Insurance Contract Law Issues Paper 2 Warranties - Law Commission

7.160 Scots law has not developed a classification equivalent to the English law
distinction between waiver by election and waiver by estoppel. The decision of
the House of Lords in Armia Ltd v Daejan Developments Ltd 63 has generally been
regarded as authority for the proposition that a party relying on the other party's
abandonment of a right must demonstrate that he has conducted his affairs on
the basis of the waiver, although he need not go so far as to show that he has
suffered prejudice as a consequence of relying upon it. 64 In reaching this
decision, the House of Lords referred to certain English authorities while
cautioning that the Scots law of personal bar should not be assumed to be the
same as the English law of estoppel.
7.161 We think that if the change we have suggested to section 33 is put into effect, so
that the contract is not discharged automatically by a breach of warranty but the
insurer has the right to repudiate (or, as some prefer to say, terminate) for
breach, whether the insurer is precluded by its subsequent conduct from
exercising that right can be left to the general law of contract. Thus in English
law, for example, the insurer might lose its right by either affirmation or estoppel.
We think this is just. There is a case for allowing an insured to found upon a
waiver by the insurer without having to show that they relied on the
representation. Particularly in the case of an express statement by the insurer
who is aware of the breach that it does not insist upon its rights consequent upon
the breach of warranty, it is difficult to see why an additional requirement of
proving reliance should be imposed upon the insured. 65 The same may be said
where the waiver is clear from actions of the insurer.
7.162 We do not think it is necessary to include a specific provision on this point in any
new legislation, but we would welcome views on the point.
7.163 We tentatively propose that Marine Insurance Act 1906, section 33(3)
should be repealed. Loss by waiver of the insurer's right to repudiate the
contract would in future be determined in accordance with the general rules
of contract. We welcome views on whether it is necessary to include a
specific provision on this point in any new legislation.
63 1979 SC (HL) 56.
64 Lord Fraser of Tullybelton at 68-9; Lord Keith of Kinkel at 71-2. See eg Moodiesburn
House Hotel Ltd v Norwich Union Assurance Ltd 2002 SLT 1069.
65 This requirement in Scots law (see above) has been questioned (in non-insurance cases)
in Presslie v Cochrane McGregor Group Ltd 1996 SC 289 and Howden (James) & Co Ltd
v Taylor Woodrow Property Co Ltd 1998 SC.
94