Insurance Contract Law Issues Paper 2 Warranties - Law Commission

…subject to any express provision in the policy, the insured is
discharged from liability as from the date of the breach of warranty,
but without prejudice to any liability incurred by him before that date.
If an insurer is automatically discharged from liability from the date of the breach,
it cannot logically be liable to pay a subsequent loss unconnected with the
breach. 41
7.133 If one were to repeal section 33(3) it would be necessary to put something in its
place. If not, the repeal would only lead to confusion about how far the provision
merely reflected the pre-existing common law position, which continued
unchanged. The question is how far any statutory restatement should go in
altering the current law.
7.134 If warranties are not to be given any special or pre-eminent status, then it would
be more in keeping with general contractual principles to provide that a breach by
one party merely gave the other party the choice. When an injured party
becomes aware of the breach, it may either decide to repudiate the contract or to
affirm it and continue with the relationship.
7.135 Should the reforms provide that a breach of warranty gives the insurer the
right to repudiate the contract, rather than automatically discharging it from
liability?
7.136 In 1980 the Law Commission argued that the issue of past claims and future
repudiation should be treated separately. An insurer should be able to pay past
claims and repudiate the policy for the future; it should also be entitled to reject
claims, without repudiating in the future.
7.137 Under the tentative proposals in this paper, a breach of warranty would mean that
an insurer was not liable for a loss causally connected to the breach (though, as
we discuss below, it would be possible for the insurer to waive this breach). The
breach would not affect any past unconnected losses. However, the question is
whether the breach should also entitle an insurer to choose to bring the policy to
an end. This means that the insurer would no longer be liable to meet any claims
(whether causally connected to the breach or not) from the time the decision was
communicated to the insured,
7.138 Should the reforms provide an insurer with a choice between repudiating
the claim only, or the policy for the future, or both?
The implications of termination: liability for premiums, notice and waiver
7.139 If the reforms were to provide that a breach of warranty gives an insurer the right
to bring a contract to an end, this raises three further questions. First, should the
insured continue to be liable to pay premiums after the contract is terminated?
Secondly, should the insurer’s right to repudiate for the future be subject to a
requirement to give reasonable notice? Finally, what effect would this have on the
law of waiver? We explore these issues below.
41 Furthermore, if we were to extend the Unfair Contract Terms Act 1977 to insurance
policies, as discussed in Part 8, it would be incompatible with s 29, which provides that a
party may rely on provisions that are specifically authorised by statute.
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