Insursnce Law

Non-disclosure and breach of warranty.

1.ONDOP.I
HER MAJESTY'S STATIONERY OFFICE
 THE LAW COMMISSION

Working Paper No. 73

I n s u r a n c e Law
Non-disclosure and b r e a c h of warranty

!?.?a?- -
Taqe

PART I : INTRODUCTION 1-20 1-13

Terms o f r e f e r e n c e 1- 2 1
The F i f t h Report o f t h e Law Reform
Conuni t t e e 3 2- 3
The S t a t e m e n t s o f Insurance P r a c t i c e 4-10 3- 6
(a) The Statement o f I n s u r a n c e P r a c t i c e o f
4 May 1977 5- 6 4- 5
(b) The Statement o f Long-Term Insurance
Practice of 28 J u l y 1 9 i 7 7 5
( c ) General comments 8-10 5- 6
The d r a f t d i r e c t i v e 11-13 6- 8
Scope o i t h e working p a p e r 14-19 9-12
(a) Marine, a v i a t i o r . and t r a n s p o r t i n s u r a n c e 15-17 9-10
(b) L i f e i n s u r a n c e 18 11
I 1 Insm-ance i n t c r s e d i a r i e s 19 11-12
,ne working paper 20 12-13

PART 11: THE DUTY OF DISCLOSURE 21-97 14-61

A. T h e p r e s e n t l a w : i t s development and
rationale 21-34 14-22
General 21-22 14
Extent of t h e duty 23-24 14-16
Consequences o f n o n - d i s c l o s u r e by t h e
insured 25 16
J u s t i f i c a t i o n of t h e d o c t r i n e 26-27 16-1 T
Application of the doctrine 28 17-19
The d o c t r i n e today 29 15
The duty where t h e r e i s a p r o p o s a l
form - general 30 _I a- - 2 0
S t a t e m e n t s o f f a c t and s t a t e m e n t s 0, o p i n i o n 31 20-21
Waiver of d i s c l o s u r e 32 2:
Ambiguous q u e s t i o n s 33 21-22
Duration of t h e duty of d i s c l o s u r e 54 I^
LL

iii
B. Critic.isms of the p r e s e n t law a s t o
Paras. --
P2.i

non-dis c l o s u r e 35-42 22-2

The F i f t h Report o f t h e Law Reform
Commit t e e 36 22
Lamhert v. Co-operative I n s u r a n c e
S o c i e t y Ltd. 37 2;-2
0t h e r c r i t i c i s m s 38-42 24-2

C. Reform of t h e p r e s e n t law - the f i e l d

of choice 43-97 26-6

(i) The a b o l i t i o n of any duty t o

disclose 44-51 27-.1.
The use of t h e p r o p o s a l form 45-46 27-2
P r o v i s i o n a l cover 47 28-2
Cover where no p r o p o s a l form
i s ever issued 48 29
The r e s u l t s of a b o l i t i o n 49 29
A b o l i t i o n of t h e d u t y w i t h
r e s pe c t t o consume r s 50 3(?
Our p r o v i s i o n a l c o n c l u s i o n 51 3c
(ii) The r e t e n t i o n of t h e duty and
t h e adoption o f t h e
prop o r t i on a1 i t y p r i n c i p l e 52-57 31-5
(iii) The r e t e n t i o n o f a duty of
d i s c l o s u r c and t h e a l t e r a t i o n
of i t s a m b i t 58-90 34-5
( a ) The duty of d i s c l o s u r e
where t h e r e i s no
p r o p o s a l form 59-64 j5-j
The e x t e n t of t h e duty 60-64 35-3
(1) "A r e a s o n a b l e mm i n
h i s circumstances" (11-62 35-s
(2) "Which he knows o r
which a r e a s o n a b l e
man i n h i s
circums t a n c c s ought
t o know" 63-64 36-5
( b ) The duty of d i s c l o s u r e
where t h e r e i s a p r o p o s a l
form 65-77 37- 1

The e x t e n t o f t n e duty 66 --
.1

The n a t u r e of t h e duty 67 35-1

Presumption o f m a t e r i a l i t y
of q u e s t i o n s i n a p r o p o s a l 3
form 68

iv
 Paras.
Type of answer r e q u i r e d from
t h e insured 69-70 40
What i s a p r o p o s a l form? 71 41
D i f f i c u l t i e s w i t h our
re commendations 72 41-42
The r e s i d u a l d u t y of
disclosure 73 42
"General q u e s t i o n s ' ' 74 42-43
P r a c t i c a l e f f e c t s of o u r
p r o v i s i o n a l recommendations 75 43
C o n s t r u c t i o n o f ambiguous
questions i n the proposal
form 76 43-44
The i n s u r e d ' s e n t i t l e m e n t t o
a copy o f t h e p r o p o s a l
form 77 44

Ic) "Basis oi t h e c o n t r a c t "

clauses 78-88 44-52
(1) The p r e s e n t law 7 8- 79 44-46
(2) C r i t i c i s m s of t h e
p r e s e n t law 80-82 46-48
(3) Reform of t h e p r e s e n t .
1aw 83-88 48-52
The m i s c h i e f 83-85 48-50 .
Our p r o v i s i o n a l
recommendatioi; 85 50
Scope o f o u r
provisional
recommendat i o n 87 51-52
S t a t e m e n t s as t o t h e
future 88 52
(d) Renewal 69-CO 52-54
(1) Renewal where t h e r e has
been a p r o p o s a l form 89 52-53
( 2 ) Renewal where t h e r e has
been n o p r o p o s a l form 90 53-54

D. Our p r e f e r e n c e a s r e g a r d s t h e f i e l d of
choice 31 54

E. Should t h e i n s u r e r ' s r i g h t s i n r e s p e c t o f
n o n - d i s c l o s u r e be f u r t h e r r e s t r i c t e d ? 92-96 54-56

F. Summary o f p r o v i s i o n a l c o n c l u s i o n s and
r e commen d. a t i o n s on non - d i s c 1o s u re 97 56-61

V
 Paras. Page
PART I I I : WARRANTIES 98-125 62-64
A. The p r e s e n t law 9 8- 1 0 5 62-66
Introduction 98 62
What i s a w a r r a n t y ? 99 62-63
C r e a t i o n of w a r r a n t i e s 100 63-64
Types o f w a r r a n t y 101 64
Promissory w a r r a n t i e s 102-103 64-65
Warranties of opinion 104 66
Interpreting warranties contra
proferen ten 10s 66

B. C r i t i c i s m s of t h e p r e s e n t law 106- 1 0 7 66-67

Our p r o v i s i o n a l view .107 67

C. Reform o f t h e p r e s e n t law - t h e f i e l d
of choice 105-124 68-82
Introduction 1'28 68
( i ) The a b o l i t i o n of " w a r r a n t i e s " 109-114 6 6- 7 0
Our p r o v i s i o n a l c o n c l u s i o n 114 70
( i i ) A m o d i f i e d system of w a r r a n t i e s 115-124 70- 52
Limitation of "warranties" t o
terms m a t e r i a l t o t h e r i s k 115 70-71
Onus o f p r o o f o f m a t e r i a l i t y 116 71
Types o f w a r r a n t y 117 71
Formal r e q u i r e m e n t s f o r w a r r a n t i e s 1 1 8 71-72
L e g a l e f f e c t of a b r e a c h o f
warranty 119 73
Loss of a n a t u r e o u t s i d e t h e
purpose o f broken w a r r a n t y 120 73-75
Connection between t h e b r e a c h of
w a r r a n t y and t h e a c t u a l loss 121 75-77
Our proposed t e s t 1 22 77-78
Other possible s o l u t i o n s 1 23 78-82
Our p r o v i s i o n a l c o n c l u s i o n 124 82
D. Summary o f p r o v i s i o n a l c o n c l u s i c n s and
re coms-n6 z1 t 1on s on ;.I a r r m-t i e s 125 82-84

vi
 Paras.
PART I V : AV ALTERVATIVE APPROACH:
THE DRAFT DIRECTIVE 126-166 85-102
Gene r a1 126-127 85-86
( i ) A l t e r n a t i v e approach t o t h e law o f
non-disclosure - A r t i c l e 2 128-146 86-93
I n t r o duc t i on 128-129 86-87
The duty 130-133 81-88
Ways i n which t h e duty may b e broken ij,i-i35 28-5 C
Discovery of new c i r c u m s t a n c e s 136 90
Burden of p r o o f 137 90
Consequences o f b r e a c h 138-141 90-91
The e f f e c t o f a b r e a c h on claims 142-145 92-03
Our p r o v i s i o n a l view on A r t i c l e 2 146 93
( i i ) AI.. a l t e r n a t i v e t o a system o f
w a r r a n t i e s - A r t i c l e s 3 and 4 147-159 94-101
I n t roduc t i o n 147-143 94-95
Article 3 149-15 7 95-100
The duty of n o t i f i c a t i o n 149 95-96
The ways i n which t h e d u t y may be
broken 150 96-97
Burden of p r o o f 151 97
The consequences of b r e a c h 152 97
The e f f e c t o i a b r e a c h on claims 153-156 98-99
Our p r o v i s i o c a l view on A r t i c l e 3 157 99-100
Article 4 158-159 100- 101
Our p r o v i s i o n a l c o n c l u s i o n s on t h e
d r a f t d i r e c t i v e a s an a l t e r n a t i v e
approach t o n o n - d i s c l o s u r e and
ii ar r M tit s 160-166 101-102

PART V: MISCELLMEOUS MATTERS 167-175 103- 105

(i) M i s r e p r e s e n t a t i o n and f r a u d 16 8- 171 105-104
(a) Non-f r a u d u l e n t m i s r e p r e s e n t a t i o n 169 103-104
(b) Fraud 170-1 71 104
(ii) C o n t r a c t s of r e - i n s u r a n c e 172-175 104-105

PART V I : O X G E X Z U L CObPEX\'TS ON
THIS WORKING PAPER
176-178 106-108

. . vii
 Page

. A P P E N D I X A: STATEMENT OF INSURANCE P R A C T I C E 109-110

STATEMENT O F LONG-TERM INSURANCE
PRACTICE 111-112

A P P E N D I X B: DRAFT COUNCIL D I R E C T I \ T ON THE

COORDINATION O F LAWS,
REGULATIONS AND KN I N IS T P ? T1VE
P R O V l S l U N S R E L A T I N G TO INSURANCE
CONTRACTS
5 T H R E V I S I O N (FOLLOWING THE 2 4 T R
M E E T I N G OF THE WORKING P A R T I ON
INSURANCE CONTRAC’I’S, HELD ON 2 1
AND 2 2 J U N E 1 9 7 7 )
ARTICLES 2-4 113-118

A P P E N D I X C: I THE LAW R E L A T I N G TO NON-DISCLOSURE

AND WARRANTIES IN OTHER COMNON
LAW J U R I S D I C T I O N S 119-121
I1 THE LAW R E L A T I N G TO NON-DISCLOSURE
AND W A R W J T I E S I N FRANCE AND
WEST GERMANY 122-126

viii
 THE LAW COBDlISSION

INSURANCE LAW

..
PART I - INTRODUCTION

Terms o f r e f e r e n c e

1. On 1 7 May 1 9 7 8 t h e L o r d C h a n c e l l o r r e f e r r e d c e r t a i n
a s p e c t s o f i n s u r a n c e l a w t o t h e Law Commission, u n d e r s e c t i o n
f
! 3 ( l ) ( e ) o f t h e L a w Commissions Act 1 9 6 5 , w i t h t h e f o l l o w i n g
terms o f r e f e r e n c e :

"To c o n s i d e r t h e e f f e c t on t h e l i a b i l i t y o f
a n i n s u r e r , a n d on t h e r i g h t s o f a n i n s u r e d ,
of:
( a ) n o n - d i s c l o s u r e b y , o r on b e h a l f o f ,
the insured;
( b ) m i s r e p r e s e n t a t i o n b y , or on b e h a l f o f ,
I the insured;
i
( c ) b r e a c h of ' w a r r a n t y ' by t h e i n s u r e d ;
(d) s p e c i a l c o n d i t i o n s , e x c e p t i o n s a n d terms;
( e ) i n c r e a s e a n d d e c r e a s e or r i s k c o v e r e d ,
p a r t i c u l a r l y i n t h e l i g h t o f t h e F i f t h Report of
t h e Law Reform Committee ( 1 9 5 7) a n d t h e d r a f t
E . E . C . D i r e c t i v e on t h e c o - o r d i n a t i o n of laws,
r e g u l a t i o f i s and a d m i n i s t r a t i v e p r o v i s i o n s r e l a t i n g
t o i n s u r a n c e c o n t r a c t s , a n d t o make r e c o e m e n d a t i o n s . "

2. l e a r e p u b l i s h i n g t h i s w o r k i n g p a p e r as e b a s i s f o r
c o n s u l t a t i o n on t h e r e f o r m o f t h e law as t o n o n - d i s c l o s u i e by
t h e i n s u r e d a n d as t o b r e a c h o f w a r r a n t y by t h e i n s u r e d . We
a r e aware t h a t o t h e r p a r t s o f i n s u r a n c e l a w f a l l i n g w i t h i n
olir terms o f r e f e r e n c e may b e i n n e e d o f r e f o r m . However, w e
h a v e b e e n a s k e d t o c o n s i d e r t h e s e two m a j o r t o p i c s as a
m a t t e r o f u r g e n c y a n d we h a v e t h e r e f o r e l e f t o v e r f o r t h e time
b c i n g t h e c o n s i d e r a t i o n 3 f a n y o t h e r matters.

1
 1
The F i f t h Report o f t h e Law Reform Committee

_ 3 . I n J u l y 1954 t h e t h e n Lord C h a n c e l l o r i n v i t e d t h e
L a w Reform Committee t o c o n s i d e r t h e e f f e c t on t h e l i a b i l i t y
o f i n s u r a n c e companies o f s p e c i a l c o n d i t i o n s and e x c e p t i o n s
i n i n s w a n c e p o l i c i e s and o f n u n - d i s c l o s u r e o f m a t e r i a l f a c t s
by p e r s o n s e f f e c t i n g s u c h p o l i c i e s . In J a n u a r y 1957 a s h o r t
,,,art V ~ Sp u b l i s h c d ( h c i c a f t c i r e f e r r e d t c i as " t h e r e p o r t " ]
-an

in which t h e Committee summarised t h e p r a c t i c a l e f f e c t s o f

t h e m a t t e r s r e f e r r e d t o them2 and c o n s i d e r e d whether t h e
s i t u a t i o i i d i s c l o s e d was s u c h a s t o r e q u i r e amending
l e g i ~ l a t i o n . ~The Committee r e p o r t e d t h a t t h e s t a t e oI' t h e
law, combined w i t h t h e u s e by i n s u r e r s o f c e r t a i n t y p e s o f
s p e c i a l c o n d i t i o n ; and e x c e p t i o n s i n p o l i c i e s , was c a p a b l e of
l e a d i n g t o abuse i n t h e s e n s e t h a t a v a r i e t y o f circiimstances
might e n t i t l e i n s u r e r s t o r e p u d i a t e l i a b i l i t y as a g a i n s t
an h o n e s t and a t l e a s t r e a s o n a b l y c s r e f u l i n s u r e d a n d ,
f u r t h e r m o r e , t h a t such a b u s e s had i n f a c t s o m e t i n e s o c c u r r e d ,
though n o t t o any s u b s t a n t i a l e ~ t e n t . The ~ Committee a c c e p t e d
t h e a c c u r a c y o f t h e r e p r e s e n t a t i o n s made by t h e i n s u r a n c e
i n d u s t r y t c t h e e f f c c t t h a t no r e p u t a b l e i n s a r e r would r e l y
on a t e c h n i c a l d e f e n c e t o d e f e a t an h o n e s t c l a i m b u t s t a t e d
t h a t t h i s d i d z o t i l t e r t h e fzct t h a t i n n x y c o s c s oi;
i n s u r e r was i n a p o s i t i o n t o s u b s t i t u t e h i s own judgment
of t h e c l a i m a n t ' s bona f i d e s f o r t h a t o f a c o u r t . 5 However,
t h e y c o n s i d e r e d t h a t t h e mere f a c t t h a t t h e law was
t h e o r e t i c a l l y open t o c r i t i c i s m and s u s c e p t i b l e t o abuse d i d
n o t j u s t i f y a reconmeiiiation chat i t s h o u l d be changed,
e s p e c i a l l y where t h e p r e j u d i c e t o t h e i n s u r e d a r o s e from

I ( C o n d i t i o n s anci E x c e p t i o n s i n I n s u r a n c e P o l i c i e s )
(1957) Cmnd. 6 2 .
2 w., paras. 4-10.
3 Ibid., p a r a s . 1 1 - 1 4 .
4 -
Ibid., psras. 11-12.
5 Ibid., p a r a . 11

2
: f

e x p r e s s c o n t r a c t u a l p r o v i s i o n s r a t h e r than from r u l e s o f law

a s such. The Committee t o o k t h e view t h a t l e g i s l a t i o n to
a l l e v i a t e t h c p o s i t i o n of t h e i n s u r e d would i n v o l v e
i n t e r f e r e n c e w i t h t h e l i b e r t y o f c o n t r a c t o f t h e i n s u r e r and
t h a t t h e d e s i r a b i l i t y of s u c h l e g i s l a t i o n was a b r o a d q u e s t i o n
o f s o c i a l p o l i c y o u t s i d e t h e i r competence. Nevertheless, the
, Committee d i d c o n s i d e r to what e x t e n t i t was p r a c t i c a b l e t o
. .
i n t r c j d u c c nc;< p.Ta\:l;lfiAis ipLro t h e existiLg ?aw -&-':-.<hat

i such p r o v i s i o n s s h o u l d t a k e . I n d e e d , t h e y f o r m u l a t e d t h r e e
p r o v i s i o n s which i n t h e i r view c o u l d be i n t r o d u c e d i n t o t h e
law w i t h o u t g i v i n g r i s e t o l e g a l d i f f i c u l t i e s i n t h e i r
a p p l i c a t i o n . The f i r s t o f t h e s e p r o v i s i o n s i s p a r t i c u l a r l y
r e l e v a n t t o t h i s working p a p e r :

" t h a t f o r t h e p u r p o s e s o f any c o n t r a c t o f
i n s u r a n c e no f a c t s h o u l d be deemed m a t e r i a l
'
u n l e s s i t would have been c o n s i d e r e d m a t e r i a l
by a r e a s o n a b l e i n s u r e d " .

I n d e v i s i n g o u r scheme f o r r e f o r m o f t h e law we have p a i d

c l o s e a t t e n t i o n t o t h e r e p o r t and i n p a r t i c u l a r t o t h e
provision j u s t referred to.

The S t a t e m e n t s o f I n s u r a n c c P r a c t i c e
4. On 4 May 1977, f o l l o w i n g d i s c u s s i o n s between
r e p r e s e n t a t i v e s cif l e a d i n g i n s u r e r s and t h e Government, t h e
P a r l i a m e n t a r y U n d e r - S e c r e t a r y a t t h e Department o f Trade
a x o u n c e d i n th? House of C G W O R - F ~ t h a t ?he B r i t i s h
I n s u r a n c e A s s o c i a t i o n and L l o y d ' s had drawn up a s t a t e m e n t o f
p r a c t i c e ( h e r e a f t e r r e f e r r e d t o as t h e S t a t e m e n t of I n s u r a n c e
P r a c t i c e ) which t h e y were recommending t o t h e i r members. The
Statement of Insurance P r a c t i c e is r e s t r i c t e d t o non-life
i n s u r a n c e s o f p o l i c y h o l d e r s I - e s i d e n t i n t h e U n i t e d Kingdom
and i n s u r e d i n t h e i r " p r i v a t e " c a p a c i t y o n l y . O n 28 J u l y

6 Ibid., p a r a . 12.
7 w.,p a r a . 14.
8 Hansard (H.C.), 4 May 1977, v o l . 931, c o i s . 2l,7-220.

3
1977 an announcement was made t o t h e House of Commons9 t h a t a
S t a t e m e n t o f Long-Term I n s u r a n c e P r a c t i c e had been drawn up
by t h e L i f e O f f i c e s ' A s s o c i a t i o n and A s s o c i a t e d S c o t t i s h L i i e
O f f i c e s . This Statement h a s a l s o been accepted by t h e Linked
L i f e Assurance Group. I t r e l a t e s t o long-term i n s u r a n c e
e f f e c t e d by i n d i v i d u n l s r e s i d e n t i n t h e United Kingdom i n
r n e l r I;p,l.iyate?? c l i p a i i t y . I n p r n c t i c e t h i s means t h a t t h e
Statement i s a p p l i c a b l e p r i n c i p a l l y t o l i f e a s s u r a n c e which
i s t h e only t y p e o f long-term i n s u r a n c e g e n e r a l l y a v a i l a b l e
i n t h i s country. The S t a t e m e n t s a r o s e from concern t h a t i n
view o f t h e proposed e x c l u s i o n of i n s u r a n c e c o n t r a c t s from
t h e U n f a i r C o n t r a c t Terms B i l l [ s u b s e q u e n t l y e n a c t e d as t h e
U n f a i r C o n t r a c t Terms A c t 1977 w i t h i n s u r a n c e cont:acts s t i l l
excluded) i n s u r a n c e . p o l i c y h o l d e r s might n o t be a f f o r d e d
s u f f i c i e n t p r o t e c t i o n from u n f a i r t r e a t m e n t as a r e s u l t of
t h e terms of i n s u r a n c e c o n t r a c t s . Both t h e s e S t s t e n e n t s a r e
reproduced i n Appendix A. We d e a l w i t h each Statement i n
turn and then make some g e n e r a l ccimments.

(a) The Statement c f I n s u r a n c e P-ractice of 4 May 1977

5. Paragraph l ( b ) of t h e Statement of Insurance
P r a c t i c e p r o v i d e s t h a t a s r a t e n e n t 5hould b e p r o n i n c n t l y
d i s p l a y e d on t h e p r o p o s a l form informing t h e p r o p o s e r of t h e
n a t u r e of h i s dirty of Z i s c l o s u r e and o f t h e consequences of
h i s f a i l u r e t o comply w i t h i t . Paragraph 3 r e q u i r e s
i n s u r e r s t o warn an i n s u r e d about h i s d u t y of d i s c l o s u r e i n
renewal n o t i c e s . The p r o p o s a l form should a l s o cori:ain a
warning t h a t i f a p r o p o s e r i s i n any doubt whether a f a c t i s
m a t e r i a l he s h o u l d d i s c l o s e i t . Paragraph l ( c ) p r o v i d e s
t h a t those m a t t e r s which i n s u r e r s have found g e n e r a l l y t o be
m a t e r i a l should be t h e s u b j e c t of c l e a r q u e s t i o n s i n t h e
p r o p o s a l form and paragraph 1 ( f ) r e q u i r e s t h e i n s u r e r t o
s e n d t h e i n s u r e d a copy of t h e completed p r o p o s a l form i f
t h e i n s u r e r r a i s e s ~I i sIs u e concerning i t , u n l e s s a copy has
a l r e a d y been s u p p l i e d t o him.

9 Hansard (H.C.), 28 July 1977, v o l . 936, cols. 641-644.

10 Para. l ( b ) .
4
6. Paragraph 2 (b) i n d i c a t e s t h a t , except where f r a u d ,
d e c e p t i o n o r n e g l i g e n c e i s i n v o l v e d , an i n s u r e r w i l l n o t
u n r e a s o n a b l y r e p u d i a t e l i a b i l i t y t o indemnify a p o l i c y h o l d e r
i n t h e l o l l o w i n g circumstances :

(i) where t h e i n s u r e d has f a i l e d t o d i s c l o s e

a m a t e r i a l f a c t ( o r t h e r e has been a
m i s r q r e s e n t a t i o n o f such 1- f i c r ) birt
knowledge of t h e f a c t would n o t
m a t e r i a l l y have i n f l u c n c e d t h e i n s u r e r ' s
judgment i n t h e acceptance o r assessment
of t h e insurance ;

(ii) where t h e r e h a s been D b r e a c h 3f w a r r a n t y

o r c o n d i t i o n b u t t h e circumstances of t h e
l o s s a r e unconnected w i t h t h e breach.
This paragraph does n o t apply t o marine o r a v i a t i o n p o l i c i e s .

(b) The Statement o f Long-Term I n s u r a n c e P r a c t i c e of

2 8 J u l y 1977

7.. Turning now t o t h e Statement of Long-Term

I n s u r a n c e P r a c t i c e , paragraph 1 ( a ) i n d i c a t e s t h a t an i n s u r e r
w i l l n o t unreasonably r i . j e c t a c l a i m and i n p a r t i c u i a x 'ihai
a claim w i l l n o t be r e j e c t e d f o r t h e n o n - d i s c l o s u r e o r
m i s r e p r e s e n t a t i o n o f a m a t t e r t h a t was o u t s i d e t h e p r o p o s e r ' s
knowledge. However, a p r o v i s o s t a t e s t h a t f r a u d o r d e c e p t i o n
w i l l , and n e g l i g e n c e o r n o n - d i s c l o s u r e o r m i s r e p r e s e n t a t i o n
may, r e s u l t i n "adjastment" o r c o n s t i t u t e g r c u i d s f o r
rejection. Paragraph 2 of t h e Statement makes p r o v i s i o n s
concerning t h e c o n t e n t of p r o p o s a l forms s i m i l a r t o t h o s e
made. i n t h e Statement o f I n s u r m c e P r a c t i c e of 4 May 1977.

(c) General comments

8. The scope of both S t a t e m e n t s i s somewhat u n c e r t a i n :
some d i f f i c u l t y i s caased by t h e wcjrds " i n a p r i v a t e c a p a c i t y "
i n b o t h S t a t e m e n t s , a l t h o u g h it seems t h a t t h e Statements a r e
only intended t o b e n e f i t persons e f f e c t i n g insurance otherwise
t h a n i n t h e course of t h e i r b u s i n e s s .

5
9. The p r o v i s i o n i n b o t h S t a t e m e n t s t h a t i n s u r e r s w i l l
n o t "unreasonably" r e p u d i a t e l i a b i l i t y o r r e j e c t a c l a i m
l e a v e s i n s u r e r s as t h e s o l e j u d g e s of whether r e p u d i a t i o n o r
r e j e c t i o n i s u n r e a s o n a b l e i n any g i v e n s i t u a t i o n . We b e l i e v e
t h a t t h j s i s u n s a t i s f a c t o r y . I n the Statement of Insurance
P r a c t i c e t h i s drawback i s e x a c e r b a t e d b e c a u s e no i n d i c a t i o n
i s g i v e n of t h e c a s e s i n which r e p u d i a t i o n will be
u n r e a s o n a b l e . The a p p l i c a t i o n o f b o t h S t a t e m e n t s i s l i m i t e d
t o t h e members of t h e o r g a n i s a t i o n s which were p a r t y t o them
o r which s u b s e q u e n t l y a c c e p t e d t h e e ; " t h e r e a r e , however,
i n s u r a n c e u n d e r w r i t e r s i n t h e United Kingdom who a r e n o t
members of t h e s e o r g a n i s a t i o n s .
10. But t h e r e i s a more i m p o r t a n t c r i t i c i s m t h a t can be
made of t h e S t a t e m e n t s o f P r a c t i c e : t h e y a r e b o t h measures o f
s e l f - r e g u l a t . i o n by t h e i n s u r a n c e i n d u s t r y l a c k i n g t h e f o r c e
o f l a w . An i n s u r e d would t h e r e f o r e have 110 l e g a l remedy i f
t h e i n s u r e r f a i l e d t o a c t i n a c c o r d a c e with t h e i r provisions.
Although we do n o t douht t h a t t h e i n s u r e T s t o whom t h e
S t a t e m e n t s apply i n t e n d t o a b i d e by t h e i r p r o v i s i o n s , t h e r e i s
no c e r t a i n t y t h a t t h e y would i c t u a l l y do s s i n a l l c a s e s .
I n d e e d a l i q u i d a t o r o f an insur&?ce company would b e bound t o
disregar-! t h e S t a t e m e n t s . O u r iiiew i s t h a t i f t h e insured
n e e d s f u r t h e r p i - o t e c t i o n , and i t seems t o be w i d e l y a c c e p t e d
t h a t h e d o e s , t h e n i t s h o u l d be p r o v i d e d by l e g i s l a t i o n . I t
w i l l b e n o t e d h e r e a f t e r t h a t many of o u r p r o v i s i o n a l
recommendations f o l l o w l i n e s b r o a d l y similar t o t h e p r o v i s i o n s
l i b t h e s e S t a i e i ~ , a n t so f P r a c t i c e .

