Insurance Contracts CP - Law Reform Commission

the terms of the insurance contracts in advance, so that policyholders have no opportunity to negotiate
the terms.‖ 147
5.91 The Commission considers such a proposition to be a rather sweeping generalisation. Large
companies seeking insurance cover are not to be equated with consumer proposers. Large companies
may often be expected to have specialist departments that will contain the expertise necessary to shop
around and secure cost effective insurance. Large companies should be fixed with actual if not
constructive knowledge of what terms, exclusions and warranties mean and what legal effects follow
therefrom. Large companies may often be expected to engage brokers through whom insurance cover
can be obtained. In circumstances of this kind the Commission sees no need to introduce a level of
Judicial Review, or a measure that unduly interferes with Freedom of Contract. Abusive clauses that are
covertly tucked away in proposal forms or which appear, perhaps belatedly, in policy documents will in
any case be the subject of close judicial scrutiny via requirements of good faith and a reasonable
expectations standard. It appears that this requirement may be increasingly a standard that will be
imposed in commercial insurance contracts. 148 The Commission also considers that the problem of
abuse of freedom of contract is one that traverses the entire range of commercial contracts. Irish law,
unfortunately, has not sought to address this phenomena in the way that the United Kingdom Parliament
has done (eg, see the non-negotiated standard terms provisions in section 3 of the Unfair Contract Terms
Act 1977). Other legislative models include the Australian Commonwealth Trade Practices Acts 149 and
some specific statutory provisions that may operated on unfair terms; 150 the Commission does not think it
is treading on an area of sensitivity when it observes that a broader review of unfair contractual practices
in business to business contracts in Ireland is overdue. However, the Commission believes that the
problems that arise in commercial insurance do not necessarily require a sweeping legislative measure.
The Commission believes that specific legislation, confined to the insurance sector in relation to possible
abusive terms in all commercial insurance contracts would be premature.
5.92 However, it is clear that some commercial insurance cover is affected in circumstances where
the insurer may seek to avoid honouring a policy on technical and unmeritorious grounds. The facts of
Manor Park Homebuilders Ltd v AIG Europe (Ireland) Ltd 151 provide such an illustration although
McMahon J found for the insured. The decision in the English case US Trading Ltd v Axa Insurance Co
Ltd 152 also points up a judicial willingness to impose appropriate standards of notice to proposers and
insureds. The Commission believes that small business insureds do require some protection from
abusive clauses, particularly disclaimers and warranties that have not been individually negotiated. The
Commission views two possible responses as being worthy of consideration.
5.93 Because the Commission believes that small business insureds require protection while at the
same time considering that all business insureds should not be treated in the same way as consumers, a
via media in relation to Article 2:304 could be adopted. Under the existing legislation relating to dispute
settlement jurisdiction of the Financial Services Ombudsman, business to business insurance contracts
(where a corporate insured has a turnover of €3 million or less in the year of the complaint being made)
may refer complaints to the Financial Services Ombudsman. 153 The Commission considers it appropriate
that the ordinary courts should also be able to apply what is after all a modified example of the EU
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Principles of European Insurance Contract Law, p.116.
Eg US Trading Ltd v Axa Insurance Co Ltd [2010] Lloyds Rep IR 505.
Specifically the Trade Practices Act 1974, s.52 and s.53.
Eg the New Zealand Contractual Remedies Act 1979 (eg s.4 on entire agreement clauses). The 2010 South
African Consumer Contracts legislation against unfair terms can also be invoked by small business
enterprises.
[2009] 1 ILRM 190.
[2010] Lloyd‘s Rep IR 505.
S.I. No. 190 of 2005. For unincorporated groups of persons – clubs, charities and trust – there is no effective
turnover limit.
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