Insurance Contract Law Issues Paper 2 Warranties - Law Commission

4.60 It is not necessarily sufficient for the term to be in plain language. An exception or
other clause defining the risk may be in plain language without necessarily being
clearly presented, or even readily available. The Directive requires that the term
relates to the main subject matter of the contract. It would be difficult to argue that
an exception or definition of which consumers were quite reasonably unaware
defined the main subject matter of the contract. Such a term would therefore be
subject to review for fairness. It does not follow that a court will necessarily treat it
as unfair, but if it is substantially different from what the consumer reasonably
expected and it is not readily accessible, there must be a risk that the court will
hold it to be an unfair term.
4.61 We would add that in practice it is probably necessary to include the exception in
the documentation (the proposal form or descriptive summary of the policy) that
the consumer is given before the contract is made. Merely to include it in the
policy document will not suffice, even if the proposal form or summary refers to
the policy document. Consumers’ reasonable expectations will not be set by
terms they only discovered after entering into the contract. Even if the consumer
received the terms in advance, a term is unlikely to define the main subject
matter of the contract unless it was highlighted in some way. 52
The effect on warranties
4.62 Here we consider what effect the Unfair Terms in Consumer Contract
Regulations have on warranties in consumer insurance contracts. The two
limitations that may prevent an exception being a core term apply equally to a
warranty. In the case of warranties, however, there are additional complications.
4.63 Take the example where the consumer warranted that they would fit a particular
type of mortice lock. The question is whether the term is subject to review, or
whether it is exempt because it “defines the main subject matter of the contract”.
4.64 Just like an exception, the warranty would need to be in plain intelligible
language. Equally, applying the reasoning we adopted in our project on Unfair
Terms in Contracts, we think warranties, just like exceptions, would have to be
part of the way the deal was presented to the consumer. The key terms
document would need to make it plain that coverage was dependent on the lock
being in place. However, with warranties there are possible restrictions that do
not apply to exceptions.
52 Cf The Zockoll Group Ltd v Mercury Communications Ltd (No 2) [1999] EMLR 385, 395.
Also note UTCCR 1999 Sch 2, art 1, which includes in the list of terms “which may be
regarded as unfair” terms which have the object or effect of “(i) irrevocably binding the
consumer to terms with which he had no real opportunity of becoming acquainted before
the conclusion of the contract.”
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