Insurance Contract Law Issues Paper 2 Warranties - Law Commission

4.42 In Director General of Fair Trading v First National Bank Plc, the House of Lords
explained that the core terms provisions should be interpreted narrowly. 37 As
Lord Bingham put it, the object of the Regulations and Directive “would plainly be
frustrated” if the definition of core terms were “so broadly interpreted as to cover
any terms other than those falling squarely within it”. 38 Lord Steyn confirmed that
the provision must be given a restrictive interpretation, or “the main purpose of
the scheme would be frustrated by endless formalistic arguments about whether
a provision is a definitional or an exclusionary provision”. 39
4.43 There has been some debate about how far these provisions apply to insurance
contracts. The insurance industry has long opposed the idea that such terms
should be subject to judicial review, and was very concerned at the possible
impact of the Directive. To assuage their fears, the Directive included the
following words in Recital 19:
For the purposes of this Directive, assessment of unfair character
shall not be made of terms which describe the main subject matter of
the contract nor the quality/price ratio of the goods or services
supplied…. It follows, inter alia, that in insurance contracts, the terms
which clearly define or circumscribe the insured risk and the insurer’s
liability shall not be subject to such assessment since these
restrictions are taken into account in calculating the premium paid by
the consumer.
4.44 This has been taken to mean that any terms which “clearly define or circumscribe
the insured risk” are core terms within the meaning of the Directive and
Regulations, and therefore exempt from review. We examine this argument in
more detail below. To make the discussion easier to follow, we deal first with
exceptions and then with warranties.
Exceptions and UTCCR
Are exceptions “price” terms?
4.45 The words in Recital 19 do not mean that an exception within an insurance
contract “relates to the adequacy of the price”. An insurer may well take such
exceptions into account in calculating the price, but this could be true of any term
within the contract. As Lord Steyn put it in First National Bank:
37
After all, in a broad sense all terms of the contract are in some way
related to the price or remuneration. That is not what is intended. 40
[2002] 1 AC 481.
38 Above, at para 12.
39 Above, at para 34.
40 As above.
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