Insurance Contract Law Issues Paper 2 Warranties - Law Commission

Conclusion
6.15 Given the level of criticisms of basis of the contract clauses, it is not surprising
that both New Zealand and Australia have enacted provisions to abolish them.
Such reform would also appear to be necessary to prevent evasion of any
changes to the law of misrepresentation in insurance contracts. We discuss these
further in Part 7.
6.16 We are not aware that either provision has caused problems. Abolishing basis of
the contract clauses would appear to be practicable, and there are several
legislative models to choose from in drafting appropriate provisions.
A causal connection between the breach and the loss
6.17 Both New Zealand and Australia have enacted provisions to curb the insurers
right to avoid liability for a breach of warranty if the policyholder is able to prove
that the breach did not cause or contribute to the loss.
6.18 The first thing to note about these reforms is that they apply to all terms which
exclude or limit liability – not just to warranties. As the ALRC put it, “the form in
which the insurer seeks to protect itself from an increase in risk should not be
allowed to affect the extent of that protection”. It said that its recommendations
should extend not only to strict warranties and other terms imposing
obligations on the insured, but also to exclusions from cover of certain
risks. Were they not to extend to temporal exclusions, legislation
based on the present recommendations might be avoided simply by
rephrasing an obligation (“the insured warrants that the car will be
kept in a roadworthy condition”) as a temporal exclusion (“the insurer
will not be liable while the car is in an unroadworthy condition”). The
legislation might also be avoided if obligations and exclusions were
omitted and the cover itself stated in such a way as to achieve the
same ends (“cover is granted in respect of the roadworthy car”). 4
6.19 The New Zealand and Australian provisions have a common core. However, the
Australian Act goes further than the New Zealand one, and provides an additional
level of protection for policyholders.
New Zealand
6.20 The Insurance Law Reform Act 1977 forbids certain exclusions. Section 11
states:
Where –
(a) By the provisions of a contract of insurance the
circumstances in which the insurer is bound to indemnify the
insured against loss are so defined as to exclude or limit the
liability of the insurer to indemnify the insured on the happening
of certain events or on the existence of certain circumstances;
and
4 As above, para 229.
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