Insurance Contract Law Issues Paper 2 Warranties - Law Commission

(b) In the view of the court or arbitrator determining the claim of
the insured the liability of the insurer has been so defined
because the happening of such events or the existence of such
circumstances was in the view of the insurer likely to increase
the risk of such loss occurring, -
the insured shall not be disentitled to be indemnified by the insurer by
reason only of such provisions of the contract of insurance if the
insured proves on the balance of probability that the loss in respect of
which the insured seeks to be indemnified was not caused or
contributed to by the happening of such events or the existence of
such circumstances.
6.21 In Barnaby v South British Insurance Co, Hardie Boys J explained the effect of
the section as follows:
The key to this section is to be found in the last words of para. (b): the
section is designed to deal with those kinds of exclusion clauses
which provide for circumstances likely to increase the risk of a loss
which the policy actually covers. The most common examples are
found in the field of motor vehicle insurance, such as driving a motor
vehicle whilst under the influence of alcohol, or driving a motor
vehicle while it is in an unsafe condition. The section is not designed
to deal with exclusion clauses which specify the kind of loss or the
quantum of loss to which the cover does not apply at all. 5
6.22 It has been accepted that section 11 applies to promissory warranties. 6 However,
insurers may still avoid a policy for a breach of warranty before a loss occurs, and
this has been criticised by academics. 7
6.23 Section 11 is more generous to the policyholder than the test suggested in the
Law Commission’s 1980 draft Bill. This is because the New Zealand test allows
the insured to recover if they prove that the loss was “not caused or contributed
to” by the breach. By contrast, the English recommendation would require the
insured to prove that the breach “could not have increased the risk that the
event… would occur”. The Australian Law Reform Commission explain the
difference in the following example:
5
Barnaby v South British Insurance Co Ltd (1980) 1 ANZ Insurance Cases 60-401, 77,008
per Hardie Boys J.
6 Norwich Winterthur Insurance (NZ) Ltd v Hammond (1985) 3 ANZ Insurance Cases 60-
637. This is despite some suggestions that originally the provision was only attended to
apply to definitions of the risk: see the discussion in ALRC, Insurance Contracts (1982) at
para 223.
7
Borrowdale, “Insurance Law Reform in New Zealand: A Decade On” (1988) 1 Insurance
Law Journal 261 at 268.
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