Insurance Contract Law Issues Paper 2 Warranties - Law Commission

Our provisional view
7.75 In our view, the onus should be on the insured to show that the breach did not
contribute in any way to the accident. This means that in the modified car, the
insured would be able to show that in fact the modifications did not “contribute” to
the accident by proving that the brakes worked perfectly or that the car’s braking
capacity was completely irrelevant to the accident. It would also be open to the
insured to attempt to prove that the failure to take up references did not
contribute to the loss because the employee’s references would have been
satisfactory. However, the insured would need to prove this on the balance of
probabilities. It would not be sufficient simply to invite the court to speculate about
“might have beens”. Normally, a failure to follow proper procedures would
contribute towards an employee theft. Similarly, the age and inexperience of a
driver would be expected to contribute to an accident, even a no-fault accident.
The insured would have to do more than merely show that the breach was not
the main or dominant cause of the loss.
7.76 We tentatively propose that the policyholder should be entitled to be paid a
claim if it can prove on the balance of probability that the event or
circumstances constituting the breach of warranty did not contribute to the
loss.
Payment of premium warranties
7.77 At present, insurers may include “payment of premium warranties”, under which
the insured warrants that premium instalments will be paid within specific time
limits. In JA Chapman v Kadirga and others, 21 it was held that if such a warranty
was breached, the insurer is automatically discharged from any further liability
under the contract, but the insured remains liable to pay all the premiums on the
due date. This appears to be a harsh result. 22
7.78 Late payment of a premium will almost never cause or contribute to a loss. It is
therefore worth considering what effect a payment of premium warranty would
have under our reforms. It would still be open to an insurer to make payment by
the due date into a condition of the policy. Under normal contractual principles, if
the insured breached the condition, this would be considered a repudiatory
breach. It would be open to the insured to accept the repudiation and terminate
the contract. Until a repudiatory breach is accepted, the contract continues and
any claim must be paid. Once accepted, both parties’ obligations come to an end,
so that an insured would not be liable for any payments arising after the
termination (though the insured may be liable to pay damages for the insurer’s
loss of profits). We think this is a fairer approach, and consider it in more detail
below (see paragraphs 7.140- 7.149).
21
22
[1998] CLC 860.
In the Chapman case, the problems were compounded by section 53(1) of the Marine
Insurance Act 1906, which places liability to pay marine premiums on the broker rather
than the insured. This meant that if the broker went into liquidation, the insured could be
deprived of the benefit of the insurance through no fault of their own. The Law
Commissions will be considering the merits of section 53 at a later date.
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