'J'he d r a f t d i r e c t i v e

11. Work i s b e i n g done a t t h e Commission o f t h e European

Communities i n B r u s s e l s on a d i r e c t i v e on t h e c o - o r d i n a t i o n
of t h e l e g i s l a t i v e , s t a t u t o r y and a d m i n i s t r a t i v e
11 The B r i t i s h I n s u r a n c e A s s o c i a t i o n and L l o y d ' s i n r e s p e c t
o f t h e S t a t e m e n t of I n s u r a n c e P r a c t i c e and t h e L i f e
O f f i c e s ' -4ssociatio11, t h e A s s o c i a t e d S c o t t i s h L i f e
O f f i c e s and t h e Linked L i f e Assurance Group i n r e s p e c t
o f t h e S t a t e m e n t o f Long-Term I n s u r a n c e P r a c t i c e . The
l a t t e r S t a t e m e n t w i l l be m o d i f i e d i n i t s a p p l i c a t i o n t o
i n d u s t r i a l l i f e a s s u r a n c e p o l i c y h o l d e r s who a r e a l r e a d y
p r o t e c t e d by t h e I n d u s t r i a l Assurance Acts 1 9 2 3 t o 1968
and r e g u l a t i o n s made t h e r e u n d e r . See Appendix A a t
p. 111 e s p e c i a l l y second p a r a . of t h e i n t r o d u c t i o n t o
t h e S t a t e m e n t of Long-Term I n s u r a n c e P r a c t i c e .
6
 : i

p r o v i s i o n s governing insurance c o n t r a c t s . A f i f t h d r a f t o f
t h e d i r e c t i v e h a s now b e e n p r o d u c e d . F o r c o n v e n i e n c e we s h a l l
r e f e r to i t s i m p l y a s t h e " d r a f t d i r e c t i v e " . Articles 2 , 3
a n d 4 o f t h e d r a f t d i r e c t i v e , wliich a r e r e l e v a n t t o t h i s
w o r k i n g p a p e r , a r e r e p r o d u c e d as Appendix B. The d r a f t
d i r e c t i v e o r i g i n a l l y a r o s e f r o m t h e 1975 v e r s i o n o f t h e d r a f t
"SBrvices" d i r e c t i v e , " A r t i c l e 5 o f which c a i l c d f o r t h c
1 7
i i a r i l w n i s a t i o i i U? " a s s e r i ~ i a lp r o v i s i o n s " - ' of r n e i n s u r a n c e
c o n t r a c t l a u o f blember S t a t e s k i t h i n t h r e e y e a r s o f i t s
n 0 t i f i c a t i 0 n . l ~ A l t h o u g h A r t i c l e 5 h a s be e n o m i t t e d from t h e
l a t e s t d r a f t of t h e " s e r v i c e s " d i r e c t i v e , A r t i c l e 4(1) o f
t h a t d r a f t continues t o provide t h a t harmonisation o f "the
law g o v e r n i n g c o n t r a c t s o f i n s u r a n c e " must o c c u r w i t h i n t h r e e
y e a r s of i t s n o t i f i c a t i o n . D e s p i t e t h e u s e o f t h e w i d e r
p h r a s e , t h e d r a f t d i r e c t i v e h a s a t p r e s e n t a s i t s main ainl t h e
!
h a r m o n i s a t i o n o n l y o f t h e " e s s e n t i a l provisions" mentioned i n
I t h e e a r l i e r d r a f t of t h e "services" d i r e c t i v e .

12 D r a f t S e co n d C o u n c i l D i r e c t i v e on t h e P r o v i s i o n o f
I n s u r a n c e S e r v i c e s w i t h i n t h e E.E.C. The p u r p o s e
of t h i s d i r e c t i v e i s t o e n a b l e an i n s u r a n c e
u n d e r t a k i n g e s t a b l i s h e d i n an y Member S t a t e o f t h e
E.C.C. t o p i o v i d s S ~ I T ~ C e~ l S~ ~ w l i e ri ne tile
Community w i t h g u t h a v i n g an e s t a b l i s h m e n t i n t h e
Member S t a t e wh er e t h e i n s u r a n c e i s p r o v i d e d . It
makes d i f f e r e n t p r o v i s i o n s f o r d i f f e r e n t k i n d s o f
r i s k a n d , i n p a r t i c u l a r , l a y s down c h o i c e o f law
r u l e s for e a c h k i n d o f r i s k .
13 Putting it s h o r t l y , these provisions r e l a t e t o t h e
i n s u r e d ' s d u zy t o d i s c l o s e f a c t s m a t e r i a l t o t h e
r i s k , b o t h b e f o r e an d a f t e r t h e making o f t h e
c o n t r a c t , t h e payment o f t h e premium a nd t h e
c o n s e q u e n c e s of n o n - p ay men t , t h c d u t i e s o f t h e
insured i n the event of a l o s s , the circumctances
i n w h i c h t h e c o n t r a c t may b e a v o i d e d a nd t h e r i g h t s
of t h i r d p a r t i e s .
14 A r t i c l e 5 of t h e 1 9 7 5 d r a f t p r o v i d e d f o r t h e
a p p l i c a t i o n tci c e r t a i n i n s u r a n c e con t r a c t s o f
" e s s e n t i a l p r o v i s i o n s " o f t h e l a w o f t h e Member
S t a t e i n which t h e r i s k c o v e r e d %as s i t i i a t z d ,
n o t w i t h s t a n d i n g t h e p a r t i e s ' c h o i c e o f a n o t h e r law
f o r t h i s purpose.

7
12. The p r o p o s a l s i n t h e d r a f t d i r e c t i v e a r e n o t a t t h i s
s t a g e n e c c s s a r i l y a c c e p t a b l e t o t h e C o m i i s s i o n o f t h e Europe a n
Comniunities o r t o t h e g o v e r n m e n t s o f Member S t a t e s . However,
i f implemented t h e y liould r e q u i r e f a r - r e a c h i n g changes i n ' o u r
p r e s e n t law t o b e made by l e g i s l a t i o n . A r t i c l e s 2 , 3 a n d 4
t h e r e f o r e f a l l t o b e c o n s i d e r c d a s one a l t e r n a t i v e way o f
r c C c r ~ i ~t h2 a t p a r t =+' cur p r c 5 c r . t l a y v!hicf?. C O X T . " ~: . i + , h i ~+ , h p
scope o f t h i s working paper. Lat.er i n t h i s w orking p a p e r 1 5
w e s h a l l t h e r e f o r e c o n s i d e r t h e s e A r t i c l e s i n some d e t a i l a nd
e x p r e s s o u r p r e l i m i n a r y v i e w s o n t h e m . T h e r e i s some
u n c e r t a i n t y as t o t h e t e r r i t o r i a l scope of t h e d r a f t d i r e c t i v e . 16
However, wc s h a l l assume t h a t , i f t h e p r o v i s i o n s o f t h e d r a f t
d i r e c t i v e come i n t o f o r c e i n an y f o r m, t h e y will r e p l a c e 1 0 1
a l l p u r p o s e s t h e r u l e s o f o u r p r e s e n t l aw which we a r e
d i s c u s s i n g i n t h i s working p a p e r .

13. A l t h o u g h o n l y A r t i c l e s 2 , 3 an d 4 o f t h e d r a f t
d i r e c t i v e f a l l w i t h i n t h e s c o p e o f t h i s working p a p e r , 50 t h a t
we s h a l l n o t b e d c a l i n g w i t h t h e r e m a i n i n g A r t i c l e s o f t h e
d r a f t d i r e c t i v e , i t may become n e c e s s a r y a t a l a t e r d a t e f o r
us t o d i s c u s s some o r a l l of t h e r e m a i n i n g A r t i c l e s O S t h e
p r e s e n t d r a f t and. any A r t i c l e s wh i ch niay L e a dde d o r
s u b s t i t u t e d i n any f u r t h e r d r a f t .

15 See P a r t I V , passim.
16 Two e a r l i e r d i r e c t i v e s a d o p t d i i i e r i n g a p p r o a c h e s
i n t h i s r e g a r d . The F i r s t C o u n c i l D i r e c t i v e o f
2 4 July 1973 on t h e E s t a b l i s h m e n t o f I n s u r a n c e
Undertakings i n t h e E.E.C. a p p l i e s t o t h e
establishment of a l l insurance undertakings i n t h e
E . E . C . n o m a t t e r wh er e t h e r i s k s t h e y a r e t o c o v e r
a r e s i t u a t e d . On t h e o t h e r 'nand, t h e d r c f t .
"services" d i r e c t i v e only a p p l i e s t o t h e provision
o f s e r v i c e s i n relatior? t o risks s i t u a t e d w i t h i n
t h e E.E.C. A s we h a v e s e e n i n p a r a g r a p h 11
a b o v e , t h e n e e d f o r t h e d r a f t d i r e c t i v e s t e m s from
t h e n e g o t i a t i o n s on t h e d r a f t " s e r v i c e s " d i r e c t i v e
a n d i t may b e t h a t i t i s i n t e n d e d t o b e e q u a l l y
l i m i t e d i n scope i . e . , t o r i s k s s i t u a t e d w i t h i n
t h e E.E.C.
The s c o p e o f t h e \ co r k i n g p a p e r

14. I t w i l l bc s e e n t h a t o u r terms o f r e f e r e n c e do n o t
e x c l u d e a n y p a r t i c u l a r t y p e s o f i n s u r a n c e c o v e r from o u r
c o n s i d e r a t i o n , n o r d o t h e y e x c l u d e t h e p r oblc m s r a i s e d by
insurance intermcdiaries . However, t h e Law Reform Committee
e x c l u d e d m a r i n e i n s u r a n c e from t h e scope o f i t s e n q u i r y 1 7 a n d
the drzir ~ ~ ~ - ~ ;:a25 ~ ~ ;;Ot -
- " ?a pc p ; ~ L O l i f e i i i ~ ~ r a i i c e .T l i l
..I..

Law Reform C o r m i t t e e a l s o c o n s i d e r e d t h e problc m s r a i s e d by

t h e a c t i v i t i e s o f i n s u r a n c e i n t e r m e d i a r i e s . l 8 We must
t h e r e f o r e c o n s i d e r w h e t h e r t h e s e t o p i c s s h o u l d be d e a l t w i t h
i n t h i s working p a p e r .

(a) M a r i n e , a v i a t i o n an d t r a n s p o r t i n s u r a n c e 1 9

15. I t i s c o n v e n i e n t t o l o o k a t m a r i n e , a v i a t i o n a nd
t r a n s p o r t i n s u r a n c e ("MAT'') t o g e t h e r s i n c e s i m i l a r
c o n s i d e r a t i o n s o f p o l i c y a p p l y t o e a c h o f them. The Law
Reform Committee s t a t e d : 20
" A t a n e a r l y s t a g e we d e c i d e d t o e x c l u d e
m a r i n e i n s u r a n c e from t h e s c o p e o f o u r
e n q u i r y . The g e n e r a l p u b l i c i s n o t
i n t e r e s t e d i n m a r i n e i n s u r a n c e and we
have no reason t o b e l i e v e t h a t t h e
b u s i n e s s c i r c l e s who a r e c o n c e r n e d w i t h
t h e s u b j e c t a r e i n an y way d i s s a t i s f i e d
w i t h t h e l aw as i t s t a n d s " .
A l t h o u g h members o f t h e g e n e r a l p u b l i c may o c c a s i o n a l l y o b t a i n
m a r i n e i n s u r a n c e . f o r ex amp l e t o c o v e r a : t i c l r s h e i n e 5hipFe.l
a b r o a d , 2 1 i n t h e v a s t m a j o r i t y of cases i t i s t h e t r a d e r ,
s h i p o w n e r a n d a i r c r a f t owner r a t h e r t h a n t h e p r i v a t e i n d i v i d u a l

17 S e e t h e i r F i f t h R e p o r t ( 1 9 5 7 ) Cmnd. 62 a t p a r a . 3 .
18 Ibid., a t p a r a s . 7 a n d 1 4 ( 3 ) .
19 "Marine , a v i a t i o r , a n d t r a n s p o r t insurance business"
i s d e f i n e d e x t e n s i v e l y by t h e I n s u r a z c e Companies
A c t 1 9 7 4 , s. 8 3 ( 4 ) .
20 F i f t h R e p o r t ( 1 9 5 7 ) Cmnd. 6 2 , p a r a . 3 .
21 S u c h i n d i v i d u a l s would b e p r o t e c t e d t o some e x t e n t
b y t h e S t a t e m e n t o f I n s u r a n c e P r a c t i c e of 4 May 1977:
see p a r a s . 5-6, above.
9
who s e e k s M T . J W ~ Tp o l i c y h o l d e r s a r e t h e r e f o r e g e n e r a l l y
p r o f e s s i o n a l s who carv): on b u s i n e s s i n a m a r k e t g o v e r n e d by
l o n g - s t a n d i n g and wel l - k n o wn rillcs of law and p r a c t i c e .
C o n s e q u e n t l y t h e n e c e s s i t y t o p r o t e c t t h e i n s u r e d , w h i c h was
of g r e a t i m p o r t a n c e t o us i n PorniuIatii1g p r o v i s i c n a l prcyosa! 5

f o r r e f o r m o f t h i s b r a n c h of t h e law, i s t o t h a t e x t e n t l e s s
r e 1 r i r a E T inr biAT.

16. T h i s o f i t s e l f would n c t h a v e p r e v e n t e d us from

m a k i n g p r o v i s i o n a i r e c o m v e n d a t i o n s f o r i-eLorm o i t h e law
r e l a t i n g t o FLIT i f t h e r e were g r o u n d s f3r b e l i e v i n g t h a t i t
Was u n s a t i s f a c t o r y . However, we h a v e n o g r o u n d s f o r s u c h a
b e l i e f . 2 2 The M a r i n e I n s u r a n c e Act 1 9 0 6 , t o g e t h e r w i t h
s u b s e q u e n t c a s e - l a w , c o n t a i n s c o m p r e h e n s i v e p r o v i s i o n s which
p r o v i d e a c o n t e x t o f c e r t a i n t y o f la w and p r a c t i c e i n t h i s
country e s p e c i a l l y i n r e l a t i o n t o t h e conduct of j n t e r n a t i o n a l
commerce. T h i s b a s i s o f l e g a l c e r t a i n t y h a s h e l p e d t o
e s t a b l i s h London 3 s t h c l e a d i n g i n t e r n a t i o n a l markc: :or >!AT
a n d o u r i n s u r a n c e l a w and p r a c t i c e h a v e b e e n a d o p t e d by nianlf
other trading nations. The h i g h l y c o m p e t i t i v c n a t u r e o f t h e
i n t e r n a t i o n a l m a r k e t f o r MAT makes t h i s a h i g h l y r e l e v a n t
cons i d c r a t icc.

17. T a k i n g a l l t h e s e c o n s i d e r a t i o n s i n t o a c c o u n t , we
h a v e d e c i d e d n o t t o d e a l w i t h FlAT i n t h i s x o r k i n g p a p e r . We
understand t h a t t h e f i n a l v e r s i o n of t h e d r a f t d i r e c t i v e i s
a l s o u n l i k e l y co a p p i > * t o

22 R.A. H a s s o n , i n h i s a r t i c l e "The d o c t r i n e of u b e r r i m a
f i d e s i n i n s u r a n c e l aw - a c r i t i c a l c v a l u a t i o n " f1.369)
32 M.L.R. 615 a t 6 3 5 s t a t e s ' I . . . i t i s submitted t h a t
any reforming provisions ... s h o u i d r,ot cciver t h c l a w
r e l a t i n g t o m a r i n e i n s u r a n c e . Both t h e l a w and t h c
practice i n t h i s area ... a p p e a r t o work s s t j s f a c t o r i l y
a n d t h e r e would a p p e a r t o be e v e r y a rgum e nt f o r l e a v i n g
well a l o n e i n t h i s area".
23 However, t h e d e f i n i t i o n o f FlAT, f o r t h e p u r p o s e s o f i t s
e x c l u s i o n from t h c d r a f t d i r c c t i v c , i s s l i g h t l y d i f f e r e n t
f r o m t h a t c o n t a i n e d i n t h e I n s u r a n c e Companies Act 1974
a n d r e f e r r e d t o i n n . 19 a b o v e , a l t h o u g h i t i s
u n d e r s t o o d t o be l i k e l y t h a t t h e 1 9 7 3 Act will be
amended s o a s t o b r i n g t h e two d e f i n i t i o n s i n t o l i n e .
10
(b) Life i n s u r a n c e

18.. On t h e o t h e r h a n d , vie see n o good r e a s o n t o e x c l u d e

l i f e i n s u r a n c e f r o m t h i s w o r k i n g p a p e r . The c o n s i d e r a t i o n s
o f p o l i c y w h i c h h av e i n f l u e n c e d u s i n iiiaking o u r p r o v i s i o n a l
p r o p o s a l s f o r r e f o x a r e i n o u r v i ew a p p l i c a b l e t o l i f e
insurance. The d r a f t d i r e c t i v e , l i k e t h c o t h r l r d i r e c t i v e s t o
w t i i c i l i t . j s r e i a i e ~ ,dctps
~ ~ n o r 2rpj;p t r ? jT:F:!r.?Fcr y~.ich
is t h e s u b j e c t o f q i i i t e s e p a r a t e d i s c u s s i o n s w i t h i n t h e E.E.C.
w h ic h a r e l e s s w e l l a d v a n c e d . The main r e a s o n s f o r t h e
separate treatment of l i f e insurance relate t o the nature of
t h e problems involved i n t h c s u p e r v i s i o n of t h e insurance
i n d u s t r y i n d i f f e r e n t c o u n t r i e s . This reason $or i t s
e x c l u s i o n i s i n n o way r e l e v a n t t o t h i s w o r k i n g p a p e r .
A c c o r d i n g l y t h e p r o v i s i o n a l r eco mmen d at i ons i n t h i s w orking
paper are intended t o apply t o l i f e insurance.

(c) I n s u r a n c e i n t e rme d i a r i es

19. Our t e r m s o f r e f e r e n c e a r e wi d s cnc?ugh 10 c o v c r t h e

e f f e c t on t h e l i a b i l i t y o f i n s u r e r s o f t h e n e g o t i a t i o n o f
i n s u r a n c e c o n t r a c t s by a g e n t s o r b r o k e r s , b e c s w e m d e r t h e
p r e s e n t law st~clii n t e r m d i d r i e s ilie ~ O I -boiiie p u r p o s e s r e g a r d e o
as t h e a g e n t s , n o t o f t h e i n s u r e r , b u t of t h e i n s u r e d . 2 5 The
p r o b l e m a r i s e s b e c a u s e t h e i n s u r e d i s l i k e l y t c ::jsumc t h n t 9
d i s c l o s u r e of a l l m a t c r i a l f a c t s t o 5 2 c h ari i n c e r m c d i a r y i s
d i s c l o s u r e t o t h e i n s u r e r . An i n s u r e r may n e v e r t h e l e s s
r e p u d i a t e a p o l i c y on t h e grulrnd o f n o n - d i s c i o s u r e by t h e
i n s u r e d w h e r e a n i n t c r m e d i a r y , i r h m t h e i n s u r c d h a s nliowed t o
c o m p l e t e h i s p r o p o s a l f o r m , h s s f o r some r e a s o n f a i l e d c o r r e c t l y
o r f u l l y t o i n c o r p r a t c t h e c r a l i n f o r m a t i o n s u p p l i e d t o him o r
w h e r e a b r o k e r h a s f a i l e d t o p a s s on s u c h i n f o r m a t i o n t o t h e
insurers. T h i s d c f e c t i n t h e p r e s e n t 1 n : ~was r c f e r r e d t o

24 S e e n . 1 6 , a b o v e.
25 Hewsholmc B r o s . v . Road T r a n s p o r t and G e n a r a l I n s . C O .
L t d . L1929J 2 K . B . 356; % l o - A f r i c a n Blc rc ha nts L t d .
E x n o u t h C l o t h i n g Co. L t d . v . B a y l e y L 1 9 7 O J 1 Q . S .
311 3 2 2 per Biegaw J.
11
 by t h e Law Reform Committee" a n d o u r p r e l i m i n a r y vie w i s
t h a t t h i s a r e a o f t h e law i s p r o b a b l y i n n e e d of r e f o r m . In
J a n u a r y 1 9 7 7 t h e Governmenr. p u b l i s h e d a W hite P a p e r on t h e
w h o l e q u e s t i o n o f i n s u r a n c e i n t e r m e d i a r i e ~i ~n ~w h i c h t h e
i n t r o d u c t i o n o f a new f r amewo r k o f c o n t r o l over t h e w hole
f i e l d o f i n s u r a n c e s e l l i n g b y b r o k e r s a nd a g e n t s was .
recomniended. 2 8 T h e s e c o n t r o l s , by m a king i.nsu-rers fully
r e s p o n s i b l e f o r t h e c o n d u c t o f i n t e r m e d i a r i e s , wouid h a v e t h e
e f f e c t o f s u b s t a n t i a l l y c u r i n g t h e d e f e c t t o w hic h we h a v e
j u s t r e f e r r e d . P a r l i a m e n t h a s a l r e a d y im ple m e nte d scme o f
t h e W h i t e P a p e r ' s r e c o m m e n d a t i o n s , 2 9 a l t h o u g h fiot t h o s e
r e l e v a n t t o t h i s m i s c h i e f ; we t h e r e f o r e e x p r e s s t h e hope
t h a t l e g i s l a t i o n i n t h i s r e g a r d w i l l scon be forthcoming.
F o r t h i s r e a s o n w e are n o t d e a l i n g w i t h t h e q u e s t i o n o f
i n s u r a n c e i n t e r m e d i a r i e s i n t h i s h ,orking p a p e r .

Scheme o f t h e w c r k i n g p a p e r

20. I n P a r t I1 o f t h i s w o r k i n g p a p e r w e d e a l w i t h t h e
l a w r e l a t i n g t o non-disclosure and t h e s o - c a l l e d " b a s i s of
the contract" c l a u s c . I n P a r t 1 1 1 w e d e a l w i t h t h e law
relatinE t o warranties. I n e a c h case w e o u t l j n e t h e p r e s e n t
l a w , s e t o u t v a r i o u s c r i t i c i s m s o f i t and c o n s i d c r ways i n
w h i c h t h e law m i g h t b e r e f o r m e d , i n c l u d i n g o u r p r o v i s i o n a l

26 S e e t h e i r F i f t h R e p o r t ( 1 9 5 7 ) Cmnd. 6 2 , p a r a . 7 ;
i x d e e d , i n p a r a . 1 3 ( 3 ) t h e C o m m itte e f o r m u l a t e d
a p r o v i s i o n x h i c h i n t h e i r v i ew c o u l d b e i n t r o d u c e d
i n t o E n g l i s h law w i t h o u t d i f f i c u l t y u n d e r w hic h a ny
p e r s o n who s o l i c i t s o r n e g o t i a t e s a c o n t r a c t o f
i r ? s u r a n c e s h o u l d b e deemed, f o r t h e p u r p o s e s o f t h e
formation of t h e c o n t r a c t , t o be t h e cgent of t h e
i n s u r e r s , an d t h a t t h e k n o wl edge o f s u c h p e r s o n
s h o u l d be imputed t o t h c i n s u r e r s .
, 27 I n s u r a n c e I n t e r m e d i a r i e s ( 1 9 7 7) Cmnd. 6715.
28 -
I b i d . , a t p a r a s . 10-12, a n d 1 4-17.
29 T h o se r c l a t i n g t o t h e i n t e r n a l o r g a n i s a t i o n o f , a nd
t h e e t h i c a l and p r o f e s s i o n a l s t a n d a r d s o f i n s u r a n c e
b r o k e r s : s e e t h e I n s u r a n c e B r o k e r s ( R e g i s t r a t i o n ) Act
1 9 7 7 a n d r e g u l a t i o n s made t h e r e u n d e r .

12
proposals f o r reform. I n P a r t I V wc d e s c r i b e a nd a n a l y s e t h e
a l t e r n a t i v e a p p r o a c h t o r e f o r m p r o v i d e d by . 4 r t i c l e s 2 , 3 a nd
4 of t h e d r a f t d i r e c t i v e . In P a r t V we c o n s i d e r two
m i s c e l l a n e o u s m a t t e r s 3 ' i n r e s p e c t o f wh i ch n o p r o v i s i o n a l
p r o p o s a l s f o r r e f o r m a r e made. P a r t V I c o n t a i n s o u r g e n e r a l
comments o n t h e t o p i c s d e a i t w i t h i n t h i s w o r k i n g p a p e r .
Appendix A r e p r o d u c e s t h e t e x t s o f t h e S t a t e m e n t o f I n s u r a n c e
Tractice a n d t h e S t a t e r w i r i o f Long-Trr.in i n s u r a n c e P r x t i c e
respectively. i n Appendix E A r t i c l e s 2 , 3 a n d 4 o f t h e d r a f t
d i r e c t i v e a r e r e p r o d u c e d . In Appendix C t h e law r e l a t i n g t o
n o n - d i s c l o s u r e a n d w a r r a n t i e s i n o t h e r common lard a nd scme
c i v i l law j u r i s d i c t i o n s i s s u mmar i s ed .

30 Including contracts o f re-insurance.

13
I
PXkT I 1 - TliE DUTY OF DISCLOSURE

A. The p r e s e n t l a w : i t s d e v e l o p m e n t iInd r a t i o n a l e

General
21. I n t h e E n g l i s h l a x o f c o n t r a c t t h e g e n e r a l ru1.e i s
t h a t a c o n t r a c t i n g p a r t y I s u n d e r no d u t y t o d i s c l o s e m a t e r i e l
facts !..noi...n t o L i ..,
.*A.,. -.- .. L D L l i C iil;ier I'arty: ~ i i c i r is i i G
,iili i=----

d u t y o f go od f a i t h on t h e p n r t i e s when t h e y e n t e r i n t o a
contract.31

22. To t h i s g e n c r a l i - u l e t h e r e is a n e x c e p t i o n i n
r e s p e c t o f c o n t r a c t s u b e r r i m a c U, t h a t is t o say c o n t r a c t s
of t h e u t m o s t good f a i t h . The mo st i m p o r t a n t c o n t r a c t
uberrimae i i d e i i s the contract of insurance:

" I t h a s b e e n f o r c e n t u r i e s i n E n g l a n d Lhe
law i n c o n n e c t i o n w i t h i n s u r a n c e o f all
s o r t s , marine, f i r e , l i f e , guafantee and
e v e r y k i n d o f p o l i c y t h a t , as t h e
u n d e r w r i t e r knows n o t h i n g a nd t h e nun who
comes t o him t o i n s a r e k noks e v e r y t h i n g ,
i t i s t h e d u t y o f t!ie a s s u r e d ... t o make B
full d i s c l o s u r e t o t h e u n d e r w r i t e r s
without being asked of a l l t h e m a t e r i a l
c i rcums t an c e s . 1132

Extent of t h e duty

23. The M a r i n e I n s u r a n c e Act 1900 c o d i f i e d t h e coninon

law i n r e l a t i o n t o m a r i n e i n s u r a n c e , a l t h o u g h i t s p r o v i s i o n s
p r o b a b l y r e i i e c t e u tile comion law r u l e s a p p l i c a b l e a t t h a t
time t o a l l c l a s s e s o f i n s u r a n c e . S e c t i o n 1s o f t h e A c t
provides :

"(1) .. . t h e a s s u r e d m u s t d i s c l o s e to t h e
i n s u r e r , before t h e contract is concluded,
e v e r y m a t e r i a l . c i r c u m s t a n c e w hic h i s known t o

31 K e a t e s 'I. Cadcgen ( 1 8 5 1 ) 10 C . 3 . 57:; 1 3 3 E.R.

2 f 4 ; l e t c r e r v . K r e l l ( 1 8 7 3 ) 42 L . J . Q.B. 55.
32 R o z a n es v . Bowen ( 1 9 2 8 ) 3 2 L 1 . L . R . 96, 102.

14
 t h e a s s u r e d , and t h c a s s u r e d i s deemed
t o know e v e r y c i r c u n s t a n c c - which, i n
t h e o r d i n a r y c o u r s e of b u s i n e s s , oiight
t o be kno:in by him. I f the assured
f a i l s t o mnhe such d i s c l o s u r e , t h e
i n s u r c r may a v o i d t h c c o n t r a c t .
(2) Every c i r c u m s t a n c e i s m a t e r i a l
which ~ o u l di n f l u e n c e t h e judgment of
a prudent i n s u r e r i n f i s i n g t h e
preinium, o r cictermininp w h e t h e r h e
will t & i L L t 1iDk.I'

i 24. --
I n L a m b e r t v. CO-operativc I n s u r a n c c S o c i e t y L t d . , 33
t h e C o u r t of Appeal c o n s i d e r e d t h e d u t y o f d i s c l o s u r e i n
non-marine i n s u r a n c e and h e l d r e l ~ c t a n t l yt h~a~t :

(a) t h e r e was n o o b v i o u s r e a s o n why

t h e r e should be a r u l c of
d i s c l o s u r e i n marinc i n s u r a n c e
d i f f e r e n t from t h e r u l e s i n o t h e r
forms o f insurance ;

(b) t h e s t a t e m e n t by t h e Law Rcformg5

Committee i n t h e i r F i f t h Kcport
t h a t f o r t h e p u r p o s e o f any
contract of insurazce no f a c t
s h o u l d be deemed m a t e r i a l unless
i t would havc Oecn c o n s i d e r e d
m a t e r i a l by a r e a s o n a b l e i n s u r e d ,
was a recomrncndation t o changc t h e
law m.d n o t an e x i s t i n g r u l e ;
and
(c) a f a c t was m a t e r i a l i f i t would
i n f l u e n c e t h e mind o f a p r u d e n t
insurer.

