Insurance Contract Law Issues Paper 2 Warranties - Law Commission

7.6 For business insurance we ask whether we should follow the same approach or
whether warranties as to specific facts should still be a ground on which the
insurer in business insurance policies may refuse to pay a claim, and possibly
treat the contract as discharged. If warranties of specific fact are to be permitted,
we later argue that they should be subject to certain formal requirements (such
as the warranty being set out in a schedule to the policy). Furthermore, when the
question is whether the insurer must pay a claim, the claim must be causally
connected to the breach of warranty.
7.7 We then consider options for reforming warranties about future conduct. We
make two tentative proposals:
(1) to be valid, a warranty of future conduct should be set out in writing;
(2) insurers should only be entitled to avoid liability to pay a claim because of
a breach of warranty if the breach bears some connection with the loss.
7.8 We discuss whether a causal connection should also be required for other types
of term that limit the risk, such as definitions of the risk and exceptions. We
tentatively conclude that it should be required, unless it would be unreasonable
for the insured to assume that it was covered by the policy at the time of the
event.
7.9 We then inquire whether the reform proposals should apply to all forms of
insurance. We ask whether different arguments apply first to marine, aviation and
transport insurance (MAT) and then to reinsurance. Our present thinking is that
the reforms should apply in these areas, though we welcome views on whether
there are good reasons to treat these forms of insurance differently. Marine
insurance raises particular issues about the implied warranties set out in the
Marine Insurance Act (which we discuss briefly). We ask if these should be
subjected to the same causal connection test that we have proposed for other
warranties.
7.10 Finally, we consider the implications these reforms would have for sections 33
and 34 of the Marine Insurance Act 1906. We tentatively propose that insurance
policies should no longer be discharged automatically as the result of a breach of
warranty. Instead the insurer should have the option to terminate the contract for
the future (without prejudice to its liability to pay any claims that have arisen
already). This raises questions about whether the insured should be entitled to a
pro-rata return of any premium paid, and whether the insurer should give notice
of the termination. An insurer may also lose the right to terminate an insurance
contract, because they are taken to have “waived” their rights. We consider the
implications for our suggested proposals for the law of waiver and affirmation.
OUR TENTATIVE PROPOSALS ON MISREPRESENTATION AND NON-
DISCLOSURE
7.11 In our Issues Paper 1 on misrepresentation and non-disclosure, 1 we made a
number of tentative proposals. The principal proposals were as follows.
1 Available at http://www.lawcom.gov.uk/docs/insurance_contact_law_issues_paper_1.pdf
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