Insurance Contracts CP - Law Reform Commission

extremely harsh. In Direct Line Insurance Plc v Khan 68 a claim on a policy of domestic fire insurance was
inflated by adding a claim to rental accommodation for a property which Mr Khan owned. Mrs Khan was
not a party to the fraud, nor did she know of her husband‘s misconduct. Mrs Khan‘s innocence did not
provide any basis for relief, nor, given that the duty not to make a fraudulent claim is a rule of law, could
the Unfair Contract Terms Regulations be invoked on her behalf.
8.39 English law is even stricter in relation to the possibility of repentance once the claim has been
submitted. Mance LJ in Agapitos v Agnew 69 and again in the Privy Council in Stemson v AMP General
Insurance NZ Ltd 70 seem to have regarded repentence as irrelevant, and certainly in Direct Line
Insurance v Fox 71 this was the view taken of the law by Judge Richard Seymour QC.
8.40 This position has been criticised and other jurisdictions have moved some way from operating
a blanket forfeiture mechanism. In cases where the fraudulent act may have some even darker purpose
– one spouse sets fire to the family home seeking to murder the other spouse for example – the idea that
the wholly innocent victim should be prevented from recovering on the policy because of either a
ludicrous application of agency law, or an inappropriate rule of public policy that operates as a windfall to
an insurance company, cannot, in the opinion of the Commission, be correct. The Law Commissions, in
Issues Paper 7 note that case-law from the United States, Canada, Australia and New Zealand has
introduced a ―modern approach‖ to this question. In essence, the automatic forfeiture of all claims
brought on a joint policy where one insured acts fraudulently in promoting the claim is no more. It has
been replaced by the view that an innocent insured should not be punished for the wrongdoing of
another. However, when a claim is brought by the innocent insured the court or indeed the insurer, as a
matter of public policy, should seek to prevent the wrongdoer from benefiting from the policy. The
Supreme Court of Canada in Scott v Wawanesa Mutual Insurance Co 72 divided by 4 justices to 3 on the
interpretation of an exception clause barring recovery for deliberate fire damage caused, inter alia by a
minor child of the householder. La Forest J, dissenting, suggested that the court should strive to give
effect to the intention of the parties as of the time of entry into the contract, viewed from the perspective of
an ―ordinary person‖ entering the contract. This approach requires the court to subject the argument that
all obligations in a joint policy are intertwined to an intention of the parties test, for the purpose of the
contractual analysis. This approach replicates that found in the Ontario case of Higgins v Orion
Insurance Co, 73 cited by the Law Commissions. The British Columbia case of Riordan v Lombard
Insurance Co, 74 involved a fire insurance claim brought by members of a family, the cause of the
domestic fire being an act of arson by a 13 year old foster child. While the British Columbia Court of
Appeal disallowed the claim, via contractual interpretation, it has been influential in sponsoring a
legislative change in British Columbia 75 which, as a matter of law, is intended to open up a route to
recovery for innocent persons. These amendments provide:
(1) [I]f a contract contains a term of condition excluding coverage for loss or damage to
property caused by a criminal or intentional act or omission of an insured or any other
person, the exclusion applies only to the claim of a person
(a) whose act or omission caused the loss or damage,
(b) who abetted or colluded in the act or omission, [or]
(c) who
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69
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[2002] Lloyd‘s Rep IR 364.
[2002] EWCA Civ 247.
[2006] UKPC 30.
[2009] EWHC 386 (QB).
[1989] 1 SCR 1445
(1985) 17 DLR (4 th ) 90
[2003] BCCA 267
Insurance Amendment Act 2009, s 28.6 (Innocent Co-Insured)
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