Insurance Contracts CP - Law Reform Commission

the relevant terms are those that give a crucial definition of the type and subject of insurance,
the insured risk, the insurer‘s liability, the insurance benefit, the sum insured, the insured
interest or the insurable value. Terms restricting, changing, elaborating or modifying the
insurer‘s obligation to perform are, however, not core terms and therefore subject to review
under Article 2:304 40 .
6.30 The most important safeguards that European consumers have under the Unfair Contract
Terms Directive are arguably, procedural other than substantive. For even a core term to qualify for
exemption from scrutiny, that is, the danger that a contractual term will be invalid because:
(1) it is unfair (e.g. as appearing on a grey list)
(2) it was not individually negotiated
(3) contrary to the requirements of good faith and fair dealing, it causes a significant
imbalance in the rights and obligations of parties and is detrimental to the interests of the
consumer.
The term in question must satisfy the following two key requirements.
6.31 First, the exemption has to be in plain language. Article 4(2) of the Directive mandates that,
the exemption from scrutiny applies insofar as these terms are in plain intelligible language. The Law
Commissions also reject Professor Malcolm Clarke‘s view that recital 19 does not insist on such a
requirement, pointing out that article 4(2) takes precedence over recital 19 and that, in any case, recital
19 itself requires a core term to ―clearly‖ define or circumscribe the insured risk. The scope of this
requirement is uncertain. For example, is an average provision one which defines the risk or
circumscribes the risk? Even if it is not a core term, does the term have to be explained (e.g. by way of
examples on the consequences of under insuring)?
6.32 The second condition is that the reasonable expectations of the consumer. Although the
decision of MacMenamin J in O‟Reilly v Irish Life Assurance plc 41 is somewhat inconclusive on the scope
of any duty to provide a bargain which reflects the reasonable expectations of a proposer/insured, the
case articulates the view that the process of interpreting an insurance policy seeks to:
―find the meaning which the document would convey to a reasonable person having all the
background knowledge reasonably available to the parties, including anything which would
have affected the way a reasonable person would have understood it but excluding previous
negotiations or subjective intent.‖ 42
Even commercial bargains should not be occasions for imposition or ―surprise‖. It is for such reasons that
oral contracts are not generally interpreted so as to contain unusual or non-standard provisions that were
perhaps tucked away in preliminary documents: Capes (Hatherton) Ltd v Western Arable Services. 43
Within the specific context of the Unfair Contract Terms Directive the Law Commissions argue that recital
20 requires not only that the terms of the contract should be drafted in plain, intelligible language, but also
the consumer should be given the opportunity to examine all the terms. The Law Commissions have
endorsed the view of the Office of Fair Trading that a core term will only be exempt from review as
defining the main subject matter of the contract ―if it is part of the way consumers perceived the bargain‖.
Tucking terms or disclaimers away into contracts in places where a consumer is unlikely to see it, and
even providing terms or disclaimers after the contract has been agreed could well fall foul of such
40
41
42
43
Ibid.
[2005] IEHC 449.
At para 87. Although noticeably cool on Steyn L.J.‘s speech in First Energy (UK) Ltd v Hungarian International
Bank Ltd [1993] 2 Lloyd‘s Rep 194 at 196, MacMenamin J‘s approach is not, it is submitted, very different to
Steyn L.J.‘s desire to ensure that ―the reasonable expectations of honest men must be protected‖.
[2010] 1 Lloyd‘s Rep.477. See in particular both the English High Court and Court of Appeal decisions in
William McIlroy (Swindon) Ltd v Quinn Insurance [2011] EWCA Civ 825.
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