33 [1975] 2 L l o y d ' s Rep. 4 8 5 .

34 T h e i r L o r d s h i p s ' criticisms o f t h e p r e s e n t law are
r e f e r r e d t o i n p a r a . 37, below.
35 ( 1 9 5 7 ) Cmnd. 6 2 .

15
IVe s h o u l d p o i n t o u t t h a t i n t h e Lambert c a s e t h e C o u r t o f
A p p e a l w e r e c o n s i d e r i n g t h e i n s u r e d ' s d u t y o f d i s c l o s u r e upon
r e n e w a l o f a p o l i c y a n d t r e a t e d t h e re ne rc a l as t h e m a king o f
a f r e s h c o n t r a c t on t h e b a s i s t h a t t h e c c r n t r a c t of i n s u r a n c e
i n q u c s t i o n f e l l t o b e r e n c u e d y e a r by y e a r .

C o n s e q u e n ces o f n o n - d i s c l o s u r e by t h e i n s u r e d

25. I f tlie i n s u i e d has f a i l e d t o comply w i t h h i s d u t y

of d i s c l o s u r e , t h e i n s u r e r has, on n o t i c e o f t h e f a i l u r e OT
w i t h i n a r e a s o n a b l e time t h e r e a f t e r , t h e r i g h t t o r e p u d i a t e
t h e c o n t r a c t o f I n s u r a n c e . iJpon t h e exercise of t h a t r i g h t
t h e c o n t r a c t is avoided ab i n i t i a , b u t it remains i n f o r c e
u n t i l so The r e s u l t i s t h a t i f t h e i n s u r e r h a s
a l r e a d y p a i d a claim he i s c n t i t l e d t o demand r e p a y m e n t o f t h e
sum s o p a i d ; s i m i l a r l y t h e I n s u r e d i s e n t i t l e d , i n t h e a b s e n c e
of f r a u d , t o demand t h e r e p a y m e n t o f s u c h premiums a s h e may
have p a i d . 3 7

Justification of the doctrine

26. The f o r m u l a t i o n o f t h e r u l e i n Lambert v.
Co-operative I n s u r a n c e S o c i e t y L t d . i s v e r y l i t t l e d i f f e r e r i t
from i t s f o r m u l a t i o n by Lo r d M a n s f i e l d i n 1 7 6 6 , wha j u s t i f i e d
i t as f o l l o w s i n C a r t e r v . B ~ e h m : ~ '

" I n s u r a n c e i s a c o n t r a c t upon s p e c u l a t i o n .
The s p e c i a l f a c t s , upon w hic h t h e
c o n t i n g e n t c h a n c e i s t o h e c om pute d, l i e
liio_~i:comaonly ir. r h e knowiedge o f t h e
insured only: t h e under-writer t r u s t s t o
h i s r e p r e s e n t a t i o n , a n d p r o c e e d s upon

36 M a c G i l l j v r a y 8 P a r k i n g c o n c n i n s u r a n c e Law ( 6 t h e d . ,
1 9 7 5 ) c h a p . 10, p a r a s . 745-746.
37 C o - m h i l l Ins. Co. v . As s en h ei m (1937) 58 L 1 . L . R . 2 7 , 31.
38 ( 1 7 6 6 ) 3 B u r r . J.905, 1 9 0 9 ; 97 E . R . 1 1 6 2 , 1 1 6 4 .

16
 c o n f i d e n c e t h a t he does n o t keep back
any c i r c u m s t a n c e i n h i s knowledge, t o
mislead t h e u n d e r w r i t e r i n t o a b e l i e f
t h a t t h e c i r c u m s t a n c e does n o t e x i s t ,
and t o i n d u c e him t o e s t i m a t e t h e
risque as i f it did not exist."

27. Over 100 y e a r s l a t e r , t h e Court o f Appeal i n

S e a t o n v . Burnand3' r e i t e r a t e d t h e s u b s t a n c e o f t h i s
' u s t i f i c a t i o n of thc d o c i r i n o z.nd czi9;>asiscd -.!-..+ : L .:.
J CllCLC I ""Ul,:
C

be i n e q u i t a b l e f o r t h e i n s u r e d t o demand a c o a p e t i t i v e
premium w h i l e he h a s t h e "means o f knowledge as t o t h e risk,
and t h e i n s u r e r h a s n o t t h e means o r n o t t h e same means."40
P u t t i n g i t s h o r t l y , t h e i n s u r e d knows a g r e a t d e a l a b o u t t h e
r i s k , b u t t h e i n s u r e r may n o t be a b l e to a s s e s s i t a t a l l ,
except perhaps s t a t i s t i c a l l y .

Application of the doctrine

28. How have t h e c o u r t s a p p l i e d t h e d o c t r i n e ? I f t h e

i n s u r e d knows f a c t s which i n d i c a t e t h a t t h e s u b j e c t - m a t t e r of
t h e i n s u r a n c e i s exposcd t o abnormal p h y s i c a l d a n g e r from t h e
p e r i l s i n s u r e d a g a i n s t , he h a s t o d i s c l o s e them t o t h e
i n s u r e r . Any f a c t s u g g e s t i n g t h a t t h e l i f e a s s u r e d w i l l be
s h o r t e r t h a n e x p e c t e d by t h e i n s u r e r ought t o be d i s c l o s e d .
For i n s t a n c e , i t s h o u l d be d i s c l o s e d t h a t a f t e r t h e
a p p l i c a n t h a s bcen i n c d i c a l l y examined, he h a s become
e m a c i a t e d and t r o u b l e d w i t h a cough, and h a s c o n s u l t e d a
doctor.41 The s i t u a t i o n o r u s e r o f a b u i l d i n g w i l l be
material i f these suggest t h a t t h e subject-matter of the
i n s u r a n c e i s p a r t i c u l a r l y v u l n e r a b l e t o r i s k o f damage by
f i r e : f o r i n s t a n c e , i t s h o u l d be d i s c l o s e d when a p p l y i n g f o r
i n s u r a n c e on a warehouse t h a t t h e r e h a s been a f i r e t h e same
e v e n i n g i n t h e p r e m i s e s n e x t b u t one t o t h e warehouse.42

39 [1899] 1 Q . B . 782.
40 Ibid., a t 793.
41 Morrison v . M u s p r a t t (1827) 4 Bing. 00; 130 E . R . 690.
42 -
Bufe v. T u r n e r (1815) 6 T a u n t . 338; 128 E . R . 1065.
17
 I f goods a r e i n s u r e d a g a i n s t t h e f t any f a c t s u g g e s t i n g t h a t
t h e y a r e e x p o s e d t o an u n u s u a l r i s k o f l o s s by t h e f t i s
m a t e r i a l . . b y previous losses a r e r e l e v a n t t o t h e r i s k o f
. f u r t h e r l o s s e s b e c a u s e a p r u d e n t i n s u r e r would w i s h t o
i n v e s t i g a t e them i n o r d e r t o see t o what e x t e n t t h e i n s u r e d ' s
c a r e l e s s n e s s may h a v e c o n t r i b u t e d t o t h c ~ n . An ~ ~a p p l - i c a n r
f o r m o t o r i n s u r a n c e o u g h t t o make f u l l d i s c l o s u r e o f any
a c c i d e c t s i n w h i c h h c has Lvezn i i i v c j i v e ~ la n d t h i s d i s c l o s i i w
s h o u l d e x t e n d t o the a c c i d e n t r c c o r d c f a n y d r i v e r vino t o
h i s knowledge i s g o i n g t o d r i v e t h e c a r . 4 4 D i f f i c u l t
p r o b l e m s a r i s e i n r e g a r d t o t h e i n t e g r i t y of t h e i n s u r c d m d
"m o r a l h a z a r d " . The i n s u r e d ' s c o n v i c t i o n f o r a i-obbi-ry
some t w e l v e a n d a h a l f y e a r s e a r l i e r was h e l d t o be a
m a t e r i a l f a c t w h i c h h e o u g h t t o have d i s c l o s e d when
c o m p l e t i n g h i s a p p l i c a t i o n f o r m f o r an a d v a n c e o f money f r o n
a b u i l d i n g s o c i e t y ; t h e f o r m s t a t e d t h a t t h e s o c i e t y would
i n s u r e t h e h o u s e a g a i n s t f i r e b u t t h e i n s u r e d was n o t a s k e d
f o r any i n f o r m a t i o n f o r t h e purposes o f t h e i n s u r a n c e o t h e r
45
t h a n t h e amount f o r w h i c h t h e c o v e r was t.0 b e g r a x t e d .
When c o v e r had b e e n g r a n t e d u n d e r a j e w e l l e r ' s b i c c k p o l i c y
a n d t h e i n s u r c d h a d b e e n r o b b e d o f d i a m o n d s , i: was h e 1 6 '

t h a t t h e i n s u r e d s h o u l d h a v e d i s c l o s e d t h a t i t s s a l e s m a na ge r
hpd b e e n c c n v i c t c d scm: y e a r s p r c v i c z s l y i;. t t , c U n i t e d S t a ' i e j
46
f o r s m u g g l i n g diamonds an d j e w e l l e r y i n t o r h e U n i t e d S t a t e s .
Sometimes t h e r e i s a d u t y o f d i s c l o s u r e when t h e i n s u r e d h a s
e x p e r i e n c e d r e f u s a l s t o i n s u r e o r t o renew p r e v i o u s p o l i c i e s ,
e v e n i n r e s p e c t o f o t h e r r i s k s . 4 7 The e x c e s s i v e

43 B e c k e r v . M a r s h a l 1 ( 1 9 2 2 ) 11 L 1 . L . R . 1 1 4 .
44 Dent v . Blackmore ( 1 9 2 7 ) 29 L 1 . L . R . 9 ; Dunn v .
G n , AE ci d en t an d G u a r a n t e e C o r p n . L t d l 9 3 3 j
47 L 1 . L . R . 1 2 9 .
45 W o o l c o t t v . Sun A l l i a n c e an d London I n s u r a n c e L t d .
W . L . R . 4 9 3 ; b u t s e e now t h e R e h a b i l i t a t i o n
o f O f f e n d e r s Act 1 3 7 4 , s . 4 ( 3 ) ( a ) .
46 R o s e l o dg e v . C a s t l e [1065] 7 L l o y d ' s Rep. 113.
47 L o c k e r PI lvoolf L t d . v . Western 4 x . t r a l i . m I n s u r a n c e Co.
Ltd. [1936] 1 K.B. 4 0 8 .

18
o v e r - v a l u a t i o n o f t h e s u b j e c t - n a t t e r o f the i n s u r a n c e f o r t h e
purpose o f a v a l u e d p o l i c y i s a m a t e r i a l f a c t which ought t o
4s
be d i s c l o s e d .

The d o c t r i n e t o d a y

29. T h e s e e x a m p l e s show how t h e d o c t r i n e h a s been a p p l i e d

.
t i i i i . *.r.?i ' ... -! L,""

--
...
icii;ilrios 5 l i i C i .ZarLei.,;. u " L i t i l i .
ir'r ....
Ii
..
i L i ~ dJEtib-
1 8 t h c e n t u r y t h e most i m p o r t a n t t y p e o f i n s u r a n c e was m a r i n e
c o v c r , a n d v e s s e l s ' o wn er s were f a r inore l i k e l y t h a n t h e i n s u r e r
t o know o r t o h a v e a v a i l a b l e i - n f o r m a t i o n a b o u t t h e h a z a r d s o f
a p a r t i c u l a r voyage. l n s u r e r s d i d n o t h a v e t h e means o f
c o n u n u n i c a t i o n a v a i l a b l e t o e n a b l e t h em t o make e n q u i r i e s . The
d o c t r i n e was a p r o d u c t o f t h e s c c i r c u m s t a n c e s . Toda y, i n
a d d i t i o n t o t h e i r u s e o f s t a t i s t i c a l met hods € o r a s s e s s i n g
r i s k s , i n s u r e r s have t h e o p p o r t u n i t y t o a r r a n g e f o r t h e
i n s p e c t i o n o f p r o p e r t y by s u r v e y o r s o r o t h e r e x p e r t s , t o
a r r a n g e m e d i c a l e x a m i n a t i o n s , and h av e e x t e n s i v e f a c i i i t i e s f o r
makjng e n q u i r i e s . P e r h a p s e v e n norc i m p o r t a n t i s t h e
p r a c t i c e o f r e q u i r i n g t?.e l i l s u r e d t o a n s l r e r a i o a g l i s t o f
d e t a i l e d q u e s t i o n s c o n c e r n i n g t h e r i . s k . The c o m p l e t i o n o f a
p r o p o s a l f o m by t h c i n s u r e d n:ay a f f e c t h i s d u t y o f d i s c l o s u r e
and i t i s t h e r e f c r c n e c e s s a r y f o r us t o c o n s i d e r , t h e p r c s c n t
l a w a s t o n o n - d i s c l o s u r e w h e r e t h e r e i s a p r o p c s a ? form.

The d u t y w h e r e t h e r e i s a p r o p o s a l f o r m - general

30. The modern p r o p o s a l f o r m u s u a l l y i n c l u d e s a p r i n t . e d

q u e s t i o n n a i r e w h i ch t h e p r o p o s e r i s r e q u i r e d t c j c o m p l e t e . The
q u e s t i o n s may r e l a t e t o f a c t s e x i s t i n g a t t h e t i m e o f t h e
p r o p o s a l o r w h i c h e x i s t e d a t some t i m e i n t h e p a s t .
49
A l t e r n a t i v e l y , o r i n a d d i t i o n , t h e y may r e f e r t o t h e f u t u r e .

48 I o n i d e s v. p)n&x (1874) L.R. 9 Q.B. 551.

49 As s u c h t h e y w i l l u s u a l l y amount t o p r o m i s e s by t h e
i n s u r e d t h a t h e w i l l do o r r e i r a i n from d o i n g
something o r t h a t a f a c t o r s t a t e of a f f a i r s w i l l
c o n t i n u e t o b e t r u e . They will b e c o n t r a c t u a l l y
b i n d i n g i f i n c o r p o r a t e d a s a term of t h e c o n t r a c t
o f i n s u r a n c e o r i f c o n s t r u e d as a c o l l a t e r a l
w a r r a n t y : s e z p a r a . SS, below.
19
When t h e p r o p o s e r i s a n s w e r i n g q u e s t i o n s as t o p a s t o r
p r e s e n t f a c t s ( b u t n o t as t o t h e f u t u r e ) , t h e d u t y o f good
f a i t h requires that, t o the extent t h a t these r e l a t e t o
m a t e r i a l f a c t s , h i s a n s w e r s s h o u l d be a c c u r a t e i n t h e s e n s e
t h a t t h e y d o n o t m i s l e a d . 5 0 I f an i n a c c u r a t e a n s w e r i s g i v e n
as t o a m a t e r i a l f a c t t h e i n s u r e r i s e n t i t l e d t o a v o i d t h e
p o l i c y a b i n i t i o an d r e j e c t a n y c1aj.m t h a t . h a + 3 r i s e n S s 1 The
. r..
!YJe2r.;.ng "f ? ? z * r T i r l i t . : in :;;is c c . I..<I c.c.A_c: is i i e S ; ~ T T I ~ a> i i i iiie
c o n t e x t o f n o n - d i s c l o s u r e wh er e t h e r e i s n o p r o p o s s l form,
w h i c h h a s b e e n d i s c u s s e d by u s e a r l i e r . 5 2 A l t h o u g h w e a r e
concerned w i t h n o n - d i s c l o s u r e a t t h i s s t a g e , i t s h o u l d be
b o r n e i n mind t h a t a n a n s w e r t o a q u e s t i o n i n a p r o p o s a l f o r m
may w e l l be a c t i o n a b l e as a p o s i t i v e m i s r e p r e s e n t a t i o n o f
fact. 53

S t a t e m e n t s o f f a . c t an d s t a t e m e n t s o f o p i n i o n

31. I n o r d e r t o g r o u n d a r e p u d i a t i o n o f t h e p o l i c y , aR
i n a c c u r a t e s t a t e m e n t must b e one o f f a c t and n o t one o f o p i n j o n
o r of law. s t a t e m e n t s o f o p i n i o n i i h i c h t u r n o u t n o t t o b e
w e l l - f o u n d e d a r e n o t a c t i o n a b l e i f t h e o p i n i o n [<as g i v e n i n goOS
f a i t h . 5 4 I n d e e d , t h e c o u r t s liave I i e l d t h a t t h e r e a r e c e r t a i - n
m a t t e r s as t o w h i c h t h e i n s c r e r s c a n n o t r e a s o n p h l y e x p e c t
a n y t h i n g more t h a n ar? e x p r c s s i o n o i t h e i n s u r e d ' s o p i n i o n ;
e x a m p l e s a r e q u c s t i o n s o i v a l u a t i o n s 5 o r s t a t e m e n t s as t o good
h e a l t h . 5 6 A s a g e n e r a l r u l e , h o w e v e r , a n u n q u a l i f i e d "no"
--
50 E v e r e t t v . Des b o r o u g h ( 1 8 2 9 ) 5 B i n g 503; 130 E . R . 1155.
51 - -
Graham v . N c s t z m A u s t r a l i a n I n s u r a n c e Co. L t d . (1931;
40 L 1 . L . R . 6 4 , 6 6 ; M 2 r c h a n t s ' and ;\lar:Irfactt?rexs'
I n s u r a n c e Co. v . & n t an d T h z i 1 9 4 T J 1 K . B . 295.
52 S e e p a r a s . 23-24 , a b o v e .
53 We d e a l v i t h t h e r e l a t i o n s h i p b e t w e e n t h e la w o f
m i s r e p r e s e n t a t i o n and the p r o v i s i o n a l recommendations i n
t h i s w o r k i n g p a p e r a t p a r a . 1 6 9 , below.
54 A n d e r s o n 1'. P a c i f i c F i r e 2nd k l a r i x e ( 1 9 1 2 ) L.C.
7 C.P. OS, 6 9 .
55 F r a n k l i n F i r e v . Vaughan ( 1 8 7 5 ) 92 U.S. 516.
56 -
J o e l v . Law Union an d Crown [ l 9 0S] 2 K.B. 8 6 3 .
20
t o a q u e s t j . o n i n a p r o p o s a l f o r m will b e c o n s t r u e d a s
r e l a t i n g t o t h e f a c t s t h e m s e l v e s and n o t t o t h c p r c p o s c r ' s
57
knowledge o r o p i n i o n o f them.

Ifaiver o f disclosure

32. The g e n e r a l r u l e i s t h a t t h e mere f a c t t h a t a n

in;ured h.?? ,IEs.'erPc! ?.:.ICcti3?l$ iP .? n r c . y r s a l fo).m dOEtC ROt

r e l i e v e him o f h i s g e n e r a l d u t y o f d i s c l o s u r e . " T h e r e may

h o w e v e r b e c i r c u m s t a n c e s i n wliich t h e c o u r t s c a n i n f e r a
w a i v e r by t h e i n s u r e r o f f u r t h e r d i s c l o s u r e . For instance,
w h e r e s p e c i f i c a n d d e t a i l e d q u e s t i o n s h a v e been a s k e d , as i n
a p r o p o s a l f o r m , t h e i n s u r e r may be p r e c l u d e d from c o n t e n d i n g
t h a t m a t t e r s n o t m e n t i o n e d i n t h e p r o p o s a l form a r e m a t e r i a l . 53

Ambiguous q u e s t i o n s

33. Where a q u e s t i o n i s amb g u o u s the ove r r i d i n g

p r i n c i p i e i s t h a t a f a i r an d r e a s o n a b l e c o n s f - i u c t i o n must br:
p l s c e d upon i t . 6 o A c c o r d i n g i y , i f a n ambiguous q u c : t i o n i s
p u t t o an a p p l i c a n t i n a p r o p o s a l t o r m , t h e i n s u r e r s c x n c t
r e l y o n t h e i n a c c u r a c y o f t h e a n s w e r es a g r o u n d fcr
r e p u d i a t i n g t h e p o l i c y if t h a t answer i s t r u e having r e g a r d
t o t h e c o n s t r u c t i o n w h i c h a r e a s o n a b l e n a n n i g h t p u t upon
t h e q u e s t i o x a n d wh i ch t h c e p p l i c a n t d i d ir. f a c t p n t upon i t .

57 -
Z u r- i_-
c-
h G
- e n- A c__
e -r a_.l__ c i-.d e n t an. d__
L i a b -i .l i t y I n s u r a n c e Co.

-
..
v. Leven 1 9 4 0 S . C . 4 0 6 .
58 G l i c k s m a n v. L a n c a s h i r e & G e n e r a l A s s u r a n c e Co. L t d .
11927J A.C. 1 3 9 ; s e e a l s o Schoolmar: .!I =mm
1 L l o y d ' s Rep. 1 3 9 , 1 4 2 per Cohen L . J .
59 See McCormick v. N a t - i o n a l M o t o r A c c i d e n t I n s u r s n c e
U n i o n L t d ; ( i 9 5 4 ) 4 9 L1.L.k. 3 6 1 , 3 6 3 _ner S c r u t t o n L . J .
a n d S c h o o l m an v . [1951] 1 L l o y d ' s Rep. 1 3 9 , 1 4 3
p e r Asquith L . J . S e e p a r a . 7 1 , b el ow f o r a d i s c i i s s i o n
x w h a t c o n s t i t u t e s a p r o p o s a l f o r m.
60 Condo i a r i s v G u a r d i a n A s s u r a n c e Co. Ci.9211 Z A.C.
5 , 130 per Lo -r 2Shaw o f D u n f e r m l x e .

21
However, t h e r e i s n o p r e s u ~ p t i o nt h a t t h e i n t e r p r e t a t i o n
most f a v o u r c i b l e t o t h e i n s u r e d i s n e c e s s a r i l y r h a t w hic h i s
f a i r and r e a s o n a b l e . 61

Uuration of the duty cf d i s c l o s u r e

34 0 F o r c o m p l e t e n e s s , we s h o u l d m e n t i o n t h a t t h e
i n s u r e d i s s1.1bject t o t!ie d u t y o f 6 i s c l o s u r e u n t i l a b i n d i n g
coil i i ' a i ~ha> ueerr co r i ci u d ed with i h e i n s u r e r . h? h e must
t h e r e f o r e c o r r e c t any aiiswer g i v e n i n a p r o p o s a l forla i f ,
a l t h o u g h i t was a c c u r a t e a t t h e time i t was g i v e n , a
s u p e r v e n i n g e v e n t h a s r e n d c r e d i t i n a c c u r a t e o r ~ n i s l e a c l i n g6. 3

B. C r i t i c i s m s o f t h e p r e s e n t law as t o n o n - d i s c l o s u r e
35. The a p p l i c a t i o n o f t h e p r e s e n t la w a s t o non-
d i s c l o s u r e i n mo d em c o n d i t i o n s h a s g i v e n r i s e t o much
c r i t i c i s m . Ye s e t o u t some of t h c s e c r i t i c i s m s i n t h c
following paragraphs.

The F i f t h R e p o r t o f t h e Saki Reisrm Ccrinmittee 6 4

36. In t h e i r FiI'1:h R e p o r t t h e Law Reform Committee
said:

"(4) ... i t seems t o u s t o f o l l o w from

t h e accepted d e f i n i t i o n of m a t e r i a l i t y
t h a t a f a c t may b e m a t e r i a l t o i n s u r e r s
.. . which would n o t n e c e s s a r i l y a p p e a r
t o a p r o p o s e r f o r i n s u r a n c e , how e ve r
h o n e s t and c a r e f u l , t o b e one w h i c h h e
ovgll? t c r d i " l C F " . "

61 Holt's Mo t o r s v. S.E. Lancashire I n s . Co. (1030)

37 L 1 . L . R . 1, 4 per S c r u t t o n L.J.
62 Lishma; v . N o r t h e r n M a r i t i E - I n s u i a n c e Co. (1875:
L.R. 10 C.P.179;'x2;-ReYa~er and G x a n
A s s u r a n c e Co. ( 1 9 1 3 ) 1 O T m m
I n s u r a n c e k c t 1 9 0 6 , s.18(1); see p a r a s . 2 5 - 2 4 ,
above .
63 S e e L o o k er v. L a : Union ar.6 Rock 1nsurar.ce C o .
-
Ltd.-] 1 K.B. 5 5 4 - 5 5 3 .
64 ( 1 9 5 7 ) Cmiid. 6 2 .

22
I, amk e r t v . C O ,cpe r a t i.1:~ 1n s iir m ce S o c i e t y I>t d a
65

37. P r i o r t o t h e L . c r t c a s e t h c r e was some d o u b t a s

t o w h i c h was t h e c o r r c c t t e s t f o r t h e i n a t e r i a l i t y o f a nor.-
d i s c l c s c d f a c t . T h e r e i i a s a l i w oL: a i i t h o r i t i e s 6 6 w hic h
s u g g e s t e d t h a t i n a t l e a s t c e r t a i n c l a s s e s of i n s u r a n c e t h e
1.n~ was n o t a s s t a t e d by t h c Law Refcrm C c i ~ m i t t c eb~u t~ was
t h a t t h e i n s u r e d was u n d e r a d u t y I C d i s c i o s e o n l y s u c h f a c t s
a s a r e a s o n a b l e man would b e l i e v e t o be m a t e r i a l . This doubt
w a s , a s we h a v e s e e n , 6 8 rcmoved by t h e k b e r t c a s e . A l l
t - l i n e j u d g e s i n t.he C o u r t o f Appeal wer e howeve- c r l - t i c a l of
t h e e x i s t i n g l a ~ . NacKcnna J.., who d e l i v e r e d t h e l e a d i n g
judgment, s a i d :
"I would o n l y ad d t o t h i s l o n g j u d g n e n t
t h c e x p r e s s i o n o f my p e r s o n a l r e g r e t t h a t
t h e C o m m i t t e e ' s recomraeirdation has n o t
b e e n i m p l emen t ed . 'The p r e s e n t case shoiqs
t h e u n s a t i s f a c t o r y s t a t e of t h e law. Mrs.
Lambert i s u n l i k e l y t o h a v e t h o u g h t t h a t
i t was n e c e s s a r y t o d i s c l c s e t h e
d i s t r e s s i n g f a c t o f h e r husbarlcl's r e c e n t
c o n v i c t i o r ? w!icn s h e W C ? ~rer?cxi::g t h e
p o l i c y on h e r l i t t l c s t o r e o f j c u c l l e r y .
She i s n o t an u n d e r w r i t e r a n 2 h a s
p r e s u m a b l y n o ex p el - i ei l ce i i i t h e s e matters.
The d e f e n d a n t company would a c t d e c e r i t l y
i f , having e s t a b l i s h c d t h e poir,t of
p r i n c i p l e , t h o g ;;ere ts s a y hc;. I t xight
b e t h o u g h t a h e a r t i e s s t h i n g i f t h e y dici
n o t , b u t t h a t i s t h e i r b u s i n e s s , n o t m ine .
I would d i s m i s s t h e appea1."69
Lawton L . J . s a i d :
"The e x p l a n a t i o n f o r t h i s d e s i r e t o show
t l i a t t h e t ~ s t 7 0? c c y t l ~ c h1 y t h e Privy
Council i n 192S71 i n t h e c l e a r e s t p o s s i b l e

G5 [ i 9 7 5 ] 2 L l o y d ' s Rep. 4 S 5 .
66 S e e J o e l v . Law Union snrl Crowr [1908] 2 K . B . 8 6 3 ,
8 8 4 - 8 8 5 a n d RoselcdAe v. C a s t l e E13661 2 L l o y d ' s Rep. 113.
67 Namely t h a t a f a c t was m a t e r i a l i f i t wouid i n f l u e n c e
t h e j u d g m e nt o f a p r u d e n t i n s u r e r j n f i x i n g t h e
premium o r i n t a k i n g t h e r i s k : see p a r a s . 2 3 - 2 4 , a b o v e .
68 Scc p a r a . 2 4 , above.
69 [1975] 2 L l o y d ' s Rep. 4 8 5 , 4 9 1 .
70 The " p r u d e n t i n s u r e r " t e s t c i t e d i n n . 6 7 , a b o v e .
71 I n M u t u a l L i f e A s s u r a n c e Co. o f Kew York v .
Ont-etal P r o d u c t s Co. L t d . ! 1 9 2 5 1 A . C . 3 4 4 .
23
 terms i s n o t t h e t r u e t e s t may be because
some lawyers a r e o f the opinioi; t h a t i t
i s u n f a i r t o many p o l i c y h o l d e r s . I t w2s
s a i d by M r . Lewis, u i t h some i o r c e , t h a t
when :he law f i r s t began t o develop i n
t h e 1 8 t h c e n t u r y t h c s c ::ho sought t o g e t
t h e b e n e f i t o f i n s u r a n c e cover were
r e a l l y a c t i n g w i t h t h e same s o r t of
knowledge and u n d e r s t a n d i n g a s t h e
m d c r w i t c r s f r c n i < h t!:cy ~ ~ 1:crc scclcing
cove .h! nl.,r : t r l . Jv c.. F?.?~h F p ~ : !i E 2 rv
c i t i z e n s e e k 5 t o t a k e x t i n s u r z z c e ccver
f o r h i s house a n d b e l o n g i n g s lie i s n o t
a c t i n g on e q u a l terms wj t l i t h e i n s u r a n c e
c o m p m i e s . Much 2s I s p p n t h i z e ~ i t h tbc
p o i n t of view which was p u t forward by
Mr. Lewis, I canr,ot a c c e p t t h a t i t can
a l t e r t h e law."7L
! H i s L o r d s h i p went on t o o b s e r v e :

"Such i n j u s t i c e s as t h e r e a r e must now h e

d e a l t w i t h by P a r l i a m e n t , i f t h e y a r e t o
be g o t r i d o f a t a11."73
Cairns L . J . said:

"I s h a r e w i t h r e s p e c t t h e view t h a t was

e x p r e s s e d jn [ t h e Law Reform C o n ~ n i t t c cs j
r e p o r t t h a t t h e law might w e l l b e
changed.. . ' I 7 4

Other c r i t i c i s m s
38. I t h a s been p o i n t e d out" t h a t many laymen iirc n o t
aware t h a t a d u t y of d i s c l o s u r e e x i s t s and t h a t i t may be
v e r y d i f f i c u l t i f n o t i m p o s s i h i e f o r those who a r e aware o f
t h e d u t y t o know what i n f o r m a t i o n would be r e g a r d e d a s
mat.eria1 by a p r u d e n t i n s u r e r . One w r i t e r h a s o b s e r v e d t h a t
t h e d u t y imposes an e s p e c i a l l y heavy burden on i n s u r e d s who
I

I 72
73
[1975] 2 L l o y d ' s Rep. 485, 492.
Ibid., a t 492.
! 74 Ibid., a t 493.
I
75 R . A . Hasson "The d o c t r i n e c f u 3 e r r i n a f i d e s ir.
i n s u r a n c e law -
a c r i t i c a l e v x u i i t m 1 9 6 9 ) 32
M.L.R. 615, 633.

