Insurance Contracts CP - Law Reform Commission

10.09 The earlier decisions of the Insurance Ombudsman 12 reflect a more principled approach to
looking for solutions based upon proportionality. In case study 49 of the Digest the insurer declined to
pay a death benefit claim for non-disclosure of a pre-existing medical condition; on investigating the
complaint however the Insurance Ombudsman noted that there were inconsistencies in the
documentation which led to the conclusion that non-disclosure was innocent, ie ―the company had
produced insufficient evidence to justify a finding of fraud or deception on behalf of the deceased, nor had
it proved reckless or negligent non-disclosure. Accordingly, I decided to apply the principle of
proportionality to the complainant‘s claim.‖ Even though the company gave no evidence of what the
loading would have been, had the time facts been known, the Insurance Ombudsman said she was
satisfied that a loading of 50% of the sum insured was appropriate. Similarly, in some instances where
the policy itself referred to payment of proportionate sums, the Insurance Ombudsman on several
occasions ruled that the company should be required to exercise this discretion rather than decline to
meet the claim. In case study 149 of the digest, for example, an earnings protection policy had to be met
by the insurer, the benefit being calculated on the basis of the insured‘s reduced earnings in the relevant
period and payment of a proportionate amount of the benefit.
10.10 The Law Commissions in the December 2009 Report, 13 provide some helpful insights into
proportionality remedies in respect of three scenarios involving variations in cover, excesses and
premiums. The examples given suggest that when the analysis starts from a position where the
proposer‘s degree of fault is the primary question, and the probable reaction of the insurer to the true
facts can be assessed, a workable accommodation of proportionality and avoidance remedies can be
established. Again, it must be emphasised that the current analysis and the Commission‘s provisional
recommendations do not seek to in any way abridge an insurer‘s right to avoid the policy where a
fraudulent misrepresentation has been made by the proposer.
10.11 The Commission questions whether the debate on whether proportionality should be adopted
as the relevant means of calculating and awarding the insurer the loss arising out of non-disclosure, a
misrepresentation or other breach of contractual duty is an entirely artificial one. Certainly at this distance
the Law Commission‘s initial 1980 objections appear to be directed as much at the proposed European
Directive itself as at the substantive arguments against a proportionality principle: the Commission does
concede that the Law Commission was correct in pointing to the fact that in the proposed Directive the
remedy being contended for by the European Commission was not well defined, but this of itself does not
appear to the Commission to be dispositive. 14 The Law Commission‘s objection that proportionality would
require the specific insurer to underwrite a risk that the insurer might well have decided to decline, or
subject to limiting provisions, is also in the view of the Commission, beside the point. In this situation it
would be appropriate to allow the insurer to prove that, because the proposal would have been declined
altogether, or made the subject of a tailored limitation or exclusion, damages should be reduced by up to
100%.
10.12 Situations of this kind are commonplace in many damages assessments: the licensing
measure of compensation following upon the infringement of intellectual property rights requires a court to
value the worth of a patent or design as between a willing licensor and a willing licensee, but this
measure may and often is inappropriate to other forms of exploitation, and in cases where the rights
owner would not have granted a licence in any circumstances. The debate over proportionality seems to
ignore the possibility that this approach to the assessment of quantum might well be appropriate in the
vast majority of insurance contracts that involve consumers, ―small businesses‖, telephone and internet
insurance, and so on. In insurance that is broker arranged or bespoke, or addresses unusual or ―one off‖
risks it may be that difficulties of proof are exaggerated. This was certainly the view of the Law
Commissions in 2007 and 2009. It will certainly be the case that premiums and exclusions may differ
quite markedly and that the assessment will not always by easy. Even in Manor Park Homebuilders Ltd v
AIG Europe (Ireland) Ltd 15 the policy provided by AIG was limited cover as distinct from the earlier ―all
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Decisions of the Insurance Ombudsman, 1992-1998 (Digest).
Consumer Insurance Law: Pre Contract Deisclosure and Misrepresentation.
Law Com No. 104, Insurance Law: Non Disclosure and Breach of Warranty, para. 415.
[2009] 1 ILRM 190.
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