Insurance Contracts CP - Law Reform Commission

CHAPTER 10
REMEDIES
A
Introduction
10.01 In this chapter the Commission will seek to develop and contextualise a number of issues
relating to remedies that have been examined elsewhere in the Consulation Paper. The shift away from
providing that the primary remedy for non-disclosure and misrepresentation should be avoidance of the
claim for example requires an examination of the proportionality remedy. The Commission will also
consider whether the Sale of Goods and Supply of Services Act 1980, when viewed in the context of the
proposed reforms found in the UK Consumer Insurance (Disclosure and Representations) Bill 2011
provides guidance on the way forward. The Commission will also examine some of the issues addressed
in Chapter 4 on whether the misrepresentation provisions in Part V of the Sale of Goods and Supply of
Services Act 1980 can be modified in respect of proposer misrepresentation and non-disclosure. In
relation to compensatory provisions for late payment of a claim the Commission will review the existing
law with a view to improving the current position in Irish law. Outside the area of compensation the
Commission will consider responding to some isolated contract rules which have been widely criticised
such as the subrogation rights of employers arising out of employee breaches of duty. The Commission
will also consider whether legislative changes to the rescission/avoidance relief in relation to an insured‘s
failure to observe a condition precedent would improve Irish law.
B
(a)
Compensatory Remedies – Proportionality
The Australian Position
10.02 The Australian 1982 Report (after providing a cogent critique of avoidance or rescission as
being a disproportionate remedy for a proposer‘s misrepresentation or non-disclosure) concluded that
―the substitution of a right to damages for the existing right of avoidance would provide an adequate
deterrent to misrepresentation and non-disclosure. It would also ensure that insurers were entitled to
adequate compensation for loss suffered as a result of breach of the insured‘s duties. Disproportionate
burdens would no longer be placed on the insured. Even so, an important problem arises: the method by
which damages should be assessed‖. 1
10.03 In the discussion that followed, the ALRC broadly agreed with the Law Commission which in its
1980 Report saw a proportionality test as having a degree of attractiveness when the area of insurance is
statistically based, the premium being calculated by way of a set tariff. In other cases where the premium
is set on a ―once off‖ basis, or calculated by reference to qualitative factors (health) or moral hazard
considerations, the process is more difficult. Proportionality was rejected in favour of an across the board
adoption of the common law damages measure applied in cases of fraudulent misrepresentation, which
the ALRC characterised as being ―the amount which would place the other party in the position he would
have been in had the misrepresentation not been made.‖ 2 This tortious measure was seen by the ALRC
as providing a more accurate application of the restitution in integrum principle, save in cases where the
loss does not arise before the proposer‘s breach becomes known prior to avoidance and the occurrence
of any loss. 3 In a robust defence of the move towards adopting the principle that ―the insurer‘s redress
should depend on the nature and extent of the loss which it has suffered as a result of the insured‘s
1
2
3
ALRC Report No. 20, Para 187.
ALRC Report No. 20, Para 194.
ALRC Report No. 20, Para 187.
195