24
 h o l d a p o l i c y which i s rcnewable y e a r by y e a r as t h e y a r e
most u n l i k e l y t o r e a l i s e t h a t t h e d u t y a r i s e s on e a c h
s u c c e s s i v e renewal.7G Another h a s r a i s e d t h e problem of t h e
e x t s n t o f t h e d u t y on an i n s u r e d when he a p p l i e s over t h e
telephone f o r t.he i s s u e o f a c o v e r - n o t e by an i n s u r e r . 7 7

39. The g e n e r a l r u l e of t h e p r e s e n t law whereby afi

hS11Teri j, n o t rt.li,~v,rjof h i s drlty n f ci.scjr\c!!rt. t . : r o ~ +rhern
t h e i n s u r e r h a s asked q u e s t i o n s of him i n a p r o p o s a l f o r m , 78
has bcen c r i t i c i s e d 7 ' on t h e ground t h a t t h e i n s u r e d may
v e l l have been l e d t o suppesc t h q t no f s r t h e r i n f o r m a t i o n
was r e q u i r e d to be d i s c l o s e d by h i n .

40. I n endeavouring t o a s c c r t o i r , t h c m a t e r i a l i t y of
p a r t i c u l a r f a c t s , t h e c o u r t s w i l l h e a r the e x p e r t e v i d e n c e .
of o t h e r i n s u r e r s ; such e v i d e n c e w i l l bc produced by t h a
i n s u r e r who w i l l s e l e c t i t s e x p e r t w i t n e s s e s . Sorne j u d i c i a l
doubt h a s been c a s t on t h e cogency of such e v i d e n c e . 8 0 For
i n s t a n c e , i t has been thought odd8' t h a t an i n s u r c r xho
would n o t himself have r e g a r d e d a n o n - d i s c l o s e d f a c t as
c a t e r i a l should be able t o c a l l evidence t h a t a prudent
i n s u r e r would have done s o .

76 R. blerkir? "Uberrimae f i d e i s t r i k e s again" (1976) SY

M.L.R. 4 7 8 , 480; s e e p a r a . 2 4 , above.
77 2. 3 i r d s '%hat i s a c o v e r - n o t e worth?" (1977) 30
M.L.R. 7 9 .
78 S e e , however, p a r a . 32, above.
79 Sec, for i n s t a n c e , J . B i r d s " l h e Staxement o f
I n s u r a n c c P r a c t i c e - a measure c f r c g u l a t i o n of t h e
i n s u r a n c e c o n t r a c t " (1977) 46 M.L.R. 077, 680.
80 Roselodge v. C a s t l e [1966] 2 L l o y d ' s Rep. 1 1 3 , 131
E McNair J. See a l s o Re rqolds v . Thcenir. Assurince
CO. Ltd. [1978] 2 L l o y d ' k i l O , E
Forbes J.
, 81 See B e r g e r v. P o l l o c k : 1 9 7 3 ] 2 L l o y d ' s Rep. 442, 463
per K e r r J.

25
j. 41. C r i t i c i s m 8 ' !ias a l s o been d i r e c t e d t c j u d i c i a l
i
~
d e c i s i o n s as t o t h e n i a t e r i a l i t y o i p a r t i c u l a l - t y p e s of f a c t .
I t w i l l s u f f i c e t o mantion two s u c h d c c i s i o n s . One i s
Rcgina Fur v. Hossonie3 i n which an i i i s u r e r was h e l d
c n t i t l e d t o r e p u d i a t e on t h e grounds cf r h e i n s u r e d ' s
f a i l u r e t o d i s c l o s e a c o n v i c t i o n t h a t ]!ad t a k e n p l a c e 2 3
y e i r s p l r l i r r . A n n x h e r is .L.---n_-c k e r R i i n i i i f i,t.cI. V. W o ~ t __
~i-;;
A i l s t r a l i a n I n s u r a n c e Co. ''I i n t.hich t h e n o n - d i s c l o s e d
fact h e l d t o b e m a t e r i a l . was a p r e v i o u s r e j e c t i o n w i t h
r e g a r d t o an e n t i r e l y d i f f e r c n t t y p e of j . n s c r m c e from t h a t
which was b e i n g a p p l i e d f o r .

42. We a r e i m p r e s s e d by t h e s c c r i t i c i s m s and have

r e a c h e d t h e c o n c l u s i o n t h a t t h e law a s t o n o n - d i s c l o s u r e
s h o u l d b e reformed.

C. Reform o f t h e p r c s c i l t l a w - the f i e l d of choirc

43. Raving d e s c r i b e d t h c p r e s e n t l x 3f a o n - d i s c l o s u r e ,
and s e t o u t some o f thr? c r i t i c i s m i t has a t t r a c t e d , we s h a i l
c o n s i d e r t h r e e p o s s i b l e ways i n #hich i t CZtii be reformed:

(i) t h e a b o l i t i o n of any d u t y t o d i s c l o s e ., 8 5
(ii) t h e r e t e n t i o n of the e x i s t i n g duty but
t h e modification of t h e " a l l o r nothing"
n a t u r e o f t h e p r e s e n t l a w by t h e a d o p t i o n
of the so-called "proportionality
85
principle" ;
(iii) t h e r e t e n t i o n of t h e duty b u t t h e
a l t e r a t i o n o f i t s ambit. 8 7

82 See R . A . Hasson "The d o c t r i n e o f u b e r r i m a f i d e s i n

i n s u r v l c e law -
a c r i t i c a l evaluation" [ 1 9 a S ) 2
M.L.R. 615, 6 2 2 - b Z 3 , 626.
83 [I9571 2 L l o y d ' s Rep. 466; b u t now s e e R e h a b i l i t a t i o n
of O f f e n d e r s Act 1 9 7 4 , s . 4 ( 3 ) ( 2 ) and c f . Revnolcis V.
Phoenix Assurance Co. Ltd. [ 1 9 7 8 ] 2 L l o y d ~ 4 4 0 ,
459-461 per Forbes J.
84 119361 I K . B . 408.
85 See p a r a s . 44-51, below.
86 See p a r a s . 52-57, below.
87 See p a r a s . 58-96, below.
-I
.._
1 1 s
~ h a l l e x a n h e e a c h o f t h e s e a p p r o a c h e s an d r e a c h a

p r ~ ~ i s i o i i ac ol n c l u s i o n a s t c vliich of tiles1 i s t o b e p r e f e r r e d .

(i) The a b o l i . t i o n o f a n y d u t v t o d i s c l o s e
.I .; . The f i r s t a p p r o a c h t o b e c o n s i d e r e d i s t h e a b o l i t i o n
~i any d u t y t o d i s c l o s e . l!ie argument wh i ch c a n be a dva nc e d
i:i f a v o u r o f t h i s p r o p o s a l i s t h a t t h e c i r c u m s t m c e s
, ~ ~ ~ ~ x i iat. i , y i-jnie o f 1,oril :Riagcfi-ei.<:
i ~ i;te ji.!dgmeni: j-fi C s r t c l -
;.. Boehm" have a l t e r e d s o s u b s t a n t i a l l y t h a t t h e r a t i o n a l e
[or t h e d u t y i s no l o n g c r v a l i d . T h es e c i r c c i i i s t a n c e s were
t h a t t h e main t y p e o f c o v e r was m a r i n c and t h a t . t h c s h i p r m e r
o r c h a r t e r e r h a d t h e o n l y means o f knowing t h e f a c t s r e l e v a n t
t o the risk. A s t h e i n s u r e d p o s s e s s e d t h e mcans o f knowing
~ l i e s cf a c t s ar.d t h e i n s u ; e r d i d n o t , a1.d a s t h c i n s u r e r
nceded t o have t h i s i n f o r m a t i o n i n c r d e r t o d e c i d e w h e t h e r t o
accept the r i s k a nl what premium t o c h a r g e , t h c i n s c r e r c o u l d
c
n o t c o n d u c t h i s b u s i n e s s unless t h e i n s u r e d made f u l l .
d i s c l o s u r e of a l l t h e r e l e v a n t i n f o r m a t i o n t h a t was known t o
!iin. Today i n s u r e r s u n d e r r ! i r i t e n i n y 2r.d varicc! t y p c s o f
c o v e r and e n t e r i n t o c m t r n c t s o f i.nsura3c.e w i t h t h e
h o u ;e h o ld e r , t h e car-O'iircr and many G t h C l - S . The i i s u r e r
g c n c r a l l y h a s t h e o p p o r t u n i t y t o a s c e r t a i n mos'. o € t h e f a c t s
.-.-
-.n 1 1, + t o t h e r i s k 2x12 hc s v - i l s h i x c l f ci z'~mc:c~s
0 _I"

techniques f o r e l i c i t i n g t h e s e f a c t s . as

The u s e o f t h y p r o p o s a l form
45. As we hove s e e n , " one oi t h e most i m p 3 r t a n t o f t h e s e
techniques i s t h e a s k i n g of d c t a i l e d q u e s t i o n s o f t h e i n s u r e d
i n R p r o p o s a l form. Where t h e i n s u r e d h a s a n s w e r e d d c t z i l e d
q u e s t i o n s h e may w e l l assume t h a t h e i s u n d e r n o d u t y t o s u p p l y
f u r t h e r i n i o r n i a t i o i i ; a f t e r a i i , t h e i n s u r e d g e n e r a l l y knows
f r o m e x p e r i e n c e rshar i n f o r m a t i o n h e n e e d s . These c o n s i d e r a t i o n s

88 (17651 3 Burr. 1905; 9 7 E.R. 1162.

B5 S e e p a r a . 2 9 , above f o r a d c s c r i p t i o n o i some of t h e s e
techniques.
90 See p a r a . 2 9 , above.

27
OI? t h e i r o m ~ o u l ds u g g e s t t h a t i f t h e i n s u r e r w i s h e s t o h a v e
i n f o r m a t i o n t o e n a b l e h i m t o assess :!ie r i s k h e must a s k t h e
i n s u r e d € o r i t and t h a t the i n s u r c d should b e r e l i e v e d o f
any ciuty t o d i s c l o s e m a t e r i a l i ~ ~ i o r i i i n t i o ieix c e p t iri a n s i i e r t o
q u e s t i o n s pcised by t h e i n s t i r e r .

46. lkwever, t!iere z r c f u r t h e r c c r t s i d e r a t i o n s . One i s

r h a t ~ i l rcullL1.ac;i u i i i i > u i - ; i i i L e s i i l i i C i i i A i i i 5 , 3 e ~ p l t ztiia
ciiangc i n c i r c u i i i s t a n c e s s i n c e Lord B l a n s f i e l d ' s d a y , ii c o n t r a c t
o f s p e c u l a t i o n , t h e p a r t i e s t o which reinnin i n a v e ~ yunequai
p o s i t i o n w i t h r e g a r d t o t h e a c t u a l p o s s e s s i o n o f knowledge
r e l e v a n t t o t h c r i s k . A n o t h e r i s t h a t i n r e l a t i o n t o v e r y many
c o m m e r c i a l ri'sks i t i s t h e p r a c t i c e o f t h e i n d u s t r y n o t t o make
use of p r o p o s a l f o r ms b u t t o r e l y a t l e a s t i n p a r t 011 r h e
i n s u r e d ' s d u t y o f d i s c l o s u r e as w e l l a s on u n d e r w r i t e r s ' own
means o f i n f o r m a t i o n a n d er . q u i r y .

-P r o v i s i o n a l cover
47. Very o f t e n p r o v i s i o n a l 1nsi:railcc c c v e r i s g r a n r e d
p r i o r to t h e c o m p l e t i o n o f a prciposal i ~ i ~ i iT.o r e x a z p l o ,
i n s u r a n c e cover f o r motor v r h i c l e s i s u s u a l l y g r a n t e d e v e r t h e
t e l e p h o n e b y a b r o k e r a n d 2. c o v e r - i l o t e i s t h e n i s s u e d .
S i m i l a r l y house i n s u r a n c e c o v e r i s o f t e n g r a n t e d OVCT t h e
t e l e p h o n e t o a p e r s o n who h a s j u s t e x c h a n g e d c o n t r a c t s f c r t h e
p u i - c k a se o f a p r o p e r t y . Ve a r e ncit s a t i s f i e d t h a r i t vol?!d
b e e i t h e r c o n v e n i e n t o r p r a c t i c a b l e from t h e comm6r;ial p o i n t
o f v i e w t c cGinpe1 an i n s x r e i - o r a b r o k e r in a t e l e p h o n e
c o n v e r s a t i o n r e l a t i n g t o p r o v i s i o n a l c o v e r t o e l i c i t by
q u e s t i o n and answer a l l t h r f a c t s m a t e r i a l t o t h e r i s k . I t i s
l i k e l y t h a t s u c h a p r o c e d u r e wo u l d l e a d t o d i s p u t e s a; t o w ha t
q u e s t i o n s h a d b e e n a s k e d .aid w h a t answers h a d b e e n g i v c n and
consequently t o l i t i g a t i o n . # o r e o v e r i n the a b s e n c e o f any
d u t y i t w o ul d b e open t o t h e insured t o conceal izformation
w h i c h he knew t o b e m a t e r i a l b u t w h i c h was u n u s u a l i n i t s

28
n a t u r e , s o t h a t t h e i n s u r e r o r t h e broker could n o t reasonably
b c e x p e c t e d t o a s k a b o u t i t o v c r t h c t cl cp i i oiie . 9 1

-
Covcr i i h e r e n o x o p o s a l form i s e v e r issued
48. There a r e , i n a d d i t i o n t c l a r g c c o n w r c i a l r i s k s ,
o t h e r t y p e s o f c o v e r i n r e s p e c t O F wh i ch n o proi)o;a l form i s
c v c r issue:'.. IR s u c h c n ~ e st h c q x s t i o - xzty Z r i s c w!lcthcr o r
no^ t n e i n s u r e r iras waived h i s rigiir: t o a l s c j o s u r e o f m a t e r i a i

f a c t s a d d i t i o n a l t o .those w h i c h h a v e b e c n f u r n i s h e d t o him.
An e x a m p l e o f w h e r e t h e r e w i l l a l m o s t c e r t a i n l y ha-.re b e e n s u c h
a w a i v e r i s t h e p u r c h a s e b y i n t e n d i n g p a s s c n g c r s o f l'coupon
i n s u r a n c e " a t a i r p o r t c o u n t e r s t o c o v e r t h e r i s k o f i n j u r y and
death w h i l s t i n f l i g h t ; the purchaser is usually required t o
c o n ip le t e an a p p l i c a t i o n form wh i ch m e r e l y a s k s f o r h i s a g e ,
name and a d d r e s s and t h e d e s t i n a t i o n o f t h e f l i g h t . 92

The r e s u l t s o f a b o l i t i o n
49. The a b o l i t i o n o f an(; d u t y wo u l d con:pc1 t h e u s e o f
p r o p o s a l f o r m s i n r e l a t i o n t o t h e co mmcr ci al r i s k s t c w h i c h we
h a v e r e f e r r e d ; we c o n s i d e r t h a t t h i s would b e r i c i t h e r
d e s i r a b l e n o r p r a c t i c a b l e f r o m t h e co mmer cia l p o i n t o f vie w .
Kit11 regard t o t h e o t h e r types of cover grailted w i t h o u t a
p r o p o s a l form t o wh i ch we have r e f e r r e d , t h e a b o l i t i o n o f tile
d u t y \\.ould a l m o s t c e r t a i n l y l e a d t o h i g h e r premiums t o
c o m p e n sa t e f o r " s h a r p p r a c t j . c e " on t h e p a r t of t h c fex. T h i s
r e s u l t ' w o u l d be n o t o n l y economically w a s t e f u l b u t a l s o u n j u s t
t o ct!!er. ~ n ! i c y h o l d e r s - al?!iciiZh i t ~ o i i l da l . m n s t c e T t a i n l y
n o t l e a d i n s u r e r s t o w i t h d r a w f a c i l i t i e s f o r im m e dia te c o v e r
( i n r e l a t i o n t o , f o r examplc, motor v e h i c l e , house an3 t r a v e l
i n s u r a n c e ) , i t m i gh t w e l l l e a d tliem i n a d d i t i o n t o c h a r g i n g
h i g h e r premiums t o i n s e r t i n t o t h e i r p o l i c i e s a g r e a t e r number
of c o n d i t i o n s and e x c e p t i o n s t o n n r r o w t h e s c o p e o f t h e r i s k .
91 T h i s c o n s i d e r a t i c n i s a l s o r e l e v a n t , though t o a l e s s e r
e x t e n t , i n r e l a t i o n t o what t h e i n s u r e d ' s d u t y of
d i s c l o s g r c s h o u l d b e wh er e n p r o p o s a l f o r m h a s b s e n
c o m p l e t e d by ! i i m and we d e a l w i t h t h i s m a t t e r a t p a r a s .
-
6 5 7 7 , b e 1ow .
92 See p a r a . 7 1 , below f o r a d i s c u s s i o n of w h a t c o n s t i t u t e s
a p r o p o s a l form.
29
A b o l i t i o n o f t h e d u t y \\*it11 r e s p e c t t o C o n s u A e E
50. .An a l t e r n a t i v e t o t h e a b o l i t i o n o f t h e d u t y a c r o s s
t h e b o a r d would b e i t s a b o l i t i o n w i t h r e s p e c t t o a c e r t a i n
c l a s s of i n s u r c d s i\*ho inny necci s p e c i a l p r o t e c t i o n . We ha vc
i n d i c a t e d t h a t , s i n c e L o r d ) l n n s € i e l d ' s d a y , t h e avaiLub!e
t y p e s o f i n s u r r m c e c o v e r h av e ex p a nde d. Ffony o f t h o s e now .
s e e k i n g c o v e r 21-c p c r s o n s i i h o d T e IIOL: a c t i n g i n tile c o u r s e o f
ii b i i s i n o s s ' D U L who a r c consuiners. They a r e u n l i k e l y t o
r e a l i s e t h a t t h e y a r c u n d e r a d u t y o f d i s c l o s u r e o r t o know
o f i t s a mb i t a n d t h e y may we11 n o t be a d v i s e d by a
Mowevcr, we b e l i e v e t h a t t h e ar g u m e nts i n r e g a r d t o " s h a r p
p r a c t i c e " wh i ch we h a v e ad v an ced a g a i i i s t t h e a b o l i t i o n o f any
d u t y o f d i s c l o s u r e a p p l y e q u a l l y t o any p r o p o s a l t h a t i t b e
a b o l i s h e d i n r e l a t i o n t o consumers o n l y .

Our p r o v i s i o n a l con c I u s i on
51. Our p r o v i s i o n a l conclusio'n i s t h e r e f o r e t h a t a dnty
o f d i s c l o s u r e s h o u l d b e r e t a i n e d a c Tvss t h e b o a r d . I t f o l l o ! . s
t h a t t h e r e s h o u l d b e a d u t y of d i s c l o s u r e i n a l l c a s e s w he re .
c o v e r i s a p p l i e d f o r j r r e s p e c t i v e o f w!iether o r z o t t h e r e i s a
p r o p o s a l form, w h e t h e r o r n o t t h e c o v e r a p p l i e d f o r i s
p r o v i s i o n a l , and w h e t h e r t h e c o v e r i s n p y l i e d f o r o r e 1 1 7 C T ir:
writing. Ir: i s s i g n i f i c a n t t h a t sonic d u t y o f d i s c l o s u r e i s
i m p o se d on t h e i n s u r e d n o t o n l y by t h e d r a f t d i r e c t i v e g 4 b u t
s l s o by t h e laws o f a l l t h e common l a w and c i v i l la w
j u r i s d i c t i o n s t h a t w h.:ve b een a b l e t o s t u d y . " Comments a r e
invi t c d .

93 Who w i l l a l m o s t c e r t a i n l y owe them a d u t y of c a r e i n

t h i s c o n n e c t i o n : s e e Nalloudi v . B a r b e r (1815) 4 Camp.
1 5 0 ; 1 7 1 E . R . 4 9 ; --1nond(1816) 6 Taunt. 4 9 1 ;
128 E . R . 1 1 2 7 ; Cliavman v . Ii'alton (1553) 10 Bing. 5 7 ,
63; 131 E . R . 826, 829. For a r e c e n t case see McNealy
v. P e n n i n e I n s u r a n c e Co. [1978] 2 L l o y d ' s Rep. 1s.
94 A r t i c l e 2 ( 1 ) ; s e e p a r a s . I j O - l j j , be low f o r an
a n a l y s i s and d e s c r i p t i o n o f t h i s p r o v i s i o n .
95 S e e Ap p en d i x C p a r a s . 1 - 3 , 1 3 - 1 4 , a nd 2 0 - 2 1 f o r t h e
l a w r e l a t i n g t o n o n - d i s c l o s u r e i n some o t h e r common
law and c i v i l law j u r i s d i c t i o n s .

30
 ( i i ) The r e t e n t i o n o f t h e dut=d t h e :!doption
of t h e p r o i~o T t i on R 1i t y p r i n c i p l e

52. The second approach t o be c o n s i d c r e d i s t h e

r e t e n t i o n of the e x i s t i n g duty of disclosure but the
n w d i f i c a L i o n of t h e reniedics a v a i l a b l e t o t h e i n s u r e r f w
b r e a c h of i t by t h c i n s u r e d . French l a w p r o v i d e s t h a t i f ,
a f t e r a c l a i m h a s been made, t h e i n s u r e r cliscovers t h a t t h e
iil,al.c; I,,', . . - . ~ r . . _ . . to cor,;;pl;;
~ a ~ L > ~ u ~ :,.;ith h i s d u t y t o ,?< c r-.OS1
! m.?teri.?l.
c i r c u m s t a i i c e s , b u t i s n o t a b l e t o prove m a l a f i d e s , h e i s n o t
e n t i t l e d t o r e f u s e payment a l t o g e t h e r b u t i s o b l i g e d t o pay
t h a t p r o p o r t i o n o f t h e c l a i m which t h e n c t u a i premium p a i d
b e a r s t o t h c premium which would have becn p a y a b l e i f a l l
m a t e r i a l c i r c u m s t a n c e s had been a c c u r a t e l y d i s c l o s e d . 96

53. The a t t r a c t i o n o f t h e p r o p o r t i o n a l i t y p r i n c i p l e i s
t h a t it e l i m i n a t e s t h e " a l l o r n o t h i n g " n a t u r e o f t h e p r e s e n t
law which e n t i t l e s t h e i n s u r e r t o ? e f u s e payment o f a c l a i m
a l t o g e t h e r where t h e r e h a s been a f a i l u r e t o d i s c l o s e a
material fact.

54. I n e v a l u a t i n g t h e p r o p o r t i o n a l i t y p r i n c i p l e it must
be b o r n e i n mind t h a t French i n s u r a n c c p r a c t i c e d i f f e r s
c o n s i d e r a b l y from o u r own. There i s i n France a compreheilsive
s y s t e m o f f i x e d t a r i f i s , s u p e r v i s e d by a d m i n i s t r a t i v e c o n t r o l ,
f o r premiums c o r r c s p o n d i n g t o t h e c i r c u m s t a n c e s o f t h e r i s k s
t o b e c o v e r e d . As a m a t t e r o f e v i d e n c e , t h e r e f o r e , i t would
presumably be e a s y i n many c a s e s f o r a French c o u r t t o
a s c e r t a i n what premium would have tee41 c h a i g e d nad a l l
m a t e r i a l c i r c u m s t a n c e s been d i s c l o s e d . I n England t h e r e i s ,

96 Code des A s s u r a n c e s , A r t i c l e 113-9; s e e Appendix C ,

p a r a . 1 4 ; t h e d r a f t d i r e c t i v e h a s adopteci a s i m i l a r
p r i n c i p l e f o r improper n o n - d i s c l o s u r e : f o r a
d e s c r i p t i o n and a n a l y s i s of t h e r e l e v a n t p r o v i s i o n
o f t h e d r a f t d i r e c t i v e s e e p a r a . 1 4 3 , below.

