Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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.
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