Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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(2) in consumer insurance, there should be an additional requirement. An insurer may only refuse a claim on the grounds that the insured has failed to carry out a specific task (or refrained from a normal activity) if it has taken sufficient steps to bring the requirement to the insured’s attention. In deciding whether the insurer has taken sufficient steps, the court should have regard to FSA rules or guidance. (para 7.65) Causal connection 11. We tentatively propose that: (1) the law should afford policyholders some protection against claims being denied for reasons unconnected with the loss. (para 7.68) (2) the policyholder should be entitled to be paid a claim if it can prove on the balance of probability that the event or circumstances constituting the breach of warranty did not contribute to the loss. (para 7.76) (3) if a breach contributes to only part of a loss, the insurer may not refuse to pay the part not related to the breach. (para 7.81) 12. We invite views on whether: (1) the causal connection rule should be mandatory in business insurance. (para 7.83) (2) the protection should apply to any term that purports to exclude or limit the liability of the insurer for events or circumstances that are thought to increase the risk of a loss occurring. (para 7.89) (3) the causal connection test should be subject to an exception where the insurance relates to one purpose, activity or place, and the loss arises from another purpose or activity or in another place. In these circumstances, we suggest that the claim should not be paid if the loss related to an activity which was so far outside the terms of the cover that a reasonable insured could not have expected the loss to be covered. (para 7.97) THE SCOPE OF THE REFORMS Marine insurance 13. We tentatively propose that the causal connection test outlined above should also apply to: (1) express warranties in marine insurance contracts (para 7.108); and (2) the implied marine warranties set out in sections 39 to 41 of the Marine <strong>Insurance</strong> Act 1906 (para 7.119) 14. We have not yet had time to study in detail those provisions of the Marine <strong>Insurance</strong> Act 1906 that provide that the risk will not attach (sections 43, 44), or that the insurer shall be discharged (sections 45, 46). We intend to consult on these at a later date. (para 7.123) 3
Reinsurance 15. Are there any reasons why the reforms should not apply to reinsurance contracts? (para 7.130) THE EFFECT OF A BREACH 16. We tentatively propose that a breach of warranty should no longer result in the insurer being automatically discharged from liability. (para 7.135) 17. We ask whether the reforms should provide that: (1) a breach of warranty gives the insurer the right to repudiate the contract? (para 7.135) (2) the insurer has a choice between repudiating the claim only, or the policy for the future, or both? (para 7.138) (3) where the insurer accepts the insured’s breach of warranty (so as to terminate future liability), the insured should cease to be liable for future premiums? (para 7.145) (4) an insurer who terminates a policy following the insured’s breach of warranty should normally provide a pro-rata refund of the outstanding premium, less any damages or administrative costs (para 7.149) (5) the insurer should be obliged to give notice that the contract is being terminated. If so, what would constitute a reasonable time for an insured to make other arrangements? (para 7.153) 18. If, as suggested above, a breach of warranty would give the insurer the right to terminate the contract for breach, the law of waiver would be affected. Loss by waiver of the insurer's right to repudiate the contract would 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. (para 7.143) AN UNFAIR TERMS APPROACH? 19. We invite views on whether: (1) Clauses that define the risk and exclusions in business insurance contracts written on the insurers’ standard terms should be subject to a test of fairness. (2) If so, should the protection apply to all businesses or only those defined as small? (para 8.23) 20. We would consider this option only if it were really needed. There would need to be evidence that businesses require better protection not only against warranties but also against unexpectedly narrow definitions of the risk or unexpectedly wide exceptions, and that the approach set out in paragraph 13(3) above is unacceptable. 4
Page 1 and 2: Insurance Contract Law Issues Paper
Page 3: SPECIFIC UNDERTAKINGS AS TO PAST OR
Page 7 and 8: Basis of the contract clauses 39 Sp
Page 9 and 10: PART 1: INTRODUCTION BACKGROUND 1.1
Page 11 and 12: PART 2: BACKGROUND WHAT IS A WARRAN
Page 13 and 14: Held covered in case of any breach
Page 15 and 16: For example, in Farr v Motor Trader
Page 17 and 18: We recognise that a consequence of
Page 19 and 20: THE RECOMMENDATIONS 3.3 The 1980 re
Page 21 and 22: The test in the final report 3.12 F
Page 23 and 24: 3.21 A more recent example is Seddo
Page 25 and 26: PART 4: ARE WARRANTIES STILL A PROB
Page 27 and 28: (4) The wording of the warranty doe
Page 29 and 30: 4.12 The “innominate term” clas
Page 31 and 32: 4.23 The 1977 Statement of Long-Ter
Page 33 and 34: 4.34 The Long-Term Statement, howev
Page 35 and 36: 4.42 In Director General of Fair Tr
Page 37 and 38: Does an exception have to be in pla
Page 39 and 40: 4.60 It is not necessarily sufficie
Page 41 and 42: 4.69 It might be argued that most w
Page 43 and 44: 4.78 However, issues of causal conn
Page 45 and 46: 4.86 Case 14 concerned a critical i
Page 47 and 48: 5.5 In 1980 the Law Commission desc
Page 49 and 50: 5.15 The effect of the Regulations
Page 51 and 52: Business insurance 5.25 The problem
Page 53 and 54: PART 6: WARRANTIES IN OTHER JURISDI
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6.10 In a 1982 case, the judge expl
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(b) In the view of the court or arb
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(4) Where the insured proves that s
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6.33 An added twist to these diffic
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6.44 The problems appear where the
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6.53 Soyer argues that on the facts
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6.64 An example will illustrate the
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PART 7: PROVISIONAL PROPOSALS 7.1 T
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All insurance 7.12 For both consume
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7.20 In the seminar we were asked w
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7.28 The last option is the most ra
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7.37 It would be consistent with th
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7.46 There are two reasons why an i
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Other types of clause dealing with
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7.68 We tentatively conclude that t
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Our provisional view 7.75 In our vi
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7.85 We think it would be unduly fo
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7.97 Should the causal connection t
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7.105 It has been put to us that a
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Legality 7.116 The warranty of lega
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7.127 In 1980 the Law Commission re
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Continued liability for premiums FU
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7.148 The question is whether this
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7.157 Often both forms of waiver in
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PART 8: AN UNFAIR TERMS APPROACH TO
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8.10 These provisions require the c
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(3) In examining whether a term was
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APPENDIX A: THE IMPLIED WARRANTIES
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A.11 There are some reasons to trea
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To nullify a bargain in such circum
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Table 1: Type of policy Travel 14 2
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B.16 Here a breach of the term does
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(4) In Case 20, the policy excluded
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significant definitions, terms and
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B.46 Although ombudsmen are unsympa
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Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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