Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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5.28 Large businesses are more able to protect themselves. They have the resources to understand the issues, and the bargaining position to renegotiate terms. We were told, for example, that one large company refuses to agree to warranties in any circumstances. This does not suggest, however, that reform is unnecessary for large businesses. Rather it suggests that all businesses might benefit from the change we are proposing. The fact that businesses which are able to do so exclude the rule, and presumably pay any resulting increase in premium, suggests that it is a poor rule in the first place. We conclude that the law on breach of warranty requires reform in all types of insurance. The question is exactly what shape the reform should take. 44
PART 6: WARRANTIES IN OTHER JURISDICTIONS 6.1 The notion of a warranty that has the effect prescribed by the Marine Insurance Act 1906 is unique to the common law. Many civil lawyers express astonishment at the idea that insurers can avoid liability for trivial breaches of obligations, even if the breach has been remedied or is unconnected with the loss. However, Australia, New Zealand and Canada built their insurance law on English common law principles, as set out in the Marine Insurance Act and its Commonwealth variants. 6.2 Below we begin by considering Australia and New Zealand. Both have attempted to correct the perceived defects in the law by legislation, and there are direct lessons to be learnt from their experience. We then look briefly at Canada, where the task of mitigating the harshness of the law has been left to the courts. In the USA, insurance law is largely a matter for each state. Some, such as Texas, have introduced legislation to require a causal connection between the breach and the loss. We conclude with a short comparison with the civil law approach. AUSTRALIA AND NEW ZEALAND 6.3 Both Australia and New Zealand faced similar problems to the UK. They started with the same common law principles, and both reformed their law by statute within five years of the Law Commission’s 1980 report. New Zealand passed the Insurance Law Reform Act in 1977; Australia passed the Insurance Contracts Act in 1984. To some extent the various reforms influenced each other: the Law Commission’s working paper refers to the New Zealand reform, while the Australian Law Reform Commission’s 1982 report discusses the English Law Commission’s recommendations in depth. The Law Commission’s draft bill, the New Zealand Act and the Australian Act approach the same issues in slightly different ways, and therefore provide interesting commentaries on each other. 6.4 We look first at provisions to abolish basis of the contract clauses and then at the need for a causal connection between the breach of warranty and the loss. Finally we consider procedural requirements to bring terms to the notice of the insured. Abolishing basis of the contract clauses New Zealand 6.5 The Insurance Law Reform Act 1977 prevents insurers from using basis of the contract clauses to avoid liability for non-material representations made in proposal forms or other pre-contractual documentation. 6.6 Different rules apply to life insurance and other types of insurance, with the life insurance rules offering the insured greater protection. For general insurance, the insurer may avoid at any time, but only for representations that are substantially incorrect and material. For life policies, there is an additional requirement that, unless the misrepresentation is made fraudulently, the insurer can only avoid in the first three years. 45
Page 1 and 2: Insurance Contract Law Issues Paper
Page 3 and 4: SPECIFIC UNDERTAKINGS AS TO PAST OR
Page 5 and 6: Reinsurance 15. Are there any reaso
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: Business insurance 5.25 The problem
Page 55 and 56: 6.10 In a 1982 case, the judge expl
Page 57 and 58: (b) In the view of the court or arb
Page 59 and 60: (4) Where the insured proves that s
Page 61 and 62: 6.33 An added twist to these diffic
Page 63 and 64: 6.44 The problems appear where the
Page 65 and 66: 6.53 Soyer argues that on the facts
Page 67 and 68: 6.64 An example will illustrate the
Page 69 and 70: PART 7: PROVISIONAL PROPOSALS 7.1 T
Page 71 and 72: All insurance 7.12 For both consume
Page 73 and 74: 7.20 In the seminar we were asked w
Page 75 and 76: 7.28 The last option is the most ra
Page 77 and 78: 7.37 It would be consistent with th
Page 79 and 80: 7.46 There are two reasons why an i
Page 81 and 82: Other types of clause dealing with
Page 83 and 84: 7.68 We tentatively conclude that t
Page 85 and 86: Our provisional view 7.75 In our vi
Page 87 and 88: 7.85 We think it would be unduly fo
Page 89 and 90: 7.97 Should the causal connection t
Page 91 and 92: 7.105 It has been put to us that a
Page 93 and 94: Legality 7.116 The warranty of lega
Page 95 and 96: 7.127 In 1980 the Law Commission re
Page 97 and 98: Continued liability for premiums FU
Page 99 and 100: 7.148 The question is whether this
Page 101 and 102: 7.157 Often both forms of waiver in
Page 103 and 104:
PART 8: AN UNFAIR TERMS APPROACH TO
Page 105 and 106:
8.10 These provisions require the c
Page 107 and 108:
(3) In examining whether a term was
Page 109 and 110:
APPENDIX A: THE IMPLIED WARRANTIES
Page 111 and 112:
A.11 There are some reasons to trea
Page 113 and 114:
To nullify a bargain in such circum
Page 115 and 116:
Table 1: Type of policy Travel 14 2
Page 117 and 118:
B.16 Here a breach of the term does
Page 119 and 120:
(4) In Case 20, the policy excluded
Page 121 and 122:
significant definitions, terms and
Page 123 and 124:
B.46 Although ombudsmen are unsympa
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