Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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.
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