31
by c o n t r a s t , n o comprehcnsivr s y s t c m of a d m i n i s t r a t i v e l y
c o n t r o l l e d t a r i f f s , a l t h o u g h i n s u r c r s do hove t h e i r own
t a b l e s o f p+emiuins i n c o n n c c t i o n w i t h l i f c i n s i i r a n c e and w i t h
.
mo t o r i n s u r a n ce 9 7

55. There i s a f u r t h e r d i f f i c u l t y : wculd t h c r.otiaiiz1

premium be what t h c p a r t i c u l a r i n s u r c r i n q u e s t i o n w o u l d have
A n
ch2rged 02- w h z t a p r u d e n t i n s u r e r w o ~ l i lhnvc c!iergec!?'" If
tilt former i n t e r p r e t a t i o n were t o h e adopted i t would o f t e i i
be d i i f i c u l t in p r a c t i c e f o r t h e i n s u r e d t o c h a l l e n g e
s u c c e s s f u l l y t h e i n s u r c r ' s e v i d e n c e a5 t~ t h e n o t i o n a l
premium. 11: o u r view t h i s c o u l d l e a d t o abuse hy i n s u r e r s .
I f t h e l a t t e r i n t c r p r e t a t i o n were t o be ndopted, t h e c o u r t
would r e q u i r e e x p e r t e v i d e n c e t o d e t e r m i n e t h e p q t i . o n a l
premium. We havc s e e n t h a t t h e t e n d e r i n g of e x p e r t e v i d e n c e
regarding t h e m a t c r i a l i t y of non-disclosed f a c t s h a s
a t t r a c t e d j u d i c i a l c r i t i c i s m g 9 and s u c h c r i t i c i s m would a p p l y
t o a g r e a t e r e x t e n t t o t h e i s s u e o f t h e n o t i o n a l . premium.
The c o u r t would nced t o r e c e i v e e x p e r t e v i d c n c c , n o t o n l y :SS
t o whether t h e judgment o f t h e p r u d e n t i n s u r e r i n a c c e p t i n g
t h e r i s k and i n f i x i n g t h e premium would have been i n f l u e n c e d ,
b u t a l s o a s t o what such an i n s u r c r ' s computation of t h e
h y p o t h e t i c a l premium would h a x becn. The i n s u r e d ' s p o s i t j . n n
might oft.en be i n v i d i o u s , b e c a u s c i n s u r e r s would o b v i o u s l y b c
i n a f a r b e t t e r p o s i t i o n than thc i n s u r e d t o o b t a i n e x p e r t
e v i d e n c e , i r r e s p e c t i v e of t h e p a r t y on whom t h e onus o f
p r o v i n g t h e n o t i o n a l premium were p l a c e d .
--- .-
97 I n Engiand t h e o n l y comprehensive t a b l e s oi p r e m i u m
which can be u s e d v i r t u a l l y a u t o m a t i c a l l y a r e t h o s e
f o r l i f e c o v e r which r e l a t e t h e amount o f t h e premium
t o t h e age of an a p p l i c a n t i n normal h e a l t h . There
a r e a l s o d e t a i l e d r a t e s i n motor i n s u r a n c e r e l a t i n g
t o , i n t e r a l i a , t h e make o f v e h i c l e , t h e a r e a ir, which
i t i s u s e d 3 t h e age and o c c u p a t i o n o f t h e owner;
however, t h e f i x i n g of t h e a c t u a l premiums i s a much
more c o m p l i c a t e d p r o c e s s b e c a u s e d i f f e r e n t c o v e r may
be o b t a i n a b l e from d i f f e r e n t i n s u r e r s f o r d i f f e r e n t
r i s k s a t d i f f e r e n t premiums.
98 The d r a f t d i r e c t i v e a p p e a r s t o r e s o l v e t h e a m b i g u i t y
i n f a v o u r o f t h e former i n t e r p r e t a t i o n : s e e A r t i c l e s
2 ( 1 ) and 2 ( 3 ) ( c ) .
99 See p a r a . 4 0 , above.
32
56. Another c o n s i d e r a t i o n i s t h a t t h e p r o p o r t i o n a l i t y
p r i n c i p l e i s b a s e d on t h e a s s u m p t i o n t h a t , ha d t l i e i n c r e a s e d
r i s k b e e n d i s c l o s e d , 3 c o n t r a c t would h a v e b e c n e n t e r e d i n t o
b e tw e e n t h e i n s u r e d and t h e i n s u r e r a t t h e n o t j . o n a 1 h i g h e r
premiuin. However, t h i s a s s u m p t i o n i t s e l f r e s t s on two
p r e m i s s e s . F i r s t , t h a t t h e i n s u r e r wo u l d h a m been w i l l i n g t o
c o v e r t h e i n c r e a s e d r i s k a t some premium; s e c o n d l y , t h a t t h e
iiisurel: Kuuld I 1 : l v e b e e n W 5 . 1 . I i R ~T.82 F":.' tj?e " . c t i - n z l h i zak- -r -- .
premium f o r t h e c o v e r . B o t h t h e s e p r e n i i s s e s may v e l l b e f a l s e
i n a s u b s t a n t i a l . numbcr o f c a s c s . Many i n s u r e r s , h a v i n g
r e g a r d t o t h e q u a l i t y o f t h e r i s k s u s u a l l y a c c e p t e d by them
i n t h e c o u r s e o f t h e i r b u s i n e s s , m i g h t n o t ha ve b e e n w i l . l i n g
t o u n d e r w r i t e t h e i n c r e a s e d r i s k a t an y premium. S h o u l d t h e y
b e p r r m i t t e d t o p u t t h i s d e f e n c e f o r w a r d a s a c o m p l e t e a nsw e r
t o a c l a i i n ? F r e n c h law1'' does n o t appear t o allow t h i s
d e f e n c e , a t l e a s t i n r e l x t i o n t o n o n - m a r i n e i n s u r a n c e . 101 I f
s u c h a d e f e n c e w e r e t o be a l l o v z c l , t h e d i f f i c L i i t . i c s i n h e r e n t
i n applying t h e proportionality p r i n c i p l e i n p r a c t i c e , t o
w h ic h we r e f e r r e d i n p a r a g r a p h 5 5 , wo u l d b c c x a c e r t s t e d .
However, . i n o u r v i e w t h e p r o p o r t i o n a l i t y p r i n c i p l c w i t h o u t
t h i s d e f e n c e would b e u n t e n a b l e and w o u l d , we t h i n k , b e
t o t a l l y unacceptable t o t h e insurance industry i n t h i s
c o M t r y . -4s f s r t h c s c c o n d p r c ~ i s s upsn x h i c ? ~t h e a5suiiilj1.iu11
i s b a s e d , t h e i n s u r e d mi g h t h av e p r e f e r r e d t o c a r r y t h e r i s k
h i m s e l f r a t h e r t h a n t o p a y t h e n o t i o n a l h i g h e r preinj.um f o r
the increased r i s k .

--
> I . Our p r o v i s i o n a i c o n c i u s i o i i is t h a t t h e p r o p o r t i o n a l i r y
p r i n c i p l e would n o t be a d e s i r a b l e i n n o v a t i o n i n t h i s c o u n t r y .
Comments a r e i n v i t e d .

100 Code d e s A s s u r a n c e s , A r t . 113-9; f o r t h e m a r i n e

i n s u r a n c e r u l e s e e Code d e s A s s u r a n c e s A r t . L . 1 7 2 - 2 .
101 A r t i c l e s 2 1 6 ) and 5 f S ) o f tlie d r a f t d i r e c t i v e do a l l o w
t h i s defence b u t t h e i r i n c l u s i o n i n t h e d r a f t
d i r e c t i v e i s p r o v i s i o n a l o n l y ar?d t h e i r s u r v i v a l i n
future d r a i t s i s by n o means c e r t a i n : s e e p a r a s . 145
a n d 1 5 4 . below.

33
 ( i i i ) Thc r e t e n t i o n o f a d u t y o f d i s c l o s u r c nnd
.-t h c a l t e r a t i o n o f i t s s m b i t
58. If t h e insured is t o continue t o b e s u b j e c t t o 3
d u t y of d i s c l o s u r e a n d t h c r e m e d i e s f o r i t s b r e a c h a r e t o
r e m a i n u n c han g ed , t h e q u e s t i o n a r i s c s w h e t h e r t h e e x t e n t o f
t h a t d u t y s h o u l d b e a l t c r c d . P!e h a m s e e n t h a t t h e e x i s t i n g
m b i t of t h e t ~ u t yl i a j been i q i d cl y c r i t i L i s e d l o 2 and t h a t t i l e
7 .n -?
Law Keiorin Committee i n t h e i r F i f t h Report'"" formulated a
m o d i f i e d d u t y u n d e r wh i ch t h e i n s u r e d w o u l d b e r e q u i r e d o n l y
t o d i s c l o s e s u c h f a c t s a s would a p p e a r t o a r e a s o n a b l e
i n s u r e d t o b e m a t e r i a l . l o 4 I f t h i s f o r m u l a t i o n w e re a d o p t e d
many o f t h e c r i t i c i s m s o f t h e d u t y , b o t h j u d i c i a l i o 5 and
e x t r a - j u d i c ' i a l , l o 6 would b e met. T h e r e i s t h e r e f o r e a s t r o n g
case f o r retaining t h e duty but a l t e r i n g i t s scope i n a
m a m e r s i m i l a r t o t h a t s u g g e s t e d by t h e Law Reform Com m itte e ' s
f o r m u l a t i o n . The C o mmi t t ee's f o r m u l a t i o n was b r i c f and we
s h a l l endeavour, i n t h e following paragraphs using t h e i r
f o r m u l a t i o n as a b a s i s , t o s e t o u t a more d e t a i l c d p r o p o s a l
f o r r e f o r m o f t h e law. O u r r eco mmenda tions will b e e l a b o ? a t e d
under f o u r headings:-
[a) The d u t y o f d i s c l o s u r e w he re t h e r e i s
n o proposal. f o r x ;
(bj The d u t y o f d i s c l . o s u r e w he re t h e r e i s
a p r o p o s a l form;
(c) "Basis of t h e contract" c l a u s e s ;
(6) R5!2P!;"1.

102 S e e p a r a s . 3 7 - 3 8 , ab o v e.
103 (1957) Cmnd. 6 2 .
104 Ibid., a t p a r a . 1 4 ( 1 ) .
105 S e e , i n p a r t i c u l a r , d i c t a i n La m be rt v. CO-o e r a t i v e
I n s u r a n c e S o c i e t y L t d . cl9751 2 'Lloyd's
491, 492 and 433: s e e p a r a . 3 i D above.
106 See p a r a s . 3 8 - 4 1 , ab o v e.

34
 ( a ) The d u t y o f d i s c l o s u r e wh er e t h e r e i s n o p r o p o s a l - f ~

59. I f h e r e t h e r e i s n o p r o p o s a l i o r m lie c o n s i d e r t h a t t h e
i n s u r e d s h o u l d r e mai n u n d e r t h e m o d i f i c d d u t y t o d i s c l o s e
m a t e r i a l f a c t s described i n t h e f o l l c x i n g paragraphs, This
w o u l d b e t h e p o s i t i o n wh er e h e o b t a i n s c o v e s b e i o r e a
p r o p o s a l f o r m has b e e n c o m p l e t e d and wh ere c o v e r i s o b t a i n e d
w i t h o u t a p r o p o s a l f o r m eves b e h g c o T p l e t e d .
The e x m n t o f t h e d u t y
60. I n o u r view t h e i n s u r e d ' s d u t y o f d i s c l o s u r e w he re
t h e r e i s n o p r o p o s a l form s h o u l d be t o d i s c l o s e t h o s e f a c t s
w h i c h a r e a s o n a b l e m a n i n h i s c i r c u m s t a n c e s w ould c o n s i d e r
t o b e m a t e r i a l i n t h e sense t h a t t h e y would i n f l u e n c e t h c
j u d g m e n t of a p r u d e n t i n s u r e r i n a c c e p t i n g t h e r i s k o r f i x i n g
t h e premium. l'he i n s u r e d s h o u l d however o n l y b e u n d e r a d u t y
t o d i s c l o s e f a c t s ~ h i c hh e e i t h e r knows o r w hic h a r e a s o n a b l e
m a n i n h i s c i r c u m s t a n c e s o u g h t t o know. T h i s f o r m u l a t i o n i s
s i m i l a r t o t h a t o f t h e Law Reforin C o r m i t t e e . TWO f e a t u r e s o f
t h i s proposal require elaboration.
( 1 ) "A r e a s o n a b l e m a n i n h i s c i r c u m s t a n c e s "
61. T h i s f o r m u l a t i o n d e p a r t s s l i z h t l y from t h a t o f t h e
Law !!nfcrm Csmmit:eo which r c f e r s t o " a l e a s o n a b l e inburea".
The Law Reform C o m m i t t e e ' s w o r d i n g s u g g e s t s t h a t t h e
p a r t i c u l a r i n s u r e d s h o u l d be judged s o l e l y by t h e o b j e c t i v e
s t a n d a r d o f a reasonable insured, t h a t is t o say without
taking the p a r t i c u l a r circumstances of t h e p a r t i c u l a r
i n s u i 2 d i1it.a aLCGUlit. iie a r e c o n c e r n e d t h a t t h i s t e s t may b e
t o o i n f l e x i b l e ; t h u s i t may b e s u i t a b l e f o r b u s i n e s s m e n b u t
i t may b e t o o e x a c t i n g f o r t h e i n d i v i d u a l s e e k i n g , s a y , m o t o r
o r h o u s e h o l d i n s u r a n c e as a consumer. Under o u r
recommendations t h e c o u r t s h o u l d t h c r e f o r e b e e n a b l e d t o t s k e
t h e i n d i v i d u a l ' s circumstances i n t o account. Accordingly,
t h e s t a n d a r d o f d i s c l o s u r e r e q u i r e d would de pe nd o n , i n t e r
-
a l i a , w h e t h e r t h e i n s u r e d was a b u s i n e s s m a n o r 2 c o n s u a e r .

35
S u c h 3 f o r m u l a t i o n i \ o u l d g o some way t o m e e t i n g t h e a rgum e nt
considered abovclo7 t h a t m y duty o f d i s c l o s u r e might be
i n a p p r o p r i a t e f o r consumers.

H n ws r er , we h e v e n o t renc!?ed n firm vie!.: as t c

p r e c i s e l y \\,hat c i r c u m s t : m c o s t h e c o u r t s h o u l d b e e n t i t l e d t o
t a k e i n t o ilccoiint., and we r n n s i r l e r i t l i k e l y t h a t i ~ ?:qny
l e g i s l a t i o n g u i d e l i n e s xiight b e r e q u i r e d . C o n ~ m e ~ tasr e
invited.

62. A n o t h e r a d v a n t q c 0.f t h i s t e s t i s t h a t t h e n e e d € o r
e x p e r t e v i d e n c e as t o w h a t f a c t s wo u l d h a v e i n f l u e n c e d t h e
j u d g m e n t o f il p r u d e n t i n s u r e r , w i t h i t s a t t e n d a n t e x p e n s e a nd
u n i a i r n e s s t o t h e i n s u r e d , l o S wo u l d f a l l away. The c o u r t s
would s i m p l y a p p l y t h e s t a n d a r d s o f a r e a s o n a b l e man i n t h e
c i r c u m s t a n c e s o f t h e i n s u r e d i n o r d e r t o d e c i d e w he the i- t h e r e
had been a b r e a c h o i t h e d u t y . J u d g c s have o i c o g r s e g r e a t
e x p e r i e n c e i n a p p l y i n g s u c h s t a n d a r d s arid a body of case-law
w o u l d soon b u i l d up.
(2) “Which h e knows o r wh i c h a r c a s o n a h l e n s
i n h i s c i r c u m s t a n c e s o u g h t t o know
.:5 tlTho &sq.is a d n ~ yt o d i s c l s s c , zii2 ysn c a n n s t
d i s c l o s e w h at y o u do n o t know. The o b l i g a t i o n t o d i s c l o s e ,
t h e r e f o r e , n e c e s s a T i l y d e p e n d s upon t h e know le dge y o u
p o s s e s s . tf109 Does t h e d u t y i n t h e p r e s e n t law e x t m d t o
f a c t s which a r e w i t h i n t h e i n s u r e d ’ s c o n s t r u c t i v e , a l t h o u g h
n o r a c t u a l , knowledge: l n e r u l e i n inaririe i n s u r a n c e i s r n a t
t h e i n s u r e d w i l l be t r e a t e d a s knowing f a c t s i f i n t h e
110
o r d i n a r y c o l ir s e of b u s i n e s s lie o u g h t t o h a v e known them.

107 A t para. 5 0 , ab o v e.
108 S e e p a r a . 4 0 , ab o v e.
109 J& v. Law Union an d Crown [1908] 2 K.B. 863,
8 8 4 E F l e t c h e r Moultoii L.J.
110 The M ar i n e I n s u r a n c e A c t 1906, s.l%(l): s e e para.
23, a b ov e.

36
I t h a s n e v e r been c l e a r l y e s t a b l i s h e d whether t h e marina
i n s u r a n c e r u l e a p p l i e s e q u a l l y t o n o n - mar i n e i n s u r a i i c c , a nd
c e r t a i n l y t h e w o r d s " i n t h e o r d i n a r y c o u r s e o f b u s i n e s s " seem
i n q t t o cover i n d i v i d u a l s o b t a i n i n g c o v e r o t h e r t h a n i n t h e
c o u r s e of h u s i n e s s . The p r e s e n t law i s t h e r e f o r e u n c e r t a i n .

64. The q u e s t i o n o f p o l i c y i s whetlier an i n s u r e d , b e h e

consumes o r b u s i n e s s m a n , s h o u l d b c e n t i t l e d t o p l e a d i g n o r a n c e
o f a f a c t w h i c h h e d o e s n o t know b u t which h e o u g h t t o know.
Under o u r p r o p o s a l s t h i s q u e s t i o n i s r e s o l v e d by a t t r i b u t i n g
t o t h e i n s u r e d n o t only knowledge of t h e facts v h i c h h e does
know b u t a l s o knowledge o f t h e f a c t s wh i ch a r e a s o n a b l e man i n
h i s c i r c u m s t a n c e s o u g h t t o know. The a d v a n t a g e o f t h i s t e s t
i s s i m i l a r t o t h a t o f o u r t e s t f o r w h e t h e r t h e r e has b c e q a
b r e a c h o f d u t y ; by t a k i n g t h e p a r t i c u l a r c i r c u m s t a n c e s of t h e
p a r t i c u l a r i n s u r e d i n t o a c c o u n t t h e c o u r t would b e e n a b l e d t o
determine t h c scope o f c o n s t r u c t i v e knovledge t o be a t t r i b u t e d
t o h im by r e f e r e n c e t o w h e t h e r , i n t e r a l i a , h e i s a consumer
or a b u s i n e s s m a n . This f l e x i b i l i t y ensures t h a t i n j u s t i c e i s
u n l i k e l y t o r e s u l t f r o m t h e a p p l i c a t i o n o f t h e t e s t by t h e
courts.
(b) The d u t y of d i s = u r e w h e r e t h e r e i s a p r o p o s a l form
The u s e of p r o p o s a l f o r ms
65. I n s u r e r s h a v e t h r e e main t e c h n i q u e s f o r o b t a i n i n g
i n f o r m a t i o n e n a b l i n g them t o a s s e z s t h e r i s k . They may r c l y
on t h e i n s u r e d ' s d u t y t o d i s c l o s e m a t e r i a l f a c t s . However, i n
p r a c t i c e i n s u r e r s cio n o t o f t e r ? r e l y s e r e l y on t h e i n s u r e d ' s
duty t o volunteer information f o r t h i s purpose, despite the
h i g h s t a n d a r d o f d i s c l o s u r e r e q u i r e d by t h e p r e s e n t law. They
may t h e r e f o r e a l s o c a r r y o u t t h e i r own i n v e s t i g a t i o n s i n t o t h e
n a t u r e o f the r i s k , o r c a u s e s u c h i n v e s t i g a t i 0 n . s t o b e made on
t h e i r behalf. An ex amp l e i s t h e m e d i c a l e x a m i n a t i o n o f a l i f e
proposed t o b e insured. L z s t l y , and most i m p o r t a n t l y , t h e y
may ask t h e i n s u r e d q u e s t i o n s a b o u t h i m s e l f and a b o u t t h e
r i s k . This i s u s u a l l y done by r e q u i r i n g t h e i n s u r e d t o
c o m p l e t e and s i g n a p r o p o s a l form. I n t h e f o l l o w i n g
37
p a r a g r a p h s we s h a l l r e f e r t o v a r i o u s a r e a s o f d i f f i c u l t y i n
t h e p r e s e n t law and p u t forward o u i p r o v i s i o n a l recommendations
f o r reform.

The e x t e n t o f t h e d u t y
66. As y e have p o i n t e d out,’” i n s u r e r s g e n e r a l l y kncjw
f r o n e x p e r i e n c e what q u e s t i o n s t h e y r,eed t o ask i n o r d e r t o
o b t a i n j.nfuniiatic>n e n a b j i n z t h e m t n .?C:.CTC !:bi r i s k ? s-: t!:~
i n s u r e d i s l i k e l y t o a s s u n e t h a t h a v i n g answered t h e s e
q u e s t i o n s , n o f u r t h e r i n f o r m a t i o n i s r e q u i r e d t o be d i s c l o s e d
by him. h e v c r t h e l e s s , t h e , g e n e r a l r u l c o f t h e p r e s e n t law i s
t h a t i n t h e s e c i r c ~ m ~ t a n c et hs e i n s u r e d i s n o t r e l i e v e d o f h i s
d u t y o f d i s c l o s u r e . ‘12 Our view i s t h a t t h i s s t a t e of
a f f a i r s i s u n s a t i s f a c t o r y . Our p r o v i s i o n a l recommerdaticn i s
t h a t i f a p r o p o s a l form h a s been completed by t h e i n s u r c d ,
i n s u r e r s s h o u l d n o t be p e r m i t t e d t o s a y t h a t a f a c t o u t s i d e
t h c s c o p e o f t h e q u e s t i o n s asked i s a i n t c r i a l and ought
t h e r e f o r e t o have been d i s c l o s e d . I n s u r e r s s h o u i d b e t a k e n
t o have waived t h c d u t y G f d i s c i o s u r c i n r e g a r d t o t h a t f a c t .
1 n . o t h e r words, i f an i n s u r e d h a s completed a p r ” p o s a 1 form h e
s h o u l d b e r e l i e v e d o f any f u r t h e r d u t y of d i s c l o s u r e , s u b j e c t
t o a r e s i d u a l d u t y d i s c u s s e d below,”‘ not d e l i b e r a t e l y t o

The n a t u r e o f t h e d u t y
67. E a r l i e r 1 1 4 we r e a c h e d t h e p r o v i s i o n a l c o n c l u s i m
t h a t good f a i t h on t h e p a r t o f t h e i n s u r e d s h o u l d remain a
i o n l e r s t o n e o i our la:.~ o f insurance and a c c o r d i n g l y t n a t r h e
i n s u r e d ’ s d u t y o f d i s c l o s u r e s h o u l d be r e t a i n e d . I t f o l l o w s
t h a t where t h e r e i s a p r o p o s a l fora1 t h e i n s u r e d s h o u l d i n O U T
view p r i m a f a c i c o n l y b e c o n s i d e r e d t o have d i s c h a r g e d h i s
d u t y of d i s c l o s u r e i f h c s u p p l i e s c o s p l e t e 2nd a c c u r a t e
answers t o t h e m a t e r i a l q u e s t i o n s asked. C o n v e r s e l y , we

111 See p a r a . 45, above.

112 Although a w a i v e r of t h e m a t e r i a l i t y o f f a c t s a s t o
which no q u e s t i o n s have been asked m a j j sometimes be
i n f e r r e d : s e e p a r a . 3 2 , above.
113 See p a r a . ? 3 , belcw.
114 See p a r a s . 4 4 - 5 1 , above.
38
 ,

c o n s i d e r t h a t i f he f a i l s t o s u p p l y c o m p l e t e and a c c u r a t e
a 1 sw e r s t o t h e m a t e r i a l q u e s t i o n s i n t h e p r o p o s a i form !:e
s h o u l d p r i m a f a c i e b e c o n s i d c r c d a s b e i n g i n b r c a c h o f his
d u t y of d i s c l o s u r e , w i t h t h e r e s u i t t h a t t h e i n s u r a r will b e
e n t i t l e d t o r e p u d i a t e t h e p o l i c y an d r e j e c t an y c l a i m . \\re
t h i n k r h a t rlie i n s u r e d s h o u l d b e made av3re of t h e s e r i o u s
c o n s e q u e n c e s € o r h i m c f any f a i l u r e t o comply wi.th th.e d u t y
n f d j . s i : i i i s u r e : our p r n v i s i c i 1 1 2 j . T ~ i ~ ~ n l n ! ~ ~ i ~ ; i ir.;!:
i rl !i ~
ipp=fn~~
t h a t t h e p r o p o s a l form s h o u l d c a r r y a n o t i c e t o t h e i n s u r e d
explaining t o h i m h i s d u t y o f d i s c l o s u r e and w a r n i n g him o f
t h e c o c s e q u e n c e s of any F a i l u r e t o comply w i t h i t .

P r e s u m p t i o n o f m a t e r i a l i t y o f q u e s t i o n s i n a p r o p o s a l form
0 8. l h e q u e s t i o n s a s k e d by i n s u r e r s on a p r o p o s a l form
will g e n e r a l l y c o n c e r n f a c t s wh i ch a r e m a t e r i a l t o t h e r i s k
i n t h e s e n s e t h a t t h e a n s w e r s would i n i l u e n c e t h e judgm e nt o f
t h e p r u d e n t i n s u r e r a s t o wl;ether t o a c c e p t t h e r i s k and i f
s o a t w h a t premium. In order t o give e f f e c t t o t h i s general
p r o p o s i t i o n we p r o v i s i o n a l l y r e c o m w n ? t h s t t h c r e s!?.ould b e B
p r e s u m p t i o n t h a t q u e s t i o n s i n p r o p o s a l forins a r d t h e mr-wers .
t o them a r e m t e r i a l , w i t h tlic c o n s e q u c n c c s concerning t h e
i n s u r e d ' s d u t y o f d i s c l o s u r e t o wh i ch we r e f e r r e d i n t h e
p r c v i c u s pirn,nrap!:. I!e!:'zver, t h i s z h n ~ l l r l ir. c ~ virtw r only be
a p r e s u m p t i o n , s i n c e p r o p o s a l forms a l s o s o met im e s i n c l u d e
q u e s t i o n s whose m a t e r i a l i t y i s by n o means s e l f e v i d e n t . We
a c c o r d i n g l y recommend t h a t t h e i n s u r e d s h o u l d b e a b l e t o r e b u t
t h i s p r e s u m p t i o n by p r o v i n g t h a t t h e q u e s t i o n r e l a t e d t o a
f a c to l ..-. .: r i i i c i i xcluld not. h a v e i i i z j ~ : i i c . . . < tiic j ~ G g z e n i . of
L ~ , . ~i b

a p r u d e n t i n s u r e r i n a c c e p t i n g tht. r i s k o r f i x i n g t h e
115
p remi am.

115 Or t h a t t h e d i s c l o s u r e o f t h e f a c t coiilcl n o t 1awfLilly

h a v e b e e n r e q u i r e d by t h e i n s u r e r s : s e e t h e
R e h a b i l i t a t i o n o f O f f e n d e r s A i t l97-1, s.4::) (a) and
Re n o l d 5 v . P h o e n i x A s s u r a n c e Co. L t d . [ 1 9 i 8 ] 2
*Rep. 2 2 ( C . A . 2 ; s e e a l s o Reynolcis v . P h o e n i x
A s s u r a n c e Co. L t d . i i 9 i 8 j 5 L i o y d ' s k?.4 4 0 , J O 1 -
4 6 2 per F o r b e s J . ; o r t h a t t h e f a c t r e q u i r e d t o b e
d i s c l o s e d c o u l d n o t l a w € u l l y h av e been t a k e n i n t o
a c c o u n t b y t h e i n s u r e r s : s e e t h e Sex D i s c r i m i n a t i o n
A c t 1 9 7 5 , s.23 and t h e R i ce Re1atio:is .4ct 1 9 7 6 , s . 2 0
39
Type o f a n sw er r e q u i r e d from t h e i n s u r e d
G9. We h a v c s e e n ' l b t h a t w i d e r t h e p r e s e n t la w t h e
c o u r t s s o m c t i mcs c o n s t r u e c e r t a i n q u e s t i o n s wliicli a r e
a p p a r e n t l y f a c t u a l as a s k i n g f o r t h e i n s u r e d ' s o p i n i o n o n l y .
T h i s c o n s t s u c t i o n i s u s u a l l y a d o p t e d i f t h e s u b j e c t - m a t t e r 31
t h e q u e s t i o n i s a f a c t rrrliicli t h c i n s u r e d c a n n o t 1-e a sona bly b e
e x p e c t e d e i t h e r t o know 0 1 t o h a w t h e iiieans o f knowing. An
C-yzF-1'
'--- :.q:ould 5.2 the .;u.?sticn ZT. 2 Ff.zpzs.l fpjya fz:- I i f z
1 2
i n s u s a r i c c : "k!ave you any Such a q u c s t i o n i s
c l e a r l y n o t c a p a b l c o f Leir.g an s wer ed w i t h f a c t u a l a c c u r a c y .

70. We d o n o t i n t e x d t h a t a n i n s u r e d s h o u l d 5 c o b l i g e d
t o g i v e an o b j e c t i v e l y a c c i i r a t c an s wer t o e v e r y q u c s t i o n ofi a
p r o p o s a l f o r m ,aid t h a t t h e i n s u r e r s h o u l d h a v c t h e r i g h t t o
r c p u d i a t e t h e p o l i c y an d t o r e j e c t axy claim f o r :in a nsw e r
w h i c h , a l t h o u g h t r u e t o t h e b e s t o f t h e i n s u r e d ' s knowledge
and b e l i e f , i s i n f a c t i n a c c u r a t e . Wc b e l i e v e t h a t s u c h a
r e s u l t would b e u n d u l y o n e r o u s on t h e i n s u r e d . Our
p r o v i s i o n a l recommendation i s t h c r e r o r e t h a t i f t h c i n s u r e d
c a n p r o v e t h a t h e h a s an s wer ed a m a t e r i a l q u e s t i o n i n a
p r o p o s a l form t o t h e b e s t o f h i s knowledge axd b e l i e f , h w i n g
c a r r i e d o u t a l l t h o s e e n q u i r i e s wh i ch a r e a s o n a b l e man i n h i s
c i r c u m s t a n c e s would h a v e c a r r i e d o u t : h e s h o u l d h e c o n s i d e r e d
to have d i s c h a r g e d h i s d u t y of d i s c l o s u r e n o t v i t h s t a n d i n g
t h a t t h e ansvcr i s i n f a c t i n a c c u r a t e .

