Insurance Contract Law Issues Paper 2 Warranties - Law Commission

PART 4: ARE WARRANTIES STILL A
PROBLEM? ALTERNATIVE METHODS OF
PROTECTION
4.1 One argument against reform is that warranties are no longer a problem in
practice. It has been suggested that any potential difficulties with the law can be
dealt with by the courts as a matter of construction.
4.2 As far as consumers are concerned, three further types of protection are
available:
(1) voluntary statements of practice and Financial Services Authority (FSA)
rules;
(2) an assessment of fairness under the Unfair Terms in Consumer
Contracts Regulations 1999; and
(3) the Financial Ombudsman Service (FOS).
4.3 Below we outline the protections provided by each of these approaches, and
consider how far they remove or change the need to reform the law of warranties.
THE CONSTRUCTION APPROACH
4.4 As mentioned in Part 2, it is well-established that warranties should be construed
strictly, against the party who has put them forward 1 (in practice, usually the
insurer 2 ). This common law rule is now supplemented in consumer insurance by
the Unfair Terms in Consumer Contracts Regulations, which state that “if there is
a doubt about the meaning of a written term, the interpretation which is most
favourable to the consumer shall prevail”. 3
4.5 The normal remedy against an insurer’s unreasonable use of a warranty is for the
court to hold that the term is not truly a warranty, but something else (such as a
clause descriptive of the risk) or that the term does not cover the issue in hand.
Over the years, the courts have found several ways to attack the unreasonable
use of warranties and these methods are used extensively in commercial cases.
1 Provincial Insurance Company v Morgan [1933] AC 240.
2
In some cases, the ambiguous wording may have been put forward by the insured’s
broker. Where this happens, it does not necessarily follow that the term should be
construed against the insured, as the insurer may be partially at fault in not correcting
ambiguous wording (see B Soyer, Warranties in Marine Insurance (2 nd ed, 2006), at p 22).
Soyer cites Coleman J’s comment in Zeus Tradition Marine Ltd v Bell (“The Zeus V”)
[1999] 1 Lloyd’s Rep 703 at p 718, although the decision was reversed by the Court of
Appeal on other grounds (see [2000] 2 Lloyd’s Rep 587).
3 SI 1999 No 2083, reg 7(2).
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