Insurance Contracts CP - Law Reform Commission

(6) Defining Insurance Contracts in Irish Law
2.109 The leading Irish decision is International Commercial Bank plc v Insurance Corporation of
Ireland plc. 187 The case concerned a credit guarantee insurance agreement whereby ICI provided an
indemnity if (as happened) a company that borrowed monies from the plaintiff bank defaulted on the loan.
ICI resisted the claim on the grounds that the contract was one of credit insurance and as such caught by
uberrimae fidei. Failure by the bank to disclose certain material facts gave ICI, the defendant, a right to
avoid the policy. Blayney J, following Seaton v Heath 188 found the contract was one of guarantee, not
insurance. Blayney J, looked at the question by reference to the substance of the case. In Seaton v
Heath Romer LJ had said:
―Contracts of insurance are generally matters of speculation where the person desiring to be
insured has means of knowledge as to the risk, and the insurer has not the means or not the
same means. The insured generally puts the risk before the insurer as a business transaction,
and the insurer on the risk stated fixes a proper price to remunerate him for the risk to be
undertaken; and the insurer engages to pay the loss incurred by the insured in the event of
certain specified contingencies occurring. On the other hand, in general, contracts of
guarantee are between persons who occupy, or ultimately assume, the positions or creditor,
debtor, and surety, and thereby the surety becomes bound to pay the debt or make good the
default of the debtor. In general, the creditor does not himself go to the surety, or represent, or
explain to the surety, the risk to be run. The surety often takes the position from motives of
friendship to the debtor, and generally not as the result of any direct bargaining between him
and the creditor, or in consideration of any remuneration passing to him from the creditor. The
risk undertaken is generally known to the surety, and the circumstances generally point to the
view that as between the creditor and surety it was contemplated and intended that the surety
should take upon himself to ascertain exactly what risk he was taking upon himself. 189
2.110 In an article on the legal nature of credit default swaps, 190 Smith argues that by focusing on the
substance of credit default swaps, that is, that the payment obligation under a credit derivative is not
conditional on the payee‘s loss, 191 it is possible to avoid both the conclusion that a credit default swap is
not indemnity insurance and the rather inconvenient result that uberrimae fidei duties attach thereto. The
Commission has been advised that these issues of form and substance, unsatisfactory as they are, are
approached in an identical manner in Ireland, that is, precise definition and classifications are eschewed.
In any event, this point is of much less importance in Ireland because the Life Assurance Act 1774, a
source of some mischief in this context in the United Kingdom 192 is confined to life policies in this
jurisdiction.
(7) The insurance/gaming divide – current review of gambling legislation
2.111 The Department of Justice and Equality is currently (November 2011) engaged in a major
review of Irish gambling law, currently regulated by the Gaming and Lotteries Act 1956, with a view to
developing ―a new and comprehensive legal and organisational framework governing the gambling
architecture in the State.‖ 193 Building on the Report of the Casino Committee Report, Regulation Gaming
in Ireland 194 the then Minister announced that one of the premises that most modern gambling codes are
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[1991] ILRM 726.
[1899] 1QB 782.
At p.792-3.
Smith, ―The Legal Nature of Credit Default Swaps‖ [2010] LMCLQ386 at 409.
The so called Post Option: see generally Castignini, Derivatives: The Key Principles 3rd ed (Oxford University
Press 2009).
Smith, ―The Legal Nature of Credit Default Swaps‖ [2010] LMCLQ 386 at 409.
Response of the Minister for Justice to a Parliamentary Question, October 7, 2010.
Available at www.justice.ie.
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