Our p r o v i s i o n a l recommendation i s f o r m u l a t e d i n
t e r m s o f t h e i n s u r e d ' s a c t u a l and c o n s t r u c t i v e knowledge f o r
t h e f o l l o w i n g r e a s o n . An i n s u r e d oug!it n o t t o be a b l e t o
p l e a d i g n o r a n c e o f a f a c t wh i ch h e e i t h e r knows o r w hic h i s
r e a s o n a b l y a s c e r t a i n a b l e b y him. On t h e o t h e r h a n d , h e ought
n o t t o b e c o n s i d e r e d t o be i n b r e a c h of h i s d u t y of d i s c l o s u r e
i f he f a i l s t o d i s c l o s e a f a c t wh i ch h e d o e s n o t know and
w h i c h i s n o t r e a s o n a b l y a s c e r t a i n a b l e by him.

116 S e e p a r a . 3 1 , above.
117 T h i s q u e s t i o n was g i v e n as an exa m ple b y F l e t c h e r
Moulton L . J . i n J o e l v . La\< Union and Crown [1908]
2 K.B. 863 a t 8 8 5 .
40
\(hat iS a p r o p o s a l form?
71. Ice h a v e s o f a r b een u s i n g c h e tcrm " p r o p o s a i forin"
loose-ly t o r e f e r t o a i c r i t t e n docunient i n u h i c h t l i c i n s u r c d
i s a s k e d q u e s t i o n s zibo'clt. h i i n s c l i and about t h c r i s k . I t i s
however n c c e s s a r y , f o r t h e p u r p o s e o f o u r reconimendation as
t o t h c i n s u r e d ' s d u t y o f d i s c l o s u r c , t.0 p r o v i d e a more
p r e c i s e d e f i n i t i o n o f a proposai form. I n decirli.ng w h e t h e r R
k T i t t G Iu"Cur,,rrlL
,
.1.-s.r.>.-,..* . s ;.* ijy"i~;j;"~ EGi.i,i, ;Ilc LGiiy;
i 3:10;iA ;ia.vc
r e g a r d t o t h e document a s a w h o l e . I n OUT v i e w , t h e t e s t
s h o u l d b e w h e t h e r t h e document i s s u c h a s t o l e a d a
r e a s o n a b l e mar, t o s u p p o s e t h a t no f u r t h e r i n f o r m a t i o n i s
r e q u i r e d t o b e d i s c l o s e d by him. In o r d e r t o apply t h i s t e s t ,
the c o u r t will look a t t h e q u e s t i o n s . I f d e t a i l e d q u e s t i o n s
a r e a s k e d o f t h e t y p e u s u a l l y a s k e d by i n s u r e r s f o r t h e
p u r p o s e o f d e c i d i n g ~ i h e t h c rt o a c c c p t t h c r i s k and w h a t
premium t o c h a r g c and i f t h e y a p p e a r t o h e compre!:ensive, w e
would e x p e c t t h e c o u r t t o ho1.d t h a t t h e documcnt i s a
p r o p o s a l form. The c o u r t wau l d n o t b e bound b y a ny s t a t e m e n t
i n t h e docunient by t h e i n s u r e r , s u c h a s a s t a t e m e n t t h a t
" T h i s document i s n o t a p r o p o s a l form" o r t h a t "The q u e s t i o n s
a s k e d i n t h i s docuincnt a r e n o t i n t e n d e d t o b e c o m p r e l i e n s i v e . "

The e ? ; l i c a t i c n o f t!iis t e s t would n e t o f cclirsc

p r e c l u d e t h e c o u r t from d e c i d i n g t h a t t h e r e had b e e n a w a i v e r
of f u r t h e r d i s c l o s u r e i n a l l t h e circumstances of p a r t i c u l a r
c a s e s i n which no p r o p o s a l form had been completed.

D i f f i c u l t i e s w i t h o u r reco_mmendatians
72. T h e r e a r e two p o s s i b l e d i f f i c u l t i e s w i t h t h e a b o v e
schemc. One i s t h a t t h e i n s u r e d wo u l d b e a b l e w i t h i m p u n i t y
t o mislead t h e i n s u r e r by d e l i b e r a t e l y c o n c e a l i n g i n f o r m a t i o n
which h e k n 3 m t o h e m t e r i a l t o t h e r i s k b u t w h i c h i s
s u f f i c i e n t l y u n u s u a l i n i t s n a t u r e n o t t o b e c o v e r e d by a ny
q u e s t i o n i n t h e p r o p o s a l form. The o t h e r i s t h a t i n s u r e r s
would t e n d t o ask a " g e n e r a l q u e s t j o n " s u c h as "Are t h e r e
any f a c t s w h i c h y o u , as a r e a s o n k b l e i n s u r e d , c o n s i d e r w ould
i n f l u e n c e t h e judgment o f a p r u d e n t i n s u r e r i n a c c e p t i n g
41
 t h e r i s k o r i i i f i x i n g t h e premium?” Such a q u e s t i o r ! v;ou!d, in
e i f e c t r c - i n t r o d u c e t h e g e n e r a l d u t y of d i s c l o s u r e t h r o u g h
t h e b a c k - d o o r , t h e r e b y f r u s t r a t i n g t h e o b j e c t of o u r p r o p o s a i s .
!Ve d e a l wit!i t h e s e d i f f i c u l t i c s i n t h e fo1lo;iing p a r a g r a p h s .

l h e r e s i d u a l dirty of d i s c l o s u r e
‘II J
T . I,[<
111 ~ ~ ;hca f ti i - s t d i i - l ’ i c u l i y c a n b e mot b y
c o n s i L k r &’-
i m p o s i n g a r e s i c i u a i ducy 0x1 tiic i n s u r e d n o t d c 1 i b e r a t c i . y t o
c o n c e a l f a c t - s wh i ch h e knows t o b e m a t e r i a l 2nd o f which h e
h a s a c t u a l knowledge. Far example, i f 3 farmer has r e c e i v e d a
t h r e a t t o b u r n down h i s o u t - b u i l d i n g s iroiil a d i s g i - m t l e d ex-
eiriployee whom lie h a d d i s m i s s e d he s h o u l d be u n d e r a d u t y t o
d i s c l o s e t h i s f a c t i f he a p p l i e s f o r f i r e i n s u r r - l c c on t h e
o u t b u i l d i n g s e v e n i f t h e f a c t i s o u t s i d e t h e a m bit o f a l l t h e
q u e s t i o n s a s k e d i n t h e p r o p o s a l form. Iri t h e e v e n t o f a
b r e a c h of t h i s d u t y by t h e i n s u r e d , t h e i n s u r e r s h o u l d be
e n t i t l e d t o r e p u d i a t e t h e p o l i c y and r e j e c t any c l a i m t h a t
h a s a r i s e n . T h i s wnuld g i v e a r e s i d u a l , h u t n e c e s s . - r y ,
p r o t e c t i o n t o t h e i n s u r e r . A c o r o l l a r y of i m p o s i n g t h i s
r e s i d u a l d u t y on t h r i r . s u r c d i s t h n t zn i n s n r e r should. b e
r e q u i r e d t o g i v e c l e a r a n d p r o n i n e n t n o t i c e of t h i s d u t y i n
thC F r O F C S 3 ~ f C T 3 32d t n !“lZl t h ? i n s u r e d cf t h e C ~ E S ’ 2 ~ L ’ ? ? I C 5 ’ 5
o f b re a c h.

“General quest ions“

74. With r e g a r d t o t h e s e c o n d d i f f i c u l t y , i n s u r e r s
shouici riot bc c r l i i t i e d t.0 a s k il qucs:iarl U:; the i i i l e s o r 2 i c
“ g e n e r a l q u e s t i o n ” m e n t i o n e d i n p a r a g r a p h 7 2 . .4n i n s u r e d
s h o u l d b e e x t i t l e d t o i g n o r e any s u c h q u e s t i o n and i n s u r e r s
s h o u l d b e d e p r i v e d o f an y remedy i n r e s p e c t o f f a l s e
i n f o r m a t i o n s u p p l i e d i n an s wer to a ny s u c h q u e s t i o n .
However, t h e y s h o u l d be e n t i t l e d t o a s k s p e c i f i c q u e s t i o n s on
any t o p i c s wh i ch t h e y r e g a r d a s m a t e r i a l , a l t h o u g h we r e a l i s e
t h a t proposal forms may a s a cofisequence become l o n g e r . F o r
i n s t a n c e , i t i s q u i t e l i k e l y t h a t i n s u r e r s would i n t h a t
e v e n t ask q u e s t i o n s as t o facts a f f e c t i n g “ m o r a l h a z a r d ”
w h i c h h a v e b e e n h e l d by t h e c e u r t s t o b e n a t e r i a l . A lthough
such q u e s t i o n s may b e r e g a r d e d a s an i n t r u s i o n i n t o an
42
i n s u r e d ' s p r i v a c y , we c o n s i d e r t h a t f r o m h i s owi p o i n t o f vie w
i t would be l e s s o b j e c t i o n a b l e t o b e askcci q u e s t i o n s as t o
s u c h f a c t s t h a n t o h a v e t h em r a i s e d : . a t e r a s t h e b a s i s f o r a
& i e n c e of n o n - J i s c l u s u r e when a c l a i m i s made.

P r a ct i c a 1 e f i e c t s o f OUT p r o v <.s i on a I r c con!mecci %?t i c:?-

s
75. A t f i r s t s i g h t i t niig!it b e tho:ight t h a t t h e r e s u l t
o f our r c c o K i x n d a t i o i i s igoulcl he T O l e ~ di.nsL!rers T C ) .rite 1 . e ~ ~
use sf p r o p o s a i forms and t o p l a c e g r e s t e r r e 1 i r ; n c e on t h e
i n s u r e d ' s d u t y of d i s c l o s u r e on t h e g r o u n d t h a t t h e y w o u l d
o t h e r w i s e run t h e r i s k o f o m i t t i n g i m p o r t a n t and m a t e r i a l
q u e s t i o n s from t h e p r o p o s a l f o r m. Iioweve.r, i t s e e r s t o us
u n l i k e l y t h a t t h i s w o u l d h ap p en . Before g r a n t i n g cover,
insurers are primarily i n t e r e s t e d i n obtaining t h e information
t h a t w i l l e n a b l e them t o d e c i d e w h e t h e r t o a c c e p t tile r i s k
a n d , i f s o , a t w h a t premium; t h e y a r e n o t i n t e r e s t e d i n
r e l y i n g on t h e i n s u r e d t o p r o v i d e t h i s i n f o r m a t i o n i n o r d e r t o
l a y t h e f o u n d a t i o n f o r a p o s s i b l e f u t u r e r e p u d i a t i o n or' t h e
p o l i c y if he h a s f a i l g d t o v o l u n t e e r i t . For t h i s rcason t h e y
u s e p r o p o s a l f o r m s i n r e l a t i o n t o many t y p e s o f r i s k . In
a d d i t i o n i t i s , m d w i l l w e t h i n k c c j n t i n a e t o Le,
a d m i n i s t r a t i v e l y c o n v e n i e n t f o r thcm t o d o s o . I n d e e d ,
propcrsnl forms Fa;' become 3. C Y C I : x r c cttr:cti-x mearis oi
obtaining material information i n t h e l i g h t o f our e a r l i e r
p r o v i s i o n a l recomrr.endation118 t h a t t h e s t a n d a r d o f d i s c l o s u r e
r e q u i r e d of t h e irisui-ed wh er e t h e r e i s n o p r o p o s a l form s h o u l d
become less s t r i n g e n t t h a n u n d e r t h e p r e s e n t law.119 Comments
a - e iiiv i i d.

C o n s t r u c t i o n o f a m b i g u o u s : e s t i o n s i n t h e p r o p o s a l form
76. T h e r e i s one a s p e c t o f t h e p r e s e n t la w w hic h i s
a r g u a b l y c a p a b l e of p r o d g c i n c i n j u s t i c e . I t a r i s e s whcr. an
i n s u r e d m i s u n d e r s t a n d s a q u e s t i o n i n t h e p r o p o s a l form and
answers i t c o r r e c t l y a c c o r d i n g t o h i s u n d e r s t a n d i n g o f i t b u t
i n c o r r e c t l y a c c o r d i n 2 t o i t s o r d i n a r y an d n a t u r a l meaning.

118 A t para. 6 0 , ab o v e.
119 S e e p a r a s . 2 3 - 2 4 , ab o v e.
43
We t h i n k t h a t t h e p a s s i b i l i t y of s u c h i n j u s t i c e a r i s i n g vou1:l
b e r e d u c e d by an e x t e n s i o n o f t h c c o n t r i p r o f e r e n t e m r u l e of
c o n s t r u c t i o n t o t h e w o r d i n g o f q u e s t i o n s i n a p r o p o s a l form.
T h i s i s a r u l e t h a t a document p r c p a r c d by an i n s u r e r s h o u l d
b e c o n s t r u e d s t r i c t i y a g a i n s t him. Under t i l e e x i s t i n g
t h i s r u l e only a p p l i e s t o t h e wording o f a p o l i c y c r o t h e r
c m t r a c t u a : ' . docuiilent. 1i-i oiii- view t h i s c o i i s i d e i - a t i o i t i s
a q u a i l y a p p i i c a b l e t o q u e s t i o n s i n p r o p o s a l form s. A c c o r d i n g l y
w e p r o v i s i o n a l l y recommend t h a t wh ere a q u e s t i o n m i g h t
r e a s o n a b l y b e u n d e r s t o o d i n two s e n s e s , one f i v o u r a b l e t o t h e
i n s u r e r and t h e r j t h e r f a v o u r a b l e t o t h e i n s u r e d , t h e c o u r t
o u g h t always t o c o n s t r u e i t i n t h e l a t t e r s e n s e . I t w i l l b e
s e e n t h a t t h i s c o n s t i t u t e s a d e p a r t u r e from t h e p r e s e n t law'' 2 1
u n d e r w h i c h t h e c o u r t must p l s c e a f a i r and r e a s o n a b l e
i n t e r p r e t a t i o n on an ambiguous q u e s t i o n , e v e n i f i t i s n o t
t h a t most f a v o u r a b l e t o t h e i r s u r e d .

The i n s u r e d ' s e n t i t l e m e n t t o a copy o f t h e prc9posaal form

77. F o r r e a s o n s wh i ch a r e m e n t i o n e d l a t e r , l Z 2 we
p r c v i s i o n a l l y rccommend t h a t t h e i n s u r c ? . shou?<c! S c c n t i t l c ? . :s
r e c e i v e a copy o f t h e c o m p l e t e d p r o p o s a l form w i t h i r ? a
ressmal-le time of i t s s u b n i s s i c n t o i n s u r e r s .

(c) "Basis o f t h e c o n t r a c t " c l a u s e s

(1) The p r e s e n t l aw

78. Today ar. i n s u r e d i s a l m o s t i n v a r i a b l y r e q u i r e d t o

make a n d s i g n a d e c l a r a t i o n i n t h e p r o p o s a l form w h e r e i n h e
w a r r a n t s t h e t r u t h o f h i s a n s w e r s t o t h e q u e s t i o n s a s k e d by
i n s u r e r s o r s g r e e s t h a t t h e y are t o b e t h e b a s i s of t h e
contract o f insurance o r t h a t t h e i r t r u t h i s s condition
p r e c e d e n t t o t h e v a l i d i t y o f t h e c o n t r a c t . Sometimes t h e

120 See p a r a . 1 0 5 , b el o w.
121 As t o wh i ch see p a r a . 3 3 , ab o ve .
122 S e e p a r a . 1 1 8 , b el o w. T h i s recommendation i s a l s o
r e l e v a n t t o t h e t o p i c o f r e n e w a l : see p a r a . 8 9 , be low .

44
l J r o p o s e r i s r e q u i r e d t o make a l l t h r e e d e c l a r a t i c n s , o r
v a r i a t i o n s 3f thea:. A l t e r i i a t i v c l y t h e p o l . i c y may i n c o r p o r a t c
t h e s t . a t e m e n t s i n t h e p r c p o s a l f o r m by r e f e r e n c e o r p r o v i d e
t h a t i f a n y s t a t e m e n t i n tilc p r o p o s a l f o r m i s u i t r u e , t h e
p o l i c y will b e void.'" F o r t h e s a k e o f c o n v e n i e n c e we s h 2 1 1
r c f e r t o u n d e r t a k i n g s of t h e k i n d j u s t d e s c r i b e d a s " b a s i s o f
tlic c o n t r a c t " c l a u s e s .

79. The u s e o f " b z s i s cf t h e c o n t r a c t " c l E u s e s a p p e a r s

t o h a v e b e g u n i n t h e 19th c e n t u r y f o r t h e p u r p o s e o f making
it c l e a r t o p r o p o s e r s t h a t t h e i n i c r m a t i o n rer,uired o f t h e n
by t h e p r o p o s a l form was r e g a r d e d as v e r y i m p o r t a n t by
insurers. However, , , i n s u r e r s s o o n f o u n d t.liat t h e r e was
a l s o an i m p o r t a i t l e g a l a d v a n t a g e i n u s i n g t.hem: s i n c e t h e
e f f e c t o f a " b a s i s of t h e c o n t r a c t " c l a u s e i s t o e l e v a t e a l l
t h e s t a t e m e n t s by t h c i n s u r e d i n t h e p r o p n s a l form i n t o
" w a r r a n t i e s " , i n s u r e r s t h e r e b y a v o i d e d t h e n e c e s s i t y a nd
d i f f i c u l t y of p r o v i n g t o t h e s a t i s f a c t i o n o f t h e C O U i t t h s t
an i n a c c u r a t e answer i n a p r o p o s a l f o r m r e l a t e d t o a :act
w h ic h was m a t e r i a l t o t h e r i s k . 1 2 5 T h i s was p o i n t e d o u t i n
Thomson v. IVeems: "When t h e t r u t h o f a p a r t i c u l a r
s t a t e m e n t h a s b e e n made t h e s u b j e c t of w a r r a n t y , n o q u e s t i o n
can a r i s e a s t o i t s m a t e r i a l i t y o r i m m a t e r i a l i t y t o t h e r i s k ,
it b e i n g t h e v e r y p u r p 3 s e of t h e w a r r a n t y t o e x c l u d e a i l

123 Sce E v e r e t t v . &borough ( 1 8 2 9 ) 5 B i ng. 503; 130

E.K. 1155 and An d er s o n v . E t z g e r a l d (1853) 4 K . L .
Cas. 484; 10 E . R . 5 5 1 f o r e x a m p l e s .
i24 Sec R . A . Hasson "Tnc ' b a s i s o f he c o i l t r a c t ' c l z u s e
i n i n s u r a n c e 1 ~ w "(1971) 34 M . L . R . 29, 38.
125 S e e M a c G i l l i v r a y & P a r k i n g t o n on I n s u r a n c e L a w ( 6 t h
ed.. 1975) c h an . 10. a a r a . 829; s e e a l s o p a r a s . 9 9 and
115; b e l o w as to w a r r k n t i e s .
126 ( i S 5 1 ) 9 App. Cas. 6 7 1 .

45
con t r o v e rs y up on t h a t po i n t " . I n t h e eveiit O F C I : ~breach
of s u c h w a r r a ? t y +!ie i n s u r e r i s e n t i t l e d t o r e p Q d i a t e t h e
p o l i c y i d i t h r e t r o s p e c t i v c e f f e c t , s o t h a t he icas lievei. a t
r i s k u n d e r i t ; h e may a c c o r d i n g l y r e j e c t any c l a i m s c v e n i n
respect cf l c s s c s i;l:ick ~ e c u l - r c c l2 r i o i - t n h i s d i s c o v e r y o i
t h e b r e a c h . Even i f t h e f a c t w a r r a n t e d was q u i t e i m m a t e r i a l
t n t!ie r i s k ; e v e n ii t!ie ~ T C Z C ! : d i d :ict ciiusc 07 c c n t r i b u t e
t o t h e l o s s ; .rnd even i f t h e s t s t c m c i l t i n t h c p i o p o s a l iorm
was made h o n e s t l y and c a r e f u l l y and was t r u e t o t h e b e s t of
t h e i n s u r e d ' s knowlcdgc a n d b e l i e f , 1 2 8 t h e i r i s u i e r becoi~ies
e n t i t l e d t c invoke t h e s e d r a s t i c rcmcdies.

(2) C r i t i c i s m s o f t h e p r e s e n t law
80. The c o n v e r s i o n c f a n s w e r s t o q u e s t i m s i n a
p r o p o s a l f o r m from mere r e p r e s e n t a t i o n s t u " w a r r a n t i e s " by
" b a s i s of t h e c o n t r a c t " c l m s e s hns a t t r a c t e d n g r e a t . d e a l
of judicial criticism. I n Joel v . Law ilnion a n d Crown
I n s u r a n c e Co. 12' F l e t c h e r Moulton L . < J . s a i d :

" I n s u r e r s a r e t h u s i n t h e h i g h l y favoiirable
p o s i t i o n t h a t t i i ey a r e e n e i t l e d n o t o n l y t o
b o n a i i d e s on t h e p a r t o f t h e a p p l i c a n t , h u t
a l s o t n f u l l d i s c l o s u r e o f a l l k?owlcdge
p o s s e s s e d b y Liie a p p i i c n n t tiiai: is m a r e r i a l
t o t h e r i s k . Ar.d i n my o p i n i o n t h e y w c u l d
h a v e b e e n wise i f t h e y had c o n t e n t e d
themselves w i t h t h i s . UnfortunaEely t h e
d e s i r e t o make t h c m s e l v e s d o u b l y s e c u r e h a s
made them d e p a r t w i d e l y from t h i s p o s i t i o n
by r e q u i r i n g t h e a s s u r e d t o a g r e e t h a t t h e
sccur::c;', 2s *;;cl? 2~ tk: 5 ~ 2 2f:::~, cf h i s
a n s w e r t o v a r i o u s q u e s t i o n s p u t t o him b y
them o r on t h e i r b e h a l f s h a l l b e a c o n d i t i o n
of t h e v a l i d i t y cjf t h e p o l i c y ... I wish I
cou1.d a d e q u a t e l y war n t h e p u b l i c a g a i n s t
s u c h p r a c t i c e s r,n t h e p a r t o f t h e i ~ s u r s n c e
oifices.tt130

127 w.,a t 6 8 9 per Lo r d W i t s c n .

128 S e e g s n e r a l l y M a c C i l l i v r a v 8 P a r k i n t o n on I-nsura nc e
Law (Gth e d . , W j ) c f i a p . l O , c s p . $ a r x . 535-638
811-912.
129 [1908] 2 K.B. 863.
130 Ibid., a t 885.
46
I n lrlackay V. London G c n e r a l I n s u r a n c e Co.131 S w i f t J. s a i d ,
when g i v i n g judgment f o r t h e i n s u r e r b e c a u s e o f an i n c o r r e c t ,
but i m m a t e r i a l , answer t o a q u e s t i o n where t h e p o l i c y
c o n t a i n e d a “ b a s i s of t i e c o n t r a c t ’ ’ c l a i i s e :

“ I t h i n k he [ t h e i n s u r e d ] h a s b e e n v e r y b a d l y
t r e a t e d - s i i o c k i n g l y b a i i i y t i - e a t e d , ‘Ihey
[ t h e i i i s u r c r s ] h a v e t a k e n h i s premium. They
h a v e n o t b e e n i n t h e l e a s t b i t Tislec! h y t h e
aiSWe1;b w i l i c i i l i e i i a d riintic:.!!132

I n Glicksman v. L a n c a s h i r e & G e n e r a l A s s u r a n c e Co. L t d . 153

Lord Wrenbury s a i d , when g i v i n g judgment f o r t h e i n s u r e r s i n
similar circumstances :

“1 t h i n k i t a mean and c o n t e m p t i b l e p o l i c y on
t h e p a r t o f an i n s u r a i i c e company t h a t i t
s h o u l d t a k e t h e premiums a n d t h e n r e f u s e t o
p a y upon a g r o u n d which n o one s a y s was r e a l l y
m a t e r i a l . H e r e , upon p u r e l y t e c h n i c a l
grounds, t h e y , having i n p o i n t of f a c t n o t
b e e n d e c e i v e d i n any m a t e r i a l p a r t j c u l a r ,
a v a i l t h e m s e l v e s of w h a t seems t o me t h e
contemptible defence t h a t although they have
t a k e n t ~ ~ j y r e ~ i u mt hse ,y a r c p r o t e c t e d f r o m
pzying.
Such c l a u s e s h a v e a l s o b e e n j u d i c i a l l y d e s c r i b e d a s b e i n g
for t h e i n s u r e d a i d i n one case136 t h e c o u r t t o o k
t h e view t h a t a s t r i c t c o n s t r u c t i o n of s u c h a c l a u s e
r e n d e r e d t h e “ p o l i c y [ i n which it v a s c o n t a i n e d ] , .. not
w o r t h t h e p a p e r upon which i t was and l i a b l e t o

131 (1935) 5 1 L 1 . L . K . 201.

132 -
I-- b i d . . 2f, 20.2.
133 [1927] A.C. 139.
134 Ibid., a t 144-145.
135 Z u r i c h I n s u r a n c e Co. v . S l o r r i s o n [1942] 1 A l l E . R .
5 2 9 , 5 3 7 per Lord Greene M.R.
136 Anderson v. F i t z g e r a l d ( 1 8 5 3 ) 4 K . L . Cas. 4 8 4 ; 10
E.K. 551.
137 -
I b i d . , a t (1S53) 4 H . L . Cas. 4 8 4 , 5 0 7 ; 10 E . R . 5 5 1 ,
560 per L o r d St.. L e o n a r d s .

47
p r o d u c e a r e s u l t wh er eb y "no p r u d e n t n!an [would] e f f e c t a
p o l i c y of i a s u r a n c e wi;h a n y Company w i t h o u t h a v i n g an
a t t o r n e y a t h i s elbolr. t o t e l l him w ha t t h e t r u e c o n s t r u c t i o n
o f t h c d o c u l r ~ e ~j s~ "t . 132

81.. E x t r a - j ~ d i c i a lc r i t i c i s a l oi "basis of t h e contracr':

c l a u s e s h a s f o c u s s e d on t u o f e a t u r e s . T h e f i r s t i s t h a t
t h e y g i v e I.r?surers t h e r i g h t tc repudiate f o i what i\iould
otherwise be n c z - i r n n d u l c n t i m n a t e i i n l ilii.srepreseiltations.
The s e c o n d i s t h a t t h e y g i v e i n s u r e r s t h e r i g h t t o r e p u d i a t e
f o r s t a t e m e n t s which, although t r u e t o t h e b e s t o f t h e
i n s u r e d ' s knor\rlccl.ze and b e l i e f , a r e i n f a c t i n a c c i i r a t e ,.139
t h i s r e s u l t h a s beer. c o n s i d e r e d p a r t i c u l a r 1 . y d r a c o n i a n i n
r e l a t i o n t o p r o p o s a l forms f o r l i f e p o l i c i n s i n w hic h t h e
i n s u r e d is asked q u e s t i o n s about t h e s t a t e of h i s h e a l t h . 14c

82. We agree w i t h t h e s e c r i t i c i s m s . 1 4 1

( 3 ) Reform of t h c p r e s e n t law
The m i s c h i e f
83. I t i s c l e a r from t h e i o r c g o i r r g c r i t i c i s m s t h z t
" b a s i s of t h e c o n t r a c t " c l a u s e s c o n s t i t u t e a major m i s c h i e f
i n t h e p r e s e n t law. Th es e c l a u s e s , t n t h e e x t p c t thstr t!?ey
a p p l y t o s t a t e m e n t s o f p a s t and p r e s c n t f a c t i n a p r o p o s a l
form, seem t o us t o b e o b j e c t i o n a b l e on t h r e e main g r o u n d s .
F i r s t , they e n a b l e i r s u r e r s t o r c p u d i a t c t h e p o l i c y f o r an
i n a c c u r a t e s t a t e m e n t a s t o such a f a c t even though i t i s n o t

138 A n d e r s o n v . F F g e r a l d ( 1 8 5 3 ) 4 1I.L. Cas. 484, 514:

10 E . R . 5 5 1 , 5 6 3 ' ~Lo r d S t . L e o n a r d s .
139 S e e R . A . Hasson "The ' b a s i s o f t h e c o n t r a c t c l a u s e '
i n i n s u r a n c e ?c#" ( 1 0 7 1 ) 34 M . L . R . 2 9 ; C.H. T r e i t e l ,
The Law o f C o n t r a c t ( 4 t h e d . , 1975) p p . 2 6 4 - 2 6 5 ;
C h e s h i r e 8 FifoTt? L a w of C o n t r a c t ( 9 t h e d . , 1976)
p . 281.
140 S e e R . A . H a s s o n , s u p r a , a t 34-35.
\
1/11 See ~ 2 ~ 3106(b), . b e l o x f o r a f u r t h e r c r i t i c i s m of
"basis of the contract" clauses.

