factors would be that
the insured should be able to recover on a claim made. The insurer however should still be able to
repudiate the policy as to the future because, in the view of the Law Commission, ―insurers should not be
compelled to continue to cover insureds who have committed breaches of warranty.‖ 95 As a
consequence, the Law Commission further recommended that where an insurer exercised a right to
repudiate a policy, repudiation would be prospective only and that the effective date of repudiation would
be the date when the insurer served a written notice of repudiation. By replacing the idea that a breach of
warranty occurs at the time the statement is made with a requirement to serve a notice of repudiation, this
recommendation provided a degree of clarity while leaving the insurer on risk until the date of repudiation.
A loss arising during the currency of the insurance contract could thus be rejected unless the insured
satisfied either of the nexus tests set out above.
5.51 The English Law Commission also recommended that an insurer should also be able to reject
a claim for breach of a material warranty without necessarily repudiating the policy in toto: ―It should in our
view be open to insurers to make independent decisions as to whether or not to reject individual claims
and as to whether or not to continue on risk for the remainder of the policy period, without having to make
these decisions in tandem.‖ 96 The Law Commission believed that this recommendation reflected industry
practice.
(17) Warranties in Consumer Contracts in UK Law (the 2007 Consultation Paper)
(a)
The First Provisional Recommendation
5.52 The Law Commission in 1980 recommended that warranties should not be effective unless the
insurer supplied the proposer with a written statement of the warranty before the statement was made, or
as soon as possible thereafter. The Law Commissions in 2007 reaffirmed this requirement, specifying
that ―writing‖ would include a printed or electronic form. This proposal was one of the few horizontal
proposals in the 2007 Consultation Paper, applying to consumer and business insurance, whether
negotiated or made on standard terms. 97 The extent to which the insurer has met this obligation in
relation to consumer insurance is the subject of a recommendation that the insurer must take sufficient
steps to bring the requirement to the attention of the insurer. Compliance is to be judged by reference to
Financial Services Authority Rules or Guidelines. 98
(b)
The Second Provisional Recommendation
5.53 The issue of causal connection in relation to consumer insurances and warranties is addressed
by the Law Commissions who favour a causal connection test. In this context, the causal connection test
will place the onus on the insured to show, on the balance of probability, that the event or circumstances
constituting the breach of warranty did not contribute to the loss 99 . Furthermore, in cases where the
breach of warranty was a cause of only part of the loss (the example given is breach of a warranty to
maintain fire sprinklers in a factory, only part of the building being damaged by virtue of breach of the
warranty), the insurer is not to be permitted to refuse to pay for the loss that is unrelated to the breach. 100
These causal connection rules are recommended as mandatory rules in consumer insurance. The Law
94
95
96
97
98
99
100
Law Com 104, para 6.22.
Ibid.
Law Com 104, para 6.23.
Para 8.11 and 8.12.
Para 8.19.
Para 8.45.
Para 8.48.
122