Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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The mandatory provisions in Danish and Swedish ICA concerning alteration of risk do not seem to permit the far more harsh regulation of warranties. Also the French and Italian legislations are more favourable towards the assured than the common law principle of warranties. In an attempt towards harmonisation, this implies either that the common law systems are willing to soften their regulation, or that a double set of clauses are suggested. It does not seem realistic that the legislators in the four mentioned civil law countries will open the door for the stricter principle of warranties, ref. the Norwegian political attitude on this point. Also it would seem to go backwards into the future to adopt legal principles from 1906 instead of the principles of the far more modern insurance legislation in the civil law countries. 41 6.68 In Part 7, we draw on this comparative material to consider a range of options for reform. 41 Duty of Disclosure, Duty of Good Faith, Alternation of Risk and Warranties: An Analysis of the Replies to the CMI Questionnaire”, CMI Yearbook 2000, p 393. 60
PART 7: PROVISIONAL PROPOSALS 7.1 The law on breach of warranty in the United Kingdom has the potential to cause considerable unfairness to policyholders by allowing insurers to avoid paying claims for technical reasons which are unconnected with the loss that has occurred. We think it is wrong that insurers should still be entitled to avoid liability for a breach that has already been cured: for example, a delay in inspecting sprinklers should not affect liability for a fire that occurs after the sprinklers have passed their inspection. Nor should a policy be discharged for a breach that is unconnected with the loss: failure to employ watchmen should not affect a claim for storm damage that employing the watchmen would not have prevented or reduced. At the very least these should not be the “default” rules. 7.2 “Basis of the contract” clauses are a particular mischief. They allow insurers to use a form of words that few policyholders understand to extend the protections already available to them for misrepresentation to cover answers that are not material to the risk, or are made without fraud or negligence. 7.3 Insurance is based on trust, and when insurers deny liability for inappropriate reasons it may undermine faith in the industry. It does not accord with good practice. As we have seen, it may also bring UK law into disrepute. 7.4 In the discussion that follows we distinguish between warranties of past or existing fact, and warranties about future conduct. This is because a warranty of past or existing fact already takes effect as a representation. In Issues Paper 1 we explored the remedies currently available for inaccurate representations and how we think they should be reformed. Permitting such representations to be made into warranties would have the effect of entitling insurers to additional remedies, particularly if the representation was made innocently. 7.5 Below we start by recapping the tentative proposals on reform of the law of misrepresentation and non-disclosure that we made in our first Issues Paper. We also note one change in our thinking in the light of the discussion of that paper at the seminars. We then consider how far insurers should, in effect, be permitted additional remedies for misrepresentation, first through the use of basis of the contract clauses and secondly through specific warranties and other terms as to existing facts. We tentatively conclude not only that basis of the contract clauses should not be effective to turn all representations made by the proposer into warranties, but also that for consumer insurance, every statement of past and existing fact should be treated as a representation rather than as a warranty. This means that insurers should not be entitled to escape liability for misrepresentations that are made innocently and reasonably; and for negligent misrepresentations, the insurers’ remedy should be proportionate. 61
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Insurance Contract Law Issues Paper
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SPECIFIC UNDERTAKINGS AS TO PAST OR
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Reinsurance 15. Are there any reaso
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Basis of the contract clauses 39 Sp
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PART 1: INTRODUCTION BACKGROUND 1.1
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PART 2: BACKGROUND WHAT IS A WARRAN
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Held covered in case of any breach
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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 and 54: PART 6: WARRANTIES IN OTHER JURISDI
Page 55 and 56: 6.10 In a 1982 case, the judge expl
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: 6.64 An example will illustrate the
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
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(4) In Case 20, the policy excluded
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significant definitions, terms and
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B.46 Although ombudsmen are unsympa
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Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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