48
material t o thc risk. Secondly, they e n t i t l e i n s u r e r s t o
r e p u d i a t e t h e p o l i c j ~f o r an o b j e c t i v e l y i n n c c u r a t . e s t a t e m e n t
o f f a c t e v e n t h o u g h t h e i n s u r e d c o u l d riot r e a s o n a b l y b e
e x p e c t e d e i t h e r t o know o r t o ha-ix t h e mcans o f knowj.ng t h e
f a c t . T h i r d l y , t h e c l c v a t i o n i n t o w a r r a n t i c s of a l l s u c h
s t a t e m n t s by t h e i n s u r e d e n b l o c means t h a t , i f i n s u r e r s
can e s t a b l i s h m y i n a c c u r a c y , h o \ i e v c r t r i v i a l , i n any of t h e
st2f~me1lrs~ t h e y C R E c v r r r j c.e t h e i r r i g h t t ? r e p v d i . ~ +thp ~
p o l i c y , even t h o u g h t h c s t a t e m e n t was n o t m a t e r i a l t o t h e
r i s k and e v e n t h o u g h t h e s t a t e m c n t r e f e r r e d t o m a t t e r s
beyond t h e i n s u r e d ' s knorsledgc o r mealis o f k now le dge . Such
a r e p u d i a t i c n i s o f t e n r e f e r r e d t o a s an ex a m ple o f a
r e p u d i a t i o n on t e c h n i c a l g r o u n d s . 1 4 2

84. I n s u r e r s contend t h a t i n p r a c t i c e they only take

a d v a n t a g e o f " b a s i s of t h e c o n t r a c t " c l a u s e s t o r e p u d j a t e a
p o l i c y on t e c h n i c a l g r o u n d s wh er e r h c y s u s p c c t r r a u d w hic h
t h e y a r e u n a b l e t o p r o v e . However, i t i s i n o u r view
m s a t i s f a c t c r y f o r i n s u r e r s t o b e a b l e , on mere s u s p i c i o n ,
t o pre-empt t h e f u n c t i o n o f t h e c o u r t s . I t s h o u l d be f o r
t h e c o u r t s , and o n l y f o r t h e c o u r t s , t o make f i n d i n g s n f
f r a u d . 1 4 3 I: i s t o us q u i t e u n a c c e p t a b l c t h a t i n s u r e r s
s h o u l d i n e f f e c t i n many c a s e s h av e a d j s c r e t i o n t o r e p u d i a t e
t h e p o l i c y on t e c h n i c s 1 g r o u n d s ; t h e i r e n t i t l e m e n t i n this
r e g a r d s h o u l d d e p e n d on l a w , and n o t b e a m a t t e r of d i s c r e t i o i l .

85. The f i r s t g r o u n d o f o b j e c t i o n t o " b a s i s o f t h e

c o n t r a c t " c l a u s e s c o u l d b e m e t b y d e p r i v i n g the m of l e g a l
e f f e c t merely t o t h e e x t e n t t h a t they a r e capable of t u r n i n g
s t a t e m e n t s i n a p r o p o s a l f o r n wh i ch a r e n o t m a t e r i a l i n t o
'*warranties". T h i s s o l u t i o n wo u l d n o t h o weve r g o f a r eriough,
142 O t h e r examples o f s o - c a l l e d " t e c h n i c a l r e p u d i a t i o n s "
a r e g i v e n i n p a r a s . 1 2 0 - 1 2 1 , b el o w.
143 S e e Law Reform C o mmi t t ee, F i f t h R e p o r t ( 1 9 5 7 ) Cmnd.
6 2 , p a r a . 11; " A s p e c t s o f I n s u r a n c e Law" - a R e p o r t
o f t h e C o n t r a c t s and Comrnercial Law Reform Committee
of Kew Z e a l a n d ( 1 9 7 5 ) p s r a . 4 ; Issues P a p e r No. 2 o f
t h e Law Reform Commiss'lon o i A u s t r a l i a , I n s u r a n c e
C o n t r a c t s ( J u n e 1977) pp. 9 - 1 0 ,
49
s i n c e i t would n o t fully meet t h e two o t h e r o b j e c t i o n s t o
w h i c h we h a v e r e i e r r e d . E a r l i e r i n t h i s w o r k i n g i'cper 144
we s a i d t h a t i t mi g h t b e u n j u s t t o t h c i n s u r e d t o r e q u i r e
h i m t o g i v e o b j e c t i v e l y a c c u r n t c mswers t o q u e s t i o n s a; to
p a s t a n d p r e s e n t f a c t s wh i ch t i e r c o a t s i d e his knowledge o r
means of knowledge. We acco r d i n g 1 . y r e a c h e d t h e p r o v i s i o n a l
c o n c l u s i o n 1 4 5 t h a t such i n j u s t i c c c o u l d h e s t b e auoi.dqd b y
a p r o v i s i o n t h a t tile i n s u r e d s n o u i d b e rreriLed as iiaviilg
d i s c h a r g e d h i s d u t y o f d i s c l o s u r e i f Ire answers 2. q u e s t i o n
on a p r o p o s a l form t o t h e b e s t o f h i s know le dge and b e l i e f ,
h a v i n g c a r r i e d o u t a l l t h o s e e n q u i r i e s w hic h il r e a s o n a b l e
man i n h i s c i r c u m s t a n c e s would h a v e c a r r i e d o u t , r e g a r d l e s s
of w h e t h e r h i s a n s w e r i s i n f a c t i n a c c u r a t e . I n o u r view i t
w o u l d b e u n a c c e p t a b l e i f i n s u r c r s were a b l e t o c i r c u m v e n t
the protection thus afforded t o t h e insured by obtaining
from h i m , b y way o f a " b a s i s o f t h e c o n t r a c t " c l a u s e , a
w a r r a n t y a s t o t h e a c c u r a c y of a l l h i s a n s w e r s , and c o u l d
t h e n r e p u d i a t e t h e p o l i c y on t h e ground t h a t c n e s u c h
answer was i n a c c u r a t e i n c i r c u m s t a n c e s w he re t h e i n s u r e d ,
by complying w i t h o u r r e q u i r e m e n t s i n r e g a r d t o p r o p o s a l
f o r m s , h a s d i s c h a r g e d wh at w e h a v e recommended s h o u l d b e
146
h i s duty of d i s c l o s u r e .

Our p r o v i s i o n a l r eco mmen d at i o n

86. Accordingly, our p r o v i s i o n a i recormandation i s
t h a t "basis of t h e contract" clauses should be i n e f f e c t i v e
t o t h e e x t e n t t h a t t h e y p u r p o r t t o c r e a t e w a r r a n t i e s as t o
past or present fact.

--
144 S e e p a r a . 7 0 , above.
145 A t p a r a . 7 0 , ab o v e.
146 See paras. 66 and 7 0 , ab o v e.

50
--
Scope o f o u r p r o v i s i o n a l recoriiinendcition
s7. I t will b e s e e n t h a t t h e scope o f D c r p r o v i s i o n a l
recom.cndstion i s liniited t o t h e purported a p p l i c a t i o n of
" b a s i s 01 t h e c o n t r a c t " c l a u s e s t o s t a t e m e n t s a s t o p a s t o r
p r e s e n t f a c t a p p e a r i n g i n t h e p r o p o s a l form. I t is intended
i o p r e v c n t i n s u r e r s i r o n b e i n g a b l e t o t r e a t such statements
i n a p r o p o s a l f o r m a s t h o u g h t h e y were terms of t h e c o n t r a c t .
L hr L ~ rcsiilt
T o f t h i s p i - o v i s i i o i i ai ret:niiiiiier!fiatj o!! ??ken t n z e t h e r
w i t h o u r p r o v i s i o i i a i r eco mmen d at i o n s c o n c e r n i n g t h e i n s u r e d ' s
d u t y o f d i s c l o s u r e , 1 4 j will b e as f o l l o w s . I f an i n s u r e d
makes XI i n a c c u r a t ? s t a t e m e n t of p a s t o r p r e s e n t f a c t i n
axwer t o a m a t e r i a l q u r > t i o n i n a p r o p o s a i fon!i,wlien h e
e i t h e r knows t h e t r u t h o r c o u l d h a v e d i s c o v e r e d i t by making
r e a s o n a b l e e n q u i r i e s , he w i l l Lc i n b r e a c h o f h i s d u t y o f
d i s c l o s u r e and t h e i n s u r e r will b e c n t i t l e d t c r e p u d i a t e t h e
p o l i c y a n d r e j e c t any c l a i m . I f , h o w e v e r , d e s p i t e t h e
i n a c c u r a c y of h i s answer,it was t r u e t o t h c b e s t o f h i s
knowledge a n d b e l i e f h a v i n g c a r r i e d o u t a l l r c a s o n a b l e
e n q u i r i e s , t h e i n s u r e d will n o t 0: i!i b r e i c h o f h i s d u t y 3f
d i s c l o s u r e ; and i f t h e r e i s a " b a s i s o f t h e c o n t r a c t " c l a u s e
wh e r c b y h e h a s p u r p o r t e d t G i i a r r a n t thi: o b j e c t i v e a c c u r a c y
o f h i s answers i t w i l l b e i n e f f e c t i v e znd w i l l n o t e n t i t l e
t h e i n s u r e r t o r e p u d i a t e t h e p c l i r y i ~ rz bre:ch of a y SUC!~
p u r p o r t e d w a r ran t y.
We s h o u l d h o wev er make i t c l e a r t h a t . wr? do n o t
i n t e n d t o p r e v e n t i n s u r e r s f r o m o b t a i n i n g u n d e r t a k i n g s from
t h e i n s u r e d as t o t h e e x i s t e n c e o f past. 01- p r e q a n t f a c t s .
I f i n s u r e r s c o n s i d e r i t n e c e s s a r y and p r o p e r from t h e p o i n t
o f v ie w o f u n d e r w r i t i n g p r a c t i c e t o o b t a i n s u c h u n d e r t a k i n g s ,
we p r o p o z e t h a t t h e y s h o u l d b e a b l e t o i n t r o d u c e them a s
i n d i v i d u a l w a r r a n t i e s , p r o v i d e d t h a t t h e formal r e q u i r e m e n t s
wh ic h w e p r o p o s e l a t e r i 4 ' i n r e g a r d t o t h e c r e a t i o n o f -

147 See paras. 66 a n d 7 0 , ab o v e.

148 S e e p a r a . 1 1 8 , b el o w.

51
u a r r a n t j e s a r c s a t i s f i e d . llowcver, we s h o u l d p o i n t oiit h e r e
t h a t un dc r o u r p r o p 0 s a 1 5 c o n c c r n i n g w a r r a n t i e s '' i n s cr e r s
w i l l f i e v c l - t h r l c s s n o t 1:ave a11 u n r e s t r i c t c d r i g h t t o r c p u d i a t e
t h e p o l i c y a n d r e j e c t ai:y c l a i m f o r b r c a c l i oi a v a r r a n r y .

Stateiiients
- as t o the future

82. A I I ~ I V C Ii .n~ a p r o p o s a i f o r m by tiic i n s u r e d may n o t

a l l r e l a t e t o f a c t s e x i s t i n g a t o r p r i o r t o the date of the
c o n t r a c t ; some o f t h em may r e l a t e t o t h e f u t u r e . T h e y may
a s s e r t t h a t a f a c t o r a . s t a t e o f a f f a i r s will c o n t i n u e t s b e
t r u e o r w i l l c o n t i n u e t o c x i s t d u r i n g t h e p e r i o d of
i n s u r a n c e o r t h a t t h e i n s u r e d w i l l d o or r e f r a i n from d o i n g
something during t h a t period. Ob v i ous e x a m p l e s a r e
s t a t e m e n t s by t h e i n s u r e d t h a t h e will m a i n t a i n p r e c a u t i o n s
a g a i n s t f i r e a n d b u r g l a r y o n t h e i n s u r e d p r e m i s e s . The
e f f e c t o f a " b a s i s o f t h e c o n t r a c t " c l a u s e when a p p l i e d t o
s u c h s t a t c m e n t s i s t o e l e v a t e them i n t o p r o m i s e s by t h e
i n s u r e d a s t o t h e f u t u r e : t h e y a r e t h e n o f t c n r e f e r r e d t o as
promissory warranties o r warranties of a continuing nature
and become t e r m s o f t h e c o n t r a c t o f i n s u r a n c e . As s u c h t h e y
h a v e n o t h i n g t o do w i t h t h e i n s u r e d ' s d u t y o f d i s c i o s u r e .
A c c o r d i n g l y we h a v e n o t - h i n g f u r t h e r t o s a y a b o u t them a t t h i s
s t a g e b u t d e a l w i t h them l a t e r . 1 5 0

( d ) Renewal
(1) Renewal w h e r e t h e r e h a s b e e p a p r o p o s a l form

89. One o f t h e p r o v i s i o n a l r ecom m e nda tions w hic h we h a v e

made i n t h i s w o r k i n g p a p e r l S 1 i s t h a t ;L c opy o f t h e c o m p l e t e d
p r o p o s a l form s h o u l d h e s e n t t o t h e i n s u r e d w i t h i n a
reasonable time of its submission t o i n s u r e r s . This
r e c o m m e n d a ti o n i s i m p o r t a n t i n c o n n e c t i o n w i t h t h e
duty of d i s c l o s u r e o n r e ~ e w z lf o r t h e f o l l o w i n g r e a s o n . I n

149 S e e p a r a s . 1 2 0 - 1 2 2 , b el o w.
150 See P a r t 111.
151 S e e p a r a . 7 7 , ab o v e.
52
 g e n e r a l , n o n - l i f e insurance p o l i c i e s i n England a r e c o n t r a c t s
f o r a t e r m cf o n e y e a r and a r c renewed a n n u a l l y by :he o f f e r
a n d a c c e p t a n c e o f t k a n n u a l p r en i u i n . The i n s u r e d u n d e r t h e
p r e s e n t law i s u n d e r a f r e s h d u t y t o d i s c l o s o f a c i s m a t e r i a l
a t t h e d a t e o f r e n e w a l , s i n c e h e i s t r e a t e d i n ;aw a s making
a iiew c o n t r a c t o i i i i s u r a n c e with i l i a i n s u r e r ~ i rl c n e w s l . 15 2
The e x t e n t o f t h e d u t y i s t h e same a s on t h e o r i g i n a l
"-...l<
Cayp-L-b - A W
, E .
7 l S 3 ~ \ a cc r i t i c i s : : : =i t k a p r e s e z t 13v !:zs bee"
t h a t aii~i n s u r e d i s n o t l i k e l y t o h e &*:are t h a t h c i s - - i A e F a
II1_u

r e p e a t e d o r f r e s h d u t y o f d i s c l o s u r e wh en ev er h e re ne w s h i s
p o l i c y end t h d t , e v e n i f h e i s s o a w a r e , he may f i n d it
d i f f i c u l t t o r e n c m b cr what m a t c r i a l c h a n g e s i n c i r c u m t ~ n c e s
t h e r e have been s i n c e t h e conclusion of t h e i n i t i a l c o n t r a c t
of i n s u r a n c e unless h r has k e p t a copy o f h i s o r i g i n a l
p r o p o s a l i o r m . We recommend t h a t i f t h e i n s u r e r i n v i t e s a
r e n e w a l by t h e i n s u r e d , t h e i n s u r e d s h o u l d b e u n d e r a d u t y
t o d i s c l o s e any m a t e r i a l ch an g es i n c i r c u m s t a n c e i n t h e p a s t
y e a r and u n d e r a r e s i d a a l d u t y n o t d e l i b e r a t e l y t o c o n c e a l
known m a t e r i a l f a c t s . We a l s o recommciid , however , t h a t t h e
i n s u r e d s h o u l d b e s e n t a n o t i c e r e f e r r i n g h i m t o t h e copy o f
t h e c o a p l e t e d p r o p o s z l fnrrn wh i ch was s e n t t o him and g i v i n g
p r o m i n e n c e t o b o t h d u t i e s an d t o t h e c o n s e q u e n c e s of t h e i r
breach. The i n s u r e d who a p p l i e s f o r r en ewed c o v e r w i t h o u t
h a v i n g b e e n i n v i t e d t o do s o by t h e i n s u r e r s h o u l d b e u n 3 e r
' a s i m i l a r d u t y o f d i s c l o s u r e ev en t h o u g h h e will n o t h a v e
been s e n t t h e n o t i c e .

( 2 ) Renew a ljvjsrT-2Le-r:- -has. b een - n o p r o l o s a 1 f orni

90. Where t h e r e h a s b e e n n o p r o p o s a l f o r m , w e recommend
t h a t i f t h e i n s u r e r i n v i t e s a r e n e w a l by t h e i n s u r e d , t h e

152 I n re W i l s o n [1920] 2 Ch. 2 8 ; H e a r t s o f Oak B u i l d i n

m.:: Law k i o n 8 Rock I n s u r a n c e CCJ. L t d .
619.
[d]
153 Lambert v . C o - o p e r a t i v e I n s u r a n c e S o c i e t y . L t d . [ i i ? i S ]
2 ' s Rep. 4 S 5 , -187.

. . 53
i n s u r e d s h o u l d be under t h e modified d u t y o f d i s c l o s u r n
f o r m u l a t e d i n p a r a g r a p h GO. The i n s u r e d s h o u l d b e s e n t a
i i o t i c e i n w r i t i n g r e m i n d i n g hi.! c.f h i s d x t y c f d i s c ! o s u r e a n d
i n p a r t i c u l a r o f his d u t y t a d i s c l o s e any m a t e r i a l c h a n g e s
i n circumstances of mnt.crisl cccarrcnccs i n t h c p c s t ycar.
The c o n s e q u e n c e s o f f a i l u r e t o comply w i t h t h c d u t y s l i o s l d
a l s o b c s e t o u t i n t.he n n t i c p . The i n s u r e d v!io i p p l i e s f c r
r e n e u e d c o v e r w i t h o u t h av i r ?g b e e n i n v i t e d t o do s o b y t h c
i n s u r e r s h o u l d b e u n d e r t h e same d u t y o f d i s c l o s u r e e v e n
though he w i l l n o t have been s e n t t h e f i o t i c e .

D. Our p r e f e r e c c e as r e g a r d s t h e f i e l d o f choice_
91. We h a v e r a n c h c d t h e p r o v i s i o n a l c o n c l u s i o n t h a t t h e
d u t y o€ an i n s u r e d t o d i s c l o s e m a t e r i a l f a c t s should b e
retained but t h a t the r u l e s r c l a t i n g t o i t should be modified
i n t h e manner wh i ch we h o v c d i s c u s s e d i n t h e i m m e d i a t e l y
p r e c e d i n g p a r a g r a p h s . We c o n s i d e r t h a t s u c h a r e f o r m would
b e c l e a r l y p r e f e r a b l e t o t h e i i i t r o d u c t i c n of t h e
p r o p o r t i o n a l i t y p r i n c i p l e i n t o E n g l i s h 1 aw.

E. Should the i n s u r e r ' s riRhts i n respect of non-disclosure

be f u r t h c r r e s t r i c t e d ?
92. Under t h e e x i s t i n g l aw we h a v e s e e n 1 5 4 t h a t t h e
i n s u r e r h a s t h e r i g h t , on n o t i c e o f t h e f a i l u r e b y t h e
i n s u r e d t o comply w i t h t h e d u t y o f d i s c l o s u r n o r w i t h i n a
r e a s o n a b l e tiine t h e r e a f t e r , t o r e p u d i a t e t h e c o n t r a c t o f '

i n s u r a n c e and t o r e j e c t i? c l . i m P V Y i f t h e loss hp.5 cr.curr~:!

before he has n o t i c e of t h e non-disclosure. We do n o t
s u g g e s t any ch an g e i n t h i s a s p e c t of thc p r e s e n t law. It
n a y h o w e v e r b e a r g u e d t h a t t h e p r o v i s i o n a l re c om m e nda tions
w h i c h we h a v e made c o n c e r n i n g n o n - d i s c l o s u r e do n o t g o f a r
e n o u g h t o p r o t e c t t h e i n t e r e s t s o f t h e i n s u r e d and t h a t t h e
i n s u r e r ' s r i g h t t o r e j e c t a claim f o r con-disclos2rc should
b e r e s t r i c t e d i n a way s i m i l a r t o t h a t p r o p o s e d b y US

154 S e e p a r a . 2 5 , ab o v e.

54
later1" i n r e l a t i o n t o b r e a c h e s o f r : . ar r anty. The
recornmcndation which mi g h t b e a p p l i e d i n tlic p r e s e n t c o n t e x t
w o u ld e n t a i l t h e i n s u r e r n o t b c i n g e n t i t l c t l t o r e j e c t ;i
c l a i m i f t h e i n s u r c d c o u l d e s t a b l i s h i n t h e c i r c u n i s t m c e s cf
a p a r t i c u l a r c a s e t h a t t h e n o n - d i s c l o s c d f a c t c o u l d ha vc h a d
n o c o n n c c ' i i o n w i t h t h e l o s s wh i ch a c t u a l l y o c c u r r e d .

5:. -A .+ f i r s t siZ.Lt it d.
_.- c.e37L-
"I..< -
.-LL-.-..I.:.--
.ii
ii v z
L i
t C A c ,+:..1.-.A
i__ - -
ii. L3R.C

n e x u s b e t w e c o rhc a c t u a l l o s s and t h e i x c t w hic h t h e i i s u r e d

failed t o disclose. B u t we t h i n k t h z t ori f u r t h e r
c o n s i d e r a t i o n t!lis a p p r o a c h would b e open t o a number o f
s e r i o u s 0'0j e c t i o n s .

94. F i r s t , i t i s d i i f i c u l t t o s e e how a ny "nexus"

t e s t w o u l d work i n p r a c t i c e i n t h e c o n t e x t o f n o n - d i s c l o s u r e .
T h e r e a r e many f a c t s w h i c h , a l t h o u g h m a t e r i a l t o t h e r i s k ,
a r e r e l e v a n t more t o t h e c h a r a c t e r i s t i c s o f t h e i n s u r e d
h i m s e l f t h a n t o t h e n a t u r e of t h e r i s k . One e xa m ple i s a
f a c t r e l e v a n t t o "mo r al iiaziird"; o t h e r s are t h e refusal o f
cover by o t h e r i n s u r e r s , t h c imposition o f Specie1 t e r m i n
previous contracts o r a s u l s t m t i a l claims history. How
w o u l d a c c u r t be a b l e t o d e t e r m i n e t h a t t h e r e c o u l d ha ve
b e e n n o c o n n e c t i o n b et ween suc:h f a c r s , as:;w:iing t11a.t t h e
i n s u r e d h a d f a i l e d t o d i s c l o s e t h em, and any p a r t i c u l a r l o s s ?

95. S e c o n d l y , we c o n s i d e r t h a t a char.ge i n t h e law on

t h e s e l i n e s would erode t h e i n s u r e r ' s r i g h t s i n t h e e v e n t oi
a b r e a c h by t h e i n s u r e d of t h e d u t y o f d i s c l o s u r e t o a r r
u n a c c e p t a b l e d e g r e e . The d u t y o f d i s c l o s u r e h a s i n t h e p a s t
b e e n a c o r n e r s t o n e o f t h e r u l e s r e l a t i n g t o t h e f o r m a t i o n oE
3 c o n t r a c t o i i n s u r a n c e a n d , as we hnve r r e n t i o n e d ~ . b o v e , ~ ~ ~ v e

155 S e e p a r a s . 1 2 0 - 1 2 2 , below.
156 S e e p a r a . 1 2 1 , b el o w.
157 S e e p n r a . 5 1 , ab o v e.
c o n s i d e r t h a t i t s h o u l d s o r emai n . The i n s u r e r ' s r i g h t t o
a v o i d a c o n t r a c t o f i n s i i r a n c e ab i n i t i o f o r n o n - d i s c l o s u r e
e n t a i l s t h e r i g h t t o c o n t e n d t h a t h e i iould n e v e r h a v e made a
c ~ n t r a c ton t h o s e t e r n s i E he had known t h e n o n - d i s c l o s e d
f a c t s and t h e r e f o r e a l s o t h e r i g h t t o r e j e c t any c l a i m made
p r i o r t o h i s d i s c o v e r y o f t h e non-disclosure. A l i m i t a t i o n
on t h e s e r i g h t s v o a l d ;can :hni n s n - d i s c . i o s u i - e c o u l d no
loiiger be r e g a r d e d as a l a c t o r v i t i a t i n g t h e f o r m a t i o n of
t h e c o n t r a c t . F u r t h e r m o r e , one co n s equc nc c o f t h e a d o p t i o n
o f a "nexus" t e s t would a l m o s t c e r t a i n l y b e a r i s e i n
premiums, p e r h a p s a s u b s t a n t i a l o n e , t o t a k e a c c o u n t o f a
p o s s i b l e i n c r e a s e i n " s h a r p p r a c t i c e ' ' by i n s u r e d s .

96. The p i . o v i s i o n a 1 rcconirnendations i n t h i s P a r t a r e

d e s i g n e d t o s t r i k e a b a l a n c e b et ween t h e i n t e r e s t s o f t h e
i n s u r e r a n d of t h e i n s u r e d b y p r o v i d i n g a d c q u a t e p r o t e c t i o n
' t o t h e i n s u r e d w h i l e a t t h e same time p r e s e r v i n g t h e
c o n d i t i o n s n e c e s s a r y f o r t h e i n s u r e r t o c a r r y on h i s b u s i n e s s
on B s o u n d c o n m c r c i a l f a o t i n g . Ii'e c o n s i d e r t h a t tiny
p r o p o s a l s on t h e l i n e s just d i s c . u s s e d woulcl u p s c i i h a t
b a l a n c e and a r e t h e r e f o r e w i d c s i r a b l e .

We would welcome comments on t h e o.ue stion w h e t h e r

t h e i n t r o d u c t i o n o f a "nexus" t e s t would b e d e s i r a b l e . I f
s u c h a t e s t i s c o n s i d e r e d d e s i r a b l e w e i n v i t e i n d i c a t i o n s as
t o how i t c o u l d b e made 'to work i n p r a c t i c e .

F. Summary of p r o v i s i o r i a l c o n c l u s i o n s and r e ~ ~ ~ ~ ~ e ~ I d ~ ~
on n o n - d i s c l o s u r e
97. The p r o p o s a l s s e t o u t b el o w a r e a summary o f t h e
provisional conclusions and r eco mmen d ations contained i n
t h i s F a r t . They d o n o t r e p r e s e n t concluded views b u t a r e
i n t e n d e d as a b a s i s f o r d i s c u s s i o n on w h i c h we invite
comments.

(a) The p r e s e n t law of n o n - d i s c l o s u r e i s i n

need o f reform (paragraphs 36-42) a

56
(b) Thc i n s u r e d s h o u l d however c o n t i n u c t o
be subject. t o a duty of disclosure
( p a r a g r a p h s 4 5 - 5 2 ) and t h e l e g a l r e m e d i e s
f o r i t s b r e a c h s h o u l d reillaiii unc1ia:iged;
i n p a r t i c u l a r we r c v z i d e r t!:it t h e
p r o p o r t - i o n a l i t y p r i n c i p l e would n o t b e
a d e s i r a b l e i n n o v a t i o n i n t h i s c.olmtr)r
( p a r a g r ap ! i s 5 2 - 5 7 ) .
(c) The ainhit o f t h e insured's d u t y o f
d i s c l o s u r e s h o u l d however b e n i o d i f i e d
and s h o u l d b e d i f f e r c n t a c c o r d i n g t o
w h e t h e r o r n o t a p r o p o s a l form h a s b e e n
completGd b y him ( p a r a g r a p h s 5 8 - 7 7 ) .
(d) Where t h e r e i s n o p r o p o s a l f o r m t h e
i n s u r e d s h o u l d be undcr a d u t y t o
d i s c l o s e t h o s e f a c t s wh i ch a r e a s o n a b l e
m a n i n h i s c i r c u m s t a n c e s would co!??ider
t o b e m a t e r i a l i n t h e seiise t h a t t h e y
w o u l d i i i f l u e n c e t h e judgment 'of a p r u 6 e n t
i n s u r e r i n accepting t h e r i s k or f i x i n g
t h e prcmiuni. The i n s u r e d s h o u l d however
o n l y be uider a duty t o d i s c l o s e f a c t s
w h i c h h e e i t h e r knows o r wh i ch a
r e a s o n a b l e man i n h i 5 c i r c u m s t a n c e s o u g h t
t o know ( p a r a g r a p h s 5 9 - 6 4 ) .
(e) Where a p r o p o s a l Form h p 5 b-py! r m : p l e t - d
by t h e i n s u r e d t h e i n s u r e r s h o u l d , s u b j e c t
t o ( i ) b e l o w , be t a k e n t o h a v e w a i v e d t h e
i n s u r e d ' s d u t y i n r e g a r d t o any f a c t
o u t s i d e t h e s c o p e cf t h e q u e s t i o n s a s k e d
(paragraph 6 6 ) .
(f) The i n s u r e d s h o u l d p r i m a f a c i e o n l y b e
c o n s i d e r e d t o h a v e d i s c h a r g e d h i s d u t y cf
d i s c l c s u r e i f h e s u p p l i e s c o m p l e t e and
a c c u r a t e answers t o t h e m a t e r i a l q u e s t i o n s
a s k e d i n a p r o p o s a l Torn: ( p a r a g r a p h G 7 ) .
57
 However, i i t h e i n s u r e d can p r o v e t h a t h e
h a s a s w e r e d a m a t e r i a l questiorr i n a
p r o p o s a l forin t o t h e b e s t o f h i s I;iioi<lcdge
and b e l i e f , h a v i n g c a r r i e d o u t a l l t h o s e
e n q u i r i e s x h i c h ;I r c a sona b1.e man i n his
c i r c w r i s t a n c c s would ha vc c s r r i e d c u t , he
s>;.o:Lld 5.z co>r.idc-prj t ^ h:yn <!! CCh.?v,’pd v
hi.+
d Q t y o f d i s c l . o s ~ i r e ,n o t v i t i i s t a n d i n g t h a t t h e
answer i s i n f a c t i n a c c u r a t c ( p a r a g r a p h s
69-70). .
(6) T h er e shou1.d b e a presumpt.irin t h a t q u e s t i o n s
a s k e d i n a p r o p o s a l form and t h e a n s w e r s t o
them a r e m a t . e r i a i , b u t tiic i n s u r e d s h o u l d b e
a b l e t o r e b u t t h i s pre suxptj.on by p r o v i n g
t h a t t!ie q u e s t i o n r e l a t e d t o a f a c t w hic h
would n o t h av e i n f l u e n c e c i t h e judgm e nt o f a
p r u d e n t i n s u r c r i n accep!:ing t h c r i s k o r
f i x i n g t h e preniium ( p a r a g r a p h 6 8 ) .
(h) lr. d e c i d i n g whether a w r i t t e n iiocume!it i s a
p r o p o s a l form f o r t h i s p u r p o s e , t h e c o u r t
shoi.ild h av e r e g a r d t o t h e docuinerit a s a
whole: t h e test should be whether t h e .
document was s u c h a s t o l e a d a r e a s o n a b l e man
t o s u p p o s e t h a t no f u r t h e r i n f o r m a t i o n was r e q u i r c d
t o be d i s c l o s e d by h i s . The c o u r t s h o u l J l o o k a t
zi-,c q2:;tic-s ::yk:?&: 5 5 d p t . i . l c d . qi-insticas
wer e a s k e d o i t h e t y p e u s u a l l y a s k e d b y
i n s u r e r s f o r t h e purpose of d e c i d i n g whether
t o a c c e p t t h e r i s k and vhat premium t o c h a r g e
a n d i f t h e y a p p e a r e d c om pre he nsive we w ould
e x p e c t t h e c o u r t t o h o l d t h a t t h e docuinent
was a p r o p o s a l form. The c o u r t s h o u l d n o t
b e bound by any s t a t e m e n t i n t h e document
wh i ch p u r p o r t s t o d e s c r i b e i t s n a t u r e
(paragraph 71).

