Insurance Contracts CP - Law Reform Commission

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CHAPTER 6
EXCLUSIONS AND UNFAIR TERMS
A
Introduction
6.01 In the previous chapter the Commission considered how best to produce a fairer balance
between the legitimate interests of an insurer in identifying and defining the risk to be underwritten and
the need to prevent the reasonable expectations of an insured from being disappointed or frustrated.
That chapter concerned promissory warranties as to the future and warranties of existing fact. In this
chapter the Commission will consider express terms that seek to limit or avoid the insurer‘s obligations
under a policy insofar as the loss has arisen at a time or when prescribed circumstances were or, were
not, in being. Contractual exclusions and warranties are often the opposite sides on the same coin.
Similar problems of transparency, reasonableness and fairness arise in relation to exclusion clauses.
The provisional recommendations in this chapter are based upon existing common law and statutory
rules and take account of the recommendations of the authors of the Principles of European Insurance
Contract Law, PEICL. The Commission will begin by looking at case-law in relation to the duty of a
proferens to bring contractual terms to the attention of the other party: the Commission will then suggest
two provisions, borrowed from Australian law to put the thinking behind these rules onto a statutory
footing in Ireland. The Commission will then examine the statutory rules and the PEICL provisions.
B
Rules on Incorporation
6.02 The common law has developed a protective mechanism so as to protect contracting parties
from onerous or unusual contractual provisions that one party might tuck away in boilerplate standard
terms in the hope or expectation that the provisions in question will prevail. While many of the decisions
are old fashioned railway ticket cases involving exemption or limitation clauses, principles of good faith
have been invoked by the English and Irish courts to provide a general principle that applies not just to
exemption or limitation clauses. Furthermore, the principle applies in business to business transactions, 1
as well as in consumer cases. The leading decision is Interfoto Picture Library Ltd v Stiletto Visual
Programs Ltd. 2 A standard term that was contained in a delivery note imposed an unusual fee calculation
in respect of failure in complying with a duty in returning goods hired out, leading to a substantial charge
being due. The English Court of Appeal held that where a particular condition is commonly to be
expected in a contract it will suffice if general notice of the condition given. However, as Bingham LJ
stated:
―where the particular condition relied on involves a sort of restriction that is not shown to be
usual in that class of contract, a defendant must show that his intention to attach an unusual
condition of that particular nature was fairly brought to the attention of the other party‖ 3
6.03 Irish case-law has applied the Interfoto decision on several occasions. In Carroll v An Post
National Lottery 4 Costello J. specifically endorsed Bingham LJ‘s observation, by stating:
―the tendency of the English authorities has, I think, been to look at the nature of the
transaction in question and the character of the parties to it; to consider what notice the party
alleged to be bound was given of the particular condition said to bind him; or to resolve
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4
Kaye v Nu Skin Ltd (Rev 1)[2011] 1 Lloyds Rep 40; AEG (UK) Ltd v Logic Resource Ltd [1995] CLC 265.
[1988] 1 All ER 348. Contrast Photolibrary Group Ltd v Burdar Senator Verlong [2008] EWHC 1343 (QB).
[1988] 1 All ER 348 at 357 (Bingham LJ).
[1996] 1 IR 443. See also Charleton J in McCabe Builders (Dublin) Ltd v Sagamu Developments Ltd [2007]
IEHC 391 and in James Elliot Construction Ltd v Irish Asphalt Ltd [2011] IEHC 269.
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