Insurance Contracts CP - Law Reform Commission

decisions, and case-law, that prevent an insurer from being judge and jury in relation to allegations on
criminal misconduct. 139
5.84 There may still be room to consider whether Article 4:102 goes further than is necessary or
desirable. Promissory warranties may serve important social objectives in the sense that proscriptive
rules concerning security measures (for example, in property insurance) might deter burglaries (and even
crimes of violence). Should an insurer be able to contract for precautionary measures to be observed,
even if the contractual standard is one of reasonable care, rather, than intention, or recklessness, as set
by Article 4:102?
(3) The Causation Problem and Promissory Warranties – Article 4:103
5.85 Because the PEICL does not envisage the possibility that breach of a promissory warranty will
either automatically entitle the insurer to avoid liability for loss that has arisen, nor terminate the contract,
per se, any clause that seeks to contractually secure either of these rights will have to satisfy Article
4:102. Article 4:102 does not address the causation problem, while Article 4:103 does. Headed
―Discharge of the Insurer‘s Liability‖, it follows the same structure as Article 4:102:
(1) A clause that non-compliance with a precautionary measure totally or partially exempts
the insurer from liability, shall only have effect to the extent that the loss was caused by
the non-compliance of the policyholder or insured with intent to cause the loss or
recklessly and with knowledge that the loss would probably result.
(2) Subject to a clear clause providing for reduction of the insurance money according to the
degree of fault, the policyholder or insured, as the case may be, shall be entitled to
insurance money in respect of any loss caused by negligent non-compliance with a
precautionary measure.
5.86 Article 4:102 deals with the problem outlined by the Law Commissions in their 2007
Consultation Paper (ie a fire sprinkler that is out of operation despite a warranty to maintain is the basis
upon which a claim for flood damage is rejected). The breach of the promissory warranty to maintain is
simply irrelevant. The comments to Article 4:103 show that this provision is intended to go much further:
―Non-compliance with a requirement of a sprinkler in full operation in a fire policy therefore may
have the effect of excluding the insurer‘s liability for loss caused by fire if the loss would have
been avoided by a fully operating sprinkler. In addition, the insurer‘s liability may be reduced if
the loss caused by fire could not have been fully avoided by an operating sprinkler (for
example in case of lightning) but has only increased due to the absence of such a sprinkler. In
that case the insurer‘s liability would only be reduced as far as the non-compliance contributed
to the extent of the loss. The onus of proving the prerequisites for a discharge of the insurer‘s
liability, including a causal link between non-compliance and loss, is on the insurer.‖ 140
5.87 The facts of he Bennett case, discussed earlier, tease out an interesting aspect of Article
4:103(2). There, the fire was caused by non-compliance with a waste materials clause that essentially
involved strict liability. The insured was not alleged to have been negligent in taking reasonable
precautions to avoid the loss from occurring (a distinct obligation separate from the waste clause
requiring removal of waste materials from the premises). The causation link was thus established by the
insurer. But in the case of the fault element, it is likely that a court would not have found the insured to
have been negligent. Even careful insureds are to be expected to find that accidents happen. The
authors of the PEICL argue that the ‗basic‘ philosophy is that insurance is taken out not just for accidental
risks but also for cases or negligent behaviour.‖ 141 The authors of the PEICL go on to state that if a
clause is intended to limit the insurer‘s liability to compensate for a loss that is caused negligently (as
139
140
141
Eg Gray v Hibernian Insurance Unreported, H.C. May 27, 1993; Financial Services Ombudsman Decision of
July – December 2006, p.8.
PEICL, p.176.
Irish law contains a similar observation: Jameson v The Royal Insurance Co (1873) IR 7 CL 126.
132