Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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6.7 The life provisions are set out in section 4: (1) A life policy shall not be avoided by reason only of any statement (other than a statement as to the age of the life insured) made in any proposal or other document on the faith of which the policy was issued, reinstated, or renewed by the company unless the statement— (a) Was substantially incorrect; and (b) Was material; and (c) Was made either— (i) Fraudulently; or (ii) Within the period of 3 years immediately preceding the date on which the policy is sought to be avoided or the date of the death of the life insured, whichever is the earlier. (2) For the purposes of subparagraph (i) of paragraph (c) of subsection (1) of this section, a statement is made fraudulently if the person making it makes it— (a) Knowing it is incorrect; or (b) Without belief in its correctness; or (c) Recklessly, without caring whether it is correct or not. 6.8 Section 5 covers other types of insurance contracts: (1) A contract of insurance shall not be avoided by reason only of any statement made in any proposal or other document on the faith of which the contract was entered into, reinstated, or renewed by the insurer unless the statement (a) Was substantially incorrect; and (b) Was material. 6.9 Section 6 defines the terms ‘substantially incorrect’ and ‘material’ for the purposes of sections 4 and 5: (1) … a statement is substantially incorrect only if the difference between what is stated and what is actually correct would have been considered material by a prudent insurer. (2) … a statement is material only if that statement would have influenced the judgment of a prudent insurer in fixing the premium or in determining whether he would have taken or continued the risk upon substantially the same terms. 46
6.10 In a 1982 case, the judge explained that the purpose behind sections 5 and 6 was to alleviate the harshness and artificiality resulting from the common practice of insurers requiring proponents to warrant the complete accuracy of all answers to questions put by insurers, with the result that any inaccuracy, whether by way of positive misstatement or omission, and whether major or trivial, material or immaterial to risk or loss, voided the policy. 1 6.11 Tarr and Kennedy comment that Australia The combined effect of these sections meant that an insurer could only avoid a policy when the difference between what was stated in the proposal and what was actually correct would have been considered material by a prudent insurer and would have influenced that insurer’s judgment in fixing the premium or determining whether he or she would have taken or continued the risk upon substantially the same terms. 2 6.12 The Australian Law Reform Commission (ALRC) recommended substantial changes to the law on non-disclosure and misrepresentation. It was concerned that an insurer may seek to evade these recommendations by converting any statement into a warranty of existing fact. Consequently, it argued that “all warranties of existing fact should be treated as representations”. 3 6.13 This recommendation has been implemented in section 24 of the Insurance Contracts Act 1984: A statement made in or in connection with a contract of insurance, being a statement made by or attributable to the insured, with respect to the existence of a state of affairs does not have effect as a warranty but has effect as though it were a statement made to the insurer by the insured during the negotiations for the contract but before it was entered into. This renders ‘basis of the contract’ clauses of no effect where the statement is about existing facts, as opposed to promises about the future. 6.14 The policy behind section 24 would appear to be similar to the policy behind Clause 9 of the Law Commission’s draft Bill, though the wording is simpler and more all embracing. It covers all statements of current fact, not just those made in answer to pre-set questions. It would also cover specific statements made in the policy itself. 1 Preece v State Insurance General Manager (1982) 2 ANZ Insurance Cases 60-493, by Thorp J at 77-807. 2 AA Tarr and JA Kennedy, Insurance Law in New Zealand, 2 nd ed 1992, p80. 3 ALRC, Insurance Contracts (1982) at para 195. 47
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 and 52: Business insurance 5.25 The problem
Page 53: PART 6: WARRANTIES IN OTHER JURISDI
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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Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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