Insurance Contracts CP - Law Reform Commission

warranties. A variety of mechanisms are available such as contra proferens interpretation (e.g. Sweeney
and Kennedy‟s Arbitration) 12 or arguing a warranty has a suspensory rather than promissory effect 13 .
These interpretive techniques are useful palliative measures but they fail to deal with the underlying
problem of contractual unfairness and in many instances good contract drafting will make it difficult for a
court to operate interpretative techniques e.g. if the clause is not ambiguous the general view is that
interpretation contra proferens is not possible 14 .
(2) General Principles to be added to Irish Law
6.07 The Commission considers that Irish law might usefully articulate two basic principles that
would serve to put many of the points made in the above discussion on incorporation and good faith onto
a statutory footing. The Commission has relied heavily on principles from the Australian Insurance
Contracts Act 1984. The first principle revolves around good faith and the inability of either party to rely
on a contractual provision where to do so would be to fail to act with the utmost good faith. This is found
in section 14 of the Act whuch, as amended, reads:
―Parties not to rely on provisions except in the utmost good faith
(1) If reliance by a party to a contact of insurance on a provision of the contract would be to fail
to act with the utmost good faith, in the light of the circumstances in which the contract of
insurance was concluded, the party may not rely on the provision.
(2) Subsection (1) does not limit the operation of the common law duty of utmost good faith.
(3) In deciding whether reliance by an insurer on a provision of the contract of insurance would
be to fail to act with the utmost good faith, the court shall have regard to any notification of the
provision that was given to the insured, or otherwise.‖
6.08 The Commission provisionally recommends that legislation be enacted to provide that an
insurance contract should be subject to a good faith requirement, namely that if reliance on a term in an
insurance contract would constitute a failure to act with the utmost good faith the party may not rely on
that term.
6.09 The second provision that might usefully be imported into Irish law from Australia on the
formation of insurance contracts is contained in section 37 of the 1984 Act. The text of section 14 of the
1984 Act actually contains a reference to section 37 which the Commission considers to be redundant
and it has been omitted from our suggested text above. Our modification of section 37 provides for
notification of unusual terms.
An insurer may not rely on a provision included in a contract of insurance of a kind that is not
usually included in contracts of insurance that provide similar insurance cover unless, before
the contract was entered into the insurer clearly informed the insured in writing of the effect of
the provision (whether by providing the insured with a document containing the provisions, or
the relevant provisions, of the proposed contract or otherwise). Where appropriate, the
document shall include an explanation of technical or legal words or phrases.
6.10 The Commission provisionally recommends that there should be a statutory duty on an insurer
to draw attention to unusual terms.
(3) 1993 Unfair Contract Terms Directive and PEICL Abusive Clauses Provisions
6.11 The Principles of European Insurance Contract Law recast the 1993 Unfair Contract Terms
Directive 15 to address situations where contract clauses may allow an insurer to avoid a policy on what
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[1950] IR 85.
Ie. non compliance is operative only insofar and for as long as the warranty is not complied with.
Danske Bank v McFadden [2010] IEHC 116, citing Clarke, The Law of Insurance Contracts 5th ed at
paragraph 15.5. See also Meritz Fire and Marine Insurance Co Ltd v Jan De Nul NV [2010] EWHC 3362
(Comm)(a surety case).
Directive 93/13/EC, transposed into Irish Law by SI No 27 of 1995.
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