Insurance Contracts CP - Law Reform Commission

isks‖ policy provided by Royal and Sun Alliance. Three other companies declined to quote in that case
so it will often be factually difficult to value cover and speculate on what an insurer would have done.
10.13 But starting from the perspective that a court ―should be alert, energetic and if necessary
ingenious to assess damages where it is satisfied that a significant injury has flowed from breach,‖ 16 the
process of estimating the insurer‘s loss may be no different or more difficult to any other hypothetical
exercise. The explosion in cases where judges are required to estimate the money value of a loss of
chance affords a very telling example. 17 Judicial experience in the process of discounting damages in
relation to contributory negligence are not entirely dissimilar, despite the Law Commission‘s protestations
in 1980 to the contrary. 18
10.14 In the Commission‘s view the position taken by the Law Commission in 1980 and the
Australian Law Reform Commission in 1982 is fortified by the assessment made by the Law
Commissions in their 2007 Consultation Paper, where the Law Commissions concluded that, on the
difficulty in estimating hypothetical premiums:
―We think that experience has shown that the 1980 Report exaggerated the difficulties. As the
National Consumer Council pointed out, the Insurance Ombudsman Bureau applied
proportionality, and its current successor, the FOS also does so. We found cases in FOS files
where they had no trouble in dealing with an exclusion that would have been added, or in
working out the effect on a premium of an additional motoring conviction. The approach
appears to have gained acceptance from the industry, and we note that it also has the support
of the British Insurance Law Association. 19
10.15 As the Commission has provisionally recommended the abolition of the right to avoid or rescind
a contract of insurance for an innocent non-disclosure that falls outside the reformulated duty of
disclosure, as well as in instances of innocent misrepresentation, the question whether a remedy in
damages should be available in either case does not arise. The insurer will have to meet any claim in full.
The guiding principle should be to ask what this particular insurer would have done if the full facts were
disclosed or known. If this cannot be determined for whatever reason then it might be possible to
estimate the remedy by reference to general common law principles, as informed by the Law
Commission‘s view that the French Courts often determine a fair deduction as a matter of fact or
discretion, rather than arithmetical precision. 20 Alternatively, the court may resort to some objective
standard such as the prudent insurer who actively operates in the insurance field in question. The
Commission do not think that in this residual area, where proportionality will be based on what the actual
insurer would have done, any inflexible mechanism directing how this adjudication is to be made is
possible.
10.16 Where however the insurer would have declined the proposal or excluded the loss that has
arisen, the Law Commissions raise the question whether the courts should have a discretion to allow the
insurer to recover a proportion of the claim where the proposer‘s error was a minor one, and other
insurers would have accepted the risk, at a higher premium. 21 This situation raises an important question
for the Commission‘s provisional recommendations and an affirmative answer would provide a convenient
way of forestalling a number of difficult questions such as policing the boundary between innocent and
negligent conduct as well as possible arguments about the applicability of contributory negligence. On
the other hand, such a recommendation would have the effect of weakening the important policy objective
that stands at the core of our proposals for reform, namely, that the law should require proposers to act
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21
Finlay P in Grafton Court v Wadson Sales High Court, 17 February 1975; ESL Consulting Ltd v Verizon
(Ireland) Ltd [2008] IEHC 369.
Philp v Ryan [2004] IESC 105; Lett & Co v Wexford BC [2007] IEHC 195.
Law Com No. 104, para. 4. 106.
Consultation Paper, Para. 4.162.
Law Com No.104 para. 4.7.
Consultation Paper, para. 4.178.
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