Insurance Contract Law Issues Paper 2 Warranties - Law Commission

Does an exception have to be in plain language?
4.51 The exclusion from review only applies to core terms “in so far as these terms are
in plain intelligible language”. If an exclusion is not clearly worded, it will not be
treated as a core term, and will be subject to review for fairness. As MacGillivray
states, “failure to word a core term of the insurance clearly will result in it losing
its exemption from assessment for fairness”. 47
4.52 This requirement of the Directive is not universally accepted. Clarke, for example,
includes a footnote in which he refers to the argument that “if core terms are not
plain and intelligible they shall be assessed for fairness”. He describes this result
as “startling”, “new” and having “no basis in the Directive”. He refers to the
opening words in Recital 19, that “assessment of unfair character shall not be
made of terms which describe the main subject matter of the contract”. He points
out that this opening phrase is “unqualified”, and does not state that the term
must be in plain intelligible language. 48 We do not think this view is correct.
Recital 19 must be subject to the clear words of Article 4(2), which states that the
exemption from assessment only applies “in so far as these terms are in plain
intelligible language”. Furthermore Recital 19 itself is confined to terms which
“clearly define or circumscribe the insured risk”.
Exceptions that are substantially different from what the consumer
reasonably expects
4.53 Recital 20 suggests that the requirement is not just one of plain language. It says
that contracts should not only be drafted in plain, intelligible language but also
that “the consumer should actually be given an opportunity to examine all the
terms”.
4.54 This leads to the question of whether a term that is itself clearly worded can be
exempt from review as a core term if it is not what the consumer reasonably
expected, for instance if it is hidden among the small print of a contract where
consumers are extremely unlikely to read it. When the two Law Commissions
examined the law on unfair terms in contracts, we endorsed the view put forward
by the Office of Fair Trading that a term only defines the main subject matter of
the contract if it is part of the way consumers perceived the bargain. As the OFT
put it:
A supplier would surely find it hard to sustain the argument that a
contract’s main subject matter was defined by a term which a
consumer had been given no real opportunity to see and read before
signing. 49
4.55 We explained that:
47 MacGillivray on Insurance Law (10 th ed 2003) para 11-36, p 294.
48 M Clarke, The Law of Insurance Contracts (4 th ed 2002), para 19 –5A, p 614, note 13.
49 Unfair Contract Terms Bulletin 2 (OFT 170, September 1996) para 2.26. This is quoted in
Unfair Terms in Contracts (2002), Law Com Consultation Paper No 166, Scot Law Com
Discussion Paper No 119, para 3.23.
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