Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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7.121 This can lead to very technical arguments. For example, in Molinos Nacionales v Pohjola Insurance Company Ltd, 36 the ship was said to sail from Tallinn, but instead sailed from Muuga, an adjacent part separated from Tallinn by a headland only 3 miles across, and managed by the same port authority. The difference in port had no bearing on the risk. Mr Justice Coleman described the insurer’s argument that the risk did not attach as having “no merit whatsoever”. However, the Act and earlier authorities permitted insurers to avoid a voyage policy for “trivial, entirely immaterial, deviations”. He was therefore forced to conclude that the insurers should be allowed to defend the claim on these grounds, and were entitled to proceed to trial. 7.122 Other parts of the MIA raise similar issues. Under section 44, for example, the policy does not attach if the ship sails to the wrong destination. Under sections 45 and 46, if the destination is changed or there is a deviation, the insurer is discharged. 7.123 We intend to consult briefly about these sections at a later date. SHOULD THE REFORMS APPLY TO REINSURANCE? 7.124 Our view is that unless there are very good reasons to the contrary, the law on reinsurance should follow, as closely as possible, the law that governs the original insurance contract. 7.125 An example of the problems that can be caused where the laws differ can be found in Forsikringsaktieselkapet Vesta v Butcher. 37 The plaintiffs were a Norwegian insurance company who had insured the owners of a Norwegian fish farm against the loss of their fish. The plaintiffs had then reinsured 90% of the risk with London underwriters. Both the original policy and the reinsurance policy stated that a 24-hour watch be kept of the farm, and that “failure to comply” would render the policy null and void. Although the terms were identical, the applicable law was not. The original policy was governed by Norwegian law while the reinsurance policy was governed by English law. 7.126 The fish were lost in a storm. The farm had failed to keep a 24 hour watch, but this was unconnected to damage caused by the storm. Under Norwegian law, the breach did not prevent liability from arising, despite the express words of the policy, because it was not causative of the loss. The Norwegian insurers paid the claim. However, when they sought to recover 90% of the loss from the London underwriters, the reinsurers pleaded breach of warranty. The House of Lords eventually held the reinsurers liable as, on a true construction of this particular policy, they had agreed to cover all the risks involved in the original policy. It was unfortunate, however, that the dispute took so long to resolve. 36 (unreported) High Court, 5 May 1998. 37 [1989] AC 852. 86
7.127 In 1980 the Law Commission recommended against extending the reforms to reinsurance contracts generally. It thought that the parties to reinsurance contracts would be “aware of the well-known and long-standing rules of law and practice governing the market in which they operate” and that its general recommendations on breach of warranty would be inappropriate to the market. 38 It did however, attempt to protect insurers against the sort of anomalies that arose in the Vesta case. It recommended that where the reassured “substantially repeats the warranty broken by the insured”, the reinsurer would not have greater rights against the reassured than the reassured had against the original policyholder. 7.128 We are not convinced that the parties to reinsurance are always fully aware of the differences between legal regimes. If they were, the difficulties in Vesta would not have arisen. The greater the variation in the law applying to different types of insurance contracts, the more scope there is for confusion to arise. We would not wish to create differences between insurance and reinsurance law unless those differences were clearly necessary. We fear that the specific provisions to prevent anomalies of the type suggested by the 1980 report would add to the complexity of the law. 39 7.129 We are interested to hear from the industry whether there are any reasons to treat reinsurance contracts differently. Our current thinking is that the reforms suggested above should apply to both insurance and reinsurance contracts. 7.130 Are there any reasons why the reforms should not apply to reinsurance contracts? REFORMING OTHER PROVISIONS OF THE MIA 1906 7.131 The reforms we have tentatively proposed have consequences for the Marine Insurance Act 1906. For example, the requirement for a causal connection is incompatible with section 34(2), which does not allow a breach of warranty to be remedied before a loss occurs. 40 Here we consider other implications of our proposals on reforming the MIA provisions on warranties. Automatic discharge or repudiation? 7.132 The reforms we have proposed are incompatible with the idea that an insurer is automatically discharged from liability from the date of the breach. Section 33(3) states that 38 para 8.12. 39 There already appears to be considerable scope for argument about whether a clause in an insurance contract has be incorporated within a re-insurance contract in “manipulated” or “unmanipulated” form: see HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyd’s Rep 161; [2001] EWCA Civ 735. We would not wish to encourage disputes of this type, but imposing one set of legal rules where the reinsured gave an independent warranty and another where the reinsured “substantially repeated” the warranty given by the insured. 40 S 34(2) states that “where a warranty is broken, the assured cannot avail himself of the defence that the breach had been remedied, and the warranty complied with, before loss”. 87
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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
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We recognise that a consequence of
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THE RECOMMENDATIONS 3.3 The 1980 re
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The test in the final report 3.12 F
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3.21 A more recent example is Seddo
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PART 4: ARE WARRANTIES STILL A PROB
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(4) The wording of the warranty doe
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4.12 The “innominate term” clas
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4.23 The 1977 Statement of Long-Ter
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4.34 The Long-Term Statement, howev
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4.42 In Director General of Fair Tr
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Does an exception have to be in pla
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4.60 It is not necessarily sufficie
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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 and 68: 6.64 An example will illustrate the
Page 69 and 70: PART 7: PROVISIONAL PROPOSALS 7.1 T
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: Legality 7.116 The warranty of lega
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
Page 119 and 120: (4) In Case 20, the policy excluded
Page 121 and 122: significant definitions, terms and
Page 123 and 124: B.46 Although ombudsmen are unsympa
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Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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