Insurance Contracts CP - Law Reform Commission

(4) Where the risk would have been declined altogether, the policy may be avoided,
premiums returned and the claim refused.
10.06 The December 2009 Law Commissions Report, 8 which of course is limited to
misrepresentations in consumer Insurance, endorses the earlier approach in relation to compensatory
remedies for careless misrepresentations. In the December 2009 Report the Law Commissions stressed
that the changes are compensatory, directed at calculating the insurer‘s loss. The Law Commissions also
pointed out that some three quarters of respondents favoured a proportionality approach although ―a
minority disagreed with the proposal on the basis that the problems would be too great‖. The Law
Commissions recommendation was that:
―where the consumer has made a careless misrepresentation, the insurer is entitled to a
compensatory remedy as follows:
(1) If the insurer would not have entered into the contract on any terms, the insurer may
avoid the contract (but must return the premiums);
(2) If the insurer would have entered into the contract on different terms (apart from those
relating to the premium), the contract is treated as if it were made on those terms;
(3) In addition, if the insurer would have charged a higher premium, the insurer may reduce
the amount of the claim proportionately.‖ 9
10.07 This approach avoids the somewhat unnecessary set of distinctions that have bedevilled
Australian case-law under the 1984 Act and subsequent legislative changes while retaining a focus on
restitutionary principles. The 2009 Report, and the Consumer Insurance (Disclosure and
Representations) Bill 2011 provides valuable insights into how a restitutionary/proportionality range of
remedies can opertate.
(2) The Irish Experience
10.08 It is arguable that the proportionality approach to assessing an insurer‘s loss strikes some
judges as a sensible and fair one, and there is one striking illustration of this in O‟Callaghan v Irish
National Insurance, 10 a policy of industrial insurance. The correct age of the life to be insured was not
inserted into the proposal form; the form contained a basis of contract clause. When the correct facts
came to light the company sought to avoid the policy but Circuit Judge Kenny felt that he was free to
disregard the answer given as long as the claim was limited to the amount the insurer would have
provided cover for had the true facts been disclosed. The Divisional Court held that the Circuit Judge had
no such power and granted the insurer a declaration that the policies were void. While the Óireachtas
provided some relaxation of this strict rule 11 in the Insurance Act 1936 in relation to industrial insurance,
this is one legislative exception that proves the rule. However, the Financial Services Ombudsman has
on several occasions permitted recovery of a percentage of an insured amount, notwithstanding that the
insurer had some basis in law for avoiding the policy. In the December 2008 Summary of Decisions the
Ombudsman ruled on refusal to honour a holiday insurance cancellation policy on the grounds of nondisclosure
of a pre-existing condition. The Ombudsman ruled that
―While accepting that the company had justifiable grounds for refusing the claim on the
grounds of non-disclosure nevertheless the Ombudsman taking into account all the
circumstances of the case and bearing in mind what was fair and reasonable, found the
complainant was entitled to 50% of the benefit payable under the policy in respect of the
cancellation of the policy.‖
8
9
10
11
Consumber Insurance Law: Pre Contract and Misrepresentation (December 2009).
Ibid, para. 6.62.
(1934) 68 ILTR 248.
Insurance Act 1936, s.64(2).
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