5s
[i) A r c s i . d ~ i a 1d u t y shoulcl he i m p o s e d on t h e i n s u r e d
n o t c l c i i l > ? r a t c I ) - t o c o n c c a l i ; i c t s i<ihjcii lie kiloiis
t o hc n i a t c r i a l :in3 o r r<iiich he has a c t u a l .
kno\.:ledgc e v c n i1 :hey sri. o u i s i d c tile a m b i t o f
a l l t h r q u c s t i o n s clskeii 1!1 t l i c p r o p o s a l form.
I n t!ic cvc:it c f ;i bi-cac1-t o f t h i s Jut), by t h e
i n s u r e d t h c i n s u r c r slioLild bc e n t i t l e d t o r e p u d i . a t c
t h e policy a ~ d r e j c c l ; 2 : : ~ clsiin t h a t h a s a ri sc: t l .
.!'he i n s u r e r s h o u l d b e r c q u i r c d t u g i v c c l e a r and
p r o n i i n c n t n o t i c e of t h i s d u t y i:? tlic p r o p c s a l form
a n d t o riarn t h e i n s u r e d o f t h e c o r i s c q u c n c e s o f
breach (p3ragraph 73).

(j) I n s u r e r s s h o u l d n o t bz e n t i t l e d t o ask a " g c n e r a l

q u e s t i o n . ' such a s " A r e t h e r e a n y o t h e r f a c t s w h i c h
y o u , a s a r e n s o n a b l c i n s u r e d , c o n s i d e r would
iiiflucncc t h e judgment of a prudent i n s u r e r i n
f i x i n g t h e premi.um o r x c e p t i i l g t h e r i s k ? " An
i n s u r c d s h o u l d be e n t i t l e d t o i g n o r e any s u c h
q u z s t i o n and i n s u r e r s s h o u l d b e d e p r i v c d o f any
remedy i n r e s p c c t o f f a l s e iiifcrnintic;:i s u p p l i e d
i n a n s w e r t o an). s u c h q u e s t . - o n . Ilo:\rever, i n s u r e r s
s h o u l d b e e n t i t l e d t o a s k s p c c i f i c q u e s t i o n s on
a n y t o p i c > w h i c h riiey r e g a r d a s m a t e r i a l
(paragraph 7 4 ) .
(k) \!'here a q u e s t i o n i n a p r o p o s a l form m i g h t
r e a s o n a b l y be u n d e r s t o o d i n two s e n s e s , o n e
f a v o u r a b l e t o t h e i n s u r e r and t h e o t h e r favciirahle
t o t h e i n s u r e d , t h e c o u r t ought always t o c o n s t r u e
i t i n the l a t t e r sense (paragraph 76).

59
(I) Tile i n s u r e d s h o u l d b e e n t i t l e d t o r c c c i v e a
copy o f t h e c o m p l e t e d p r o p o s a l form i i i t l i i n Q
reasonable t i n e o f i t s s u b i c i s s i o n 10 irisurers
(paragraph 7 7 ) .

(m) The p r e s c n t law as t o t h e l e g a l e f i e c t o f

“hasiq o f the contract“ clauscs i s
c n s a t i s f a c t o r y and i n nced o f r e f o r m
(paragraphs 80-82).

(11) “ B a s i s of t h e c o n t r a c t ” c l a u s e s s h o u l d b e
ineffe.ctive t o the extent t h a t they purport
t o c r e a t e w a r r a n t i e s as t o p a s t or p r e s c n t
f a c t (paragraphs 83-86).

(0) ::‘here t h e r c h a s b e e n a p r o p o s a l f o r m , 2nd t h e

i n s u r e r i i t v i t c s a r c n c w a l by t h e i n s u r c d , t h e
i n s u r e d s h o u l d be under 3 duty t o d i s c l o s c
any m a t c r i a l ch n n gc s ir. c i r c u m s t e n c e s i n t h e
p a s t y e a r and u i d c r a r e s i d u a l d u t y n o t
d e l i b e r a t e l y t o c o n c e a l known m a t e r i a l { a c t s .
The i n s u r e d s h o u l d b e s e n t a n o t i c e r e f e r r i f i g
him t c 6 COPY. cf th: c o ~ p l ~ t c ?c r! c p ~ s c lf o r ?
i ~ h i c l iwas s e n t t o hiin and g i v i n g p r o m i n e n c e
t o b o t h d u t i e s and t o t h e c o n s e q u e n c e s o f
t h e i r b r e a c h . The i n s u r e d who a p p l i e s f o r
renewed c o v e r w i t h o u t h a v i n g b e e n i n v i t e d t o
do s o by tile i n s u r e 1 s>LodiG b e uil&i ;1
s i m i l a r ciuty o f d i s c l o s u r c e v e n t h o u g h h e
w i l l n o t have bccn s e n t t h e n o t i c e
(paragraph 89).

(p) Where t h e r e h a s b e e n no p r o p o s a l f o r m , and an

i n s u r e r i x v i t e s a renewal by t h e i n s u r e d , t h e
i n s u r e d s h o u l d b e u n d e r t h e m o d i f i e d d u t y of
d i s c l o s u r e f o r m u l a t e d a t ( d ) a bove . The
i n s u r e d s h o u l d b e s e n t a n o t i c e r e m i n d i n g him
o f t h i s d u t y o f d i s c l o s u r e and i n p a r t i c u l a r
o f h i s d u t y t o d i s c l o s e any m a t e r i a l c h a n g e s
60
 i n circunis taiices o r i n a t e r i a l o c c u r r e n c c s i n
t h e p a s t y e a r , and l i z r n i n g him cf t h e
consequences of b r e a c h . The i n s u r c d who
a p p l i e s f o r renewed cover w i t h o u t h a v i n g
been i n v i t e d t o d c sc) by t h e i n s u r e r
s h o u l d b e under t h e same d u t y o f
d i s c l o s u r e even though h e w i i l i i u t lia\:c
* been s e n t t h e n o t i c e ( p a r a g r a p h 9 0 ) .

61
96. ToJ,;; it i s ccmiiion irisiiraiice p r a c t i c e f o r a
c o n t r a c t 01 i n s u r a n c e t o c o n t a i n a number o f s t i p u l a t i o n s
both as t o the esistciice o r conrina;ition of a c e r t a i n s t a t e
o f a f f a i r s and as t o t h c p e r f o m a n c e o r n o n - p e r f o r m z n c e o f
some a c t by t!ic i n s u r e d . ?.!;in) o f t h e s e s t i p u l a t i o n s ainount
t o w h a t a r c g e n e r s l l y h o u i i n i n s u r a n c e l a u as " w a r r a i i t i e s " .
We must c s a m i n c tlic p r e s e n t 1xv. a s t o w a r r a n t i e s i n o r d e r
t o a s c e r t . a i n tlic I n 3 i i i i c r i n wliicli t h e y a r e c r e a t e d and t h e i r
precisc legal effect.

99. The riord " w a r r a n t y " i s u s e d i n i n s u r a n c e 1ew i n a

s p e c i a l s c n s e t o d e n o t c :I t e r m o r t h e c o n t r a c t of i n s u r a n c e
hlij.ch must b c s t r i c t l y cornp1.j.ed w i t h and upon any b r e a c h
o f w h i c h , Iiowever t r i v i a l , t h e i n s u r e r i s e r i t i t i e d t o
r e 13 u d i B te t hc p o 1i c ) r e Is' T t f o l l o w s t h a t upcn a b r e a c h
of a warranty the iiisurcr has the right t o repudiate
t h e x h o l e c o n t r a c t from t h e d a t e o f t h e b r e a c h r e s a r j l c s s
o f t h e r n a t c r i a l i t y o f t h e term, t h e s t a t e o f t h e n i n d
o f 'die i n s u r e d , 01' o f any coriricction bctihpccn t h e b y e a c h
,and t h e l o s s . ~ l i cmeaning o f w a r r a n t y i n i n s u r a n c e
law i s t h u s s i m i l a r t c t h e iiieaning o f " c o n d i t i o n " i n
t h e law o f s a l e o f gooc1.i. 'The p r o m i s c w h i c h forms t h e

158 Pawson v. k'atson ( 1 7 7 8 1 2 Cowp. 7 8 5 , 7 8 7 ; 9 8 E . R .

1361, 1 3 6 2 pcr Lord !4ansfielLi; Dc k!ahn v. Harile...
( 1 7 8 6 1 I T . R . 5 4 5 : 3 s E.K. 1 1 3 0 . See aIsZTG?
Mari::o I n s u r a n c e A c t 1 9 0 6 , s . 3 . i ( 3 ] .
159 Sce p , r n c r a ? l y M a c G i l l i v r y & F a r k i n g t o n on
I n s u r a n c e I.:fi< ( 6 t h e d . , i 9 i S ) c h a p . 10, e s p .
p a r a s . 8 3 5 - 6 3 8 and b 1 4 - 9 1 2 . See a l s o p a r a s . 79,
above a n d 103, b c l o i i .
160 Sec t h e S a l e o f Goods A c t 1 8 9 3 , s. ll(l)(b).
62
~ 1 . 1 b j e c t - r n a t t e ro f a \ i ar r n ! i t y c o n s i s t s o f an u n d e r t a k i n g by
t h e i n s u r e d t h a t some p a r t i c u l a r t h i n g s h a l l o r s h a l l n o t be
done o r w h e r e b y he a f f i r m o r n e g a t i v e s t h e e x i s t e n c e o f a
p a r t i c u l a r s t a t e of f a c t s . 1 6 1

Creation o f w a r r a n t i e s

1. no. A warranty rp.2.y b? zl-eate:! ir, o n c o f t.lie f o l l o w i r i g

irizjj:

(a) by t h e u s e o f t h e word " w a r r a n t y " ; for

e x a m p l e , " t h e il:sured k:arrnnts .. .'I;

(b) by an e x p r e s s p r o v i s i o n f ? r s t r i c t
compliance m d t h e r i g h t t o r e p u d i a t e
for breach;lb2
(c) by t h e u s e o f p h r a s e s s u c h a s " c o n d i t i o n
p r e c e d e n t " 1 6 3 froin w h i c h t h e c . o u r t c a n
i n f e r t h a t the p a r t i e s iEte3ded s t r i c t
c o m p l i a n c e and t h e r i g h t t o r e p u d i a t e ;
(d) by t h e u s e o f an y V J O T L ~ p r o v i d e d t h a t
t h e c o u r t c o n c l u d c s t h a t , on t.he t r u e
c o n s t r u c t i o n o f t h e wh o l e document
containing t h e torm, t h e p a r t i e s
i n t e n c i e d t h e term t o p o s s e s s t h e a t t r i b u t e s
of a warranty;

161 T h i s is t a k e n f r o m t h e M a r i n e Tn s u r mi ce Act 1 9 0 6 ,
s . 3 S j l j O U L I s a l s o a p t in t n e c o n t e x t oi' non-
marine insurance.
162 For e x a m p l e , t h e s t a n d a r d c l a u s e i n f i r e p o l i c i e s
r e q u i r i n g n o t i f i c a t i o n of any i n c r e a s e i n t h e r i s k .
lG3 i n i n s u r a n c e l a w i t i s more c o n v e n i e n t a n d c l e a r e r
to r e s t r i c t t h e ~ : c r d" c o n d i t i o n " t o t e r m s upon
b r e a c h o f w h i c h t h e i n s u r e r w i l l a t most b e a b l e
t o reject a clair. i n r e s ? c c t of a p a r t i c u l a r loss:
see M a c G i l l i v r a y & P a r k i n s t o n , O J - ~ . , p a r a .
6 3 9 . C o n d i t i o n s \<ill g- e n e r a l l y c o n c e r n c o l l a t e r a l
p r o m i s e s b y t h e i z s u r e d e . g . CGilCcifiing t h e t i m e
w i t h i n which n o t i c e o f l o s s must b e g i v e n , o r
t e r m s w n i c h c o n f e r p a r t i c u l a r r i g h t s on t h e
insurer.
63
 (e) by t h e use of a "basis o f t h e c o n t r a c t "
c l a u s e . 164

lCl. A w a r r a i i t y may r e l a t e t o a s t a t e o f a f f a i r s
e x i s t i n g in the p a s t o r i n t h e present: such 2 warranty w i l l
generally a r i s e 1 , w r n ii?c a;?~>li-c?t.io-c f 2 " S s s i z c f
c o z t r a c i " c l a u s e t o the c o n t e n t s of a completed proposzl
forin. We have d e a l t w i t h t h e c r e a t i o n o f w a r r z n t i e s as t o
p a s t aiid p r e s e n t f a c t s y " b a s i s o f the c o n t r a c t " c l a u s e s i n
P a r t 1116' an d so n e e d s a y l i t t l e f u r t h e r abou-t them h e r e
save t o p o i n t o u t t h a t s u c h w a r r a n t i e s may som e tim e s a p p e a r
on t h e f a c e o f t h e p o l i c y i n d e p c n d e n t l y o f a " b a s i s o f t h e
c o n t r a c t " c l a u s e . 16' A w a r r a n t y may on t h e o t h e r hand
r e l a t e t o the future; it is often then referred t o a s a
*'promissory o r a warranty of a continuing
n a t u r e a n d we d c a l w i t h t h i s t y p e o f w a r r a n t y below. A
t e r m may al.so, 011 i t s p r o p e r c c n s t r u c t i o n , c o n s t i t u t e b o t h a
w a r r a n t y as t o p a s t o r p r e s e n - t f a c t a nd a p r o m i s s o r y
warranty.

Prom i s s o r y wa r r zr:t i c c.

102. Wh et h er t h e t e r m s i n a p r o p o s a l form o r a p o l i c y
c o n s t i t u t e p r o m i s s o r y w a r r a n t i c s t u r n s on t h e i r p r e c i s e
w o r d i n g . 168 As r e g a r d s p r o p o s a l f o r m s , a c l e a r r e f e r e n c e

164 See p a r a s . 78-88, ab o v e f o r a d i s c u s s i o n o f " b a s i s o f

the contract" clauses.
165 S c e p a r a s . 78-88, a b o v e .
166 I n s u r e r s will, m d e r o u r p r o p o s a l s , c o n t i n u e t o be
a l l o w e d t o i n t r o d u c e s u c h w a r r a n t i e s by i n c o r p o r a t i n g
t h e m as i n d i v i d u a l terms on t h e f a c e o f t h e p o l i c y :
see p a r a . 1 1 8 , below.
167 C f . t h e meaning o f " p r o m i s s o r y w a r r a n t y " i n t h e Ma rine
Insurance A c t 1906, s. 33(1).
168 Compare G r a n t v . Aetna F i r e I n s u r a n c e Co. (1862)
1 5 Moo. m. 5 1 6 ; 1 5 E . R . 589 a n d Grant v . E q u i t a b l e
(1864) 1 4 Low. Can. R. 493. S e e M a c G i l l i v r a y &
P a r k i n g t o n on I n s u r a n c e Law ( 6 t h e d . , 1 9 7 5 ) c ha p. 10,
para. 857.
64
t o t h e f u t u r e i n a p a r t i c u l a r q u e s t i o n o r s t a t e m e n t wj11
a l w a y s s u f f i c e ; ' . G 9 w i t l i o u t sucii a reference, a p r b v i s i o n w i l l
n o t n o r m a l l y be D p r o m i s s o r y ~ a r r a n t y , ' ~ ' b u t t h e w a r r a n t y
may s t i i l be t r c a t e d a s a p r o m i s s o r y w a r r a n t y i f t h a t i s t h e
o n l y r e a l p u r p o s e wh i ch t h e p r o v i s i o n c o u l d s e r v e . T h i s i s
p a r t i c u l z r l y l i k e l y t o L e tile c a s e i n p r o p c r t y i n s u r a n c e i n
r e s p e c t o f w a r r a n t i e s a s t o t!ie a s e o f t h e p r e m i s e s a nd
t!ic p r e c a E t i m s t o b e tr?ken aSaiiis1. I ~ ~ ~ ic\r . ; exT.mn!e.
; ~ ~ ~7
I ,

w::rranty i n a € i r e p 0 1 i . c ~a s t o r h e p r e s c n c e on p r e m i s e s of
f i r e s p r i r i k l e r s o r e x t i n g u i s h e r s or a w a r r a t y i o r b i d d j n g
t h e i n t r o d u s t j on o f i n f l a m a b l s goods on t h e p r e m i s e s . 1 7 2

103. The i n s u r e d i s r e q u i r e d t o comply w i t h a p r o m i s s o r y

warranty throughout t h e p c r i o d o f i n s u r a n c e . . b y brcacii
e n t i t l e s t h e i n s u r e r t o r e p u d i a t e t h e p o l i c y from t h e d a t e
o f b r c o c h . He r e m a i n s l i a b l e f o r c l a i m s made i n r e s p e c t o f
p r i o r l o s s e s , i f a n y , b u t i s e n t i t l e d to r c j e c t claims i n
respect of losses occurring subsequently.

169 A q u e s t i o n i n a p r o p o s a l form may r e f e r t o t h e f u t u r e

as well 3 s t o p r e s e n t f a c t s : sce Dawsons L t d . v . Honnin
[ I Y Z Z ] 2 A.C. 413. I f t h e .;rovisicn can c i i l y ba yead
a s t o t h e f u t u r e i t w i l l be a p r o m i s s o r y w a r r a n t y : s e e
Beauchamp v . N a t i o n a l Mu t u al I n d e m n i t y 119371 3
A l l E.R. 19.
170 W o o l f a l l & Kimmer v . Moyle [1?42] 1 K.B. 6 6 ;
K e n n e d y a n d k i s v a r I n s . Co. L t d . 1976
S.L.T. 110.-
1 7 1 S i l l e m v. T h o r n t o n ( 1 8 5 4 ) 3 E . & B. 868; 118 E . R .
1 5 6 7 ; H a l e s v . R e l i a n c e F i r e & A c c i d e n t I n s . Co.
[ 1 9 6 0 ] 2 o y d ' s Rep. 391.
1 7 2 As i n H a l e s v . R e l i a n c e F i r e & A c c i d e n t I n s . Co.
[ 1 9 6 0 ] T L T o y d ' s Rep. 391.

65
 anties of opinion
h ' s r r-
-

104. I f a p a r t i c u l a r q u e s t i o n o r t!ic general. d c c l a r a t i - o n

on U p r o p o s a l forin rccli!ires t h e i n s x r e d t o w z r r a n t o n l y h i s
o p i n i o n a s t o t h e t r a t ! i o f h i s a ~ s w e r s , t!?ere will b e B
breach o f warranty o n l y i f t h e insured ciishonestly s u p p l i e s
1?3
an i n c o r r e c t answer.

con t r a p r o f e r e n t em
I n t e r n re t i n g w a r r n n t i c s ___-

105. I i t h e r e i s any d o u b t a s t o t h e scope o f a w a r r a n t y ,

whether it i s a s t o p r e s e n t o r p a s t f a c t o r promissory o r
b o t h , i t w i l l be c o n s t r u e d c o n t r a p r o f c r e n t c m , t h a t i s ,
a g a i n s t t h e i n s u r e r who d r a f t e d i t . 'X-TZ-is a rule
whereby a n y a m b i g u i t y i n a document p r c p a r e d by an i n s u r e r
s h o u l d b e c o n s t r u e d s t r i c t l y a g a i n s t him.

B. C r i t i c i s m s o f t h e p r e s c i i t law

106. we s e t oGt t h c c r i t i c i s m s t h a t h a v e b e e n
a t t r a c t c d by t h c r i g h t o f i n s u r e r s u n d c r t h e p r e s e n t law t o
c r e a t e w a r r a n t i e s by means o f " b a s i s o i t h e contract"
c l a u s e s . We h a v e howevcr t h r e e a d d i t i o n a l c r i t i c i s m s o f t h e
p r e s e n t law o f w a r r a n t i e s :
(a) I t seems t o u s q u i t c wrong t h a t a n
i n s u r e r . s h o u l d be e n t i t l e d t o demand
s t r i c t c o m p l i a n c e wirn a w a r r m t y
w h i c h i s n o t m a t e r i a l t o t h e risk a n d
t o repudiate t h e policy f o r a breach
of i t ;

173 H u d d l e s t o n i'. R . A . C . V . Insurance Pty. Ltd. [1975]

V . R . 683.
174 P r o v i n c i a l I n s . Co. v . Florgan [1933] A . C . 2 4 0
( p r o m i s s o r y w a r r a n t y a r i s i n g from p r o p o s a l form) ;
Shaw v. Robberds ( 1 8 3 7 ) 6 Ad. & E . 7 5 ; 1 1 2 E.R.
-promissory w a r r a n t y a r i s i n g from p o l i c y document).
175 S e e p a r a s . 80-82, a b o v e . .
66
 (h) M a t e r i a l w a r r a n t i e s nre of such importancc t o
t h e i n s u r e d t h a t he o u g h t t o h e able t o r e f e r
t o a w r i t t c n docuiucnt i n w h i c h t h c y a r e
con t a i n c d . tiowever, a pro!nissory iciarranty
may n o t a p p c a r oil t h e f a c e o f t h e p o l i c y b u t
may be c r e a t e d by means o f a " b a s i s o f t h e
contract" clause i n the proposal forill. 157 As
a y p c i ~ l t ; t.jle ?."~.ure.?.,:.!:o y:i;j. g.z~;ei-;~l:, i i $ ~

178
b e s u p p l i e d u i t h a copy o f t h e p r o p o s a l f o r m ,
may ice11 n o t rcniembcr i i i i p o r t a n r u n d c r t a k i i i g s made
by h i m , eve3 though 1ij.s r i g h t s o f r e c o v e r y u n d e r
t h e p o l i c y may depend upon s t r i c t compi i a i i c e
w i t h them. 1 7 9

(c) We t h i n k i t u n j u s t t h a t an i n s u r c r s h o u l d be
e n t i t l e d t o r c j c c t a c l a i n for any b r c a c h o f e v e n
a m a t e r i a l ~ a r r a n t y ,no p i a t e r how i r r c l c v a n t!1e
b r e a c h may b e t o t h e l o s s .

. Our p r o v i s i o n a l view
i

f 107. I O u r p r o v i s i o n a l view i s t h a t t h e p r c s c n t law Of

i w a r r a n t i e s f a i l s t o s t r i k e a f a i r balance betvcen t h c i n s u r e r
and t h e i n s u r e d and t h a t i t shwulc! t h e r c f o r e b e c h a n g e d .

176 See a l s o E . K . H . Ivamy " I n s u r a n c e L s w I l e v i s i o n " (1955)

8 C.L.P. 147, 155.
177 See p a r a . 7 9 , a b o v e .
17s Sec p a r a . 8 9 , a b o v e .
179 See a l s o M a c C i l l i v r a y & P a r k i n g t o n OR I n s u r m c e Law
( 6 t h c d . , 1975) chap. 10, p a r a . 815.

67
C. Ileforiii o f t h c p r e s e n t l!w - t h e f i e l d of choicc

I nt roduct ,%
106. f i av i n g d c s c r i b e d an d c r i t i c i s e d t h e p r e s e n t 1 3 w \<e
c o n s i d e r two p o s s i b l c l ~ a y si n wh i ch i t cali be refortiied:

(ij ' h e a b o l i t i c n o f w a r r a n t i e s and t h e

s u b s t i t u t i o n of a continuing duty t o n o t i i y
increases of the r i s k , together w i t h 3
provision t h a t i n t h c event of a breach the
i n s u r e r ' s l i a b i l i t y t o pay c l a i m s s h o u l d be
g o v e r n e d by t h e p r o p o r t i o n a l i t y p r i n c i p l i . .

(ii) A modified system o f w a r r a n t i e s : t h a t is a

system i n c l u d i n g pro-iisions t h a t a wazranty
should only be e f i e c t i v e i l i t i s niateriai t o
t h e r i s k , an d p r o v i s i o n s l i m i t i n g t h c r i g h t o f
t h e i n s u r e r t o r e j e c t a c l a i i n f o r 9 l o s s when
t h e r e h a s b e e n any b r e a c h o f a m a t e r i a l n a r r a n t y ,
where t h e breach i s q u i t e i r r e l e v a n t t o t h e l o s s .

(i) 'The a b o l i t i o n c f w a r r a n t i c s

109. A p o s s i b l e a p p r o a c h t o r z f o r m would be t o r e p l a c e
p r o m i s s o r y w a r r a n t i e s by a c o n t i n u i n g d u t y on t h e i n s u r e d t o
d i s c l o s e t c t h e i n s u r e r ne'v c i r c u m s t a n c e s o r c h a n g z s i n
C i r c u m s t a n c e s w h i c h a r e e i t h e r matexial O S o f w hic h t h e i n s u r e r
has requested notification i n the contract. Claims arising afteT
a b r e a c h o f t h i s d u t y by t h e i n s u r e d would b c p a i d i n t h e
p r o p o r t i o n w h i c h t h e premium a c t u a l l y p a i d b e a r s t o t h e
premium w h i c h would h a v e b e e n c h a r g e d h a d t h e t r u e r i s k be e n
known ( t h e p r o p o r t i o n a l i t y p r i n c i p l e ) . T h i s i s b r o a d l y t h e

68
a p p r o a c h t a k e n b y A r t i c l e 3 o f t h e d r a f t d i r c c t i v c w hic h i s
d ;s c - u s s e d i n d e t a i l i n P a r t I V . 1 8 0

IlLi. T!;.O b a s i c i e a t u r c s o f t h i s a p p r o a c h ai-2 n o t kiiGW1

t o E n g l i s h law:

(i) t h e r e would b e a c o n t i n u i n g d u t y o f d i s c l o s s r e
a f t e r t h c CGl;';i-aCt G E iiistii.Aiice i i a , b e e l l ~i!aGc;

(ii) t h c i n s a r c r w o u l d S c o b l i g e d t o pzy o n l y a
p r o p o r t i o n o f t h c c l a i m , b a s c d on t h e r a t i o
b c t w e e n t h e a c t u ; l prcmiiim a n d a n o t j . o n n l preiriuii!.

111. A c o n t i n u i n g d u t y o f d i s c . l o s i i r e seems somewhat

d r a c o n i a n . T h e i n s u r e d % o u l d ha-:e t o b e c o n s t a n t l y a l c r t T O
r e l e v a n t c h a n g e s o € c i r c u m s t a n c e s , and t h i s m ight be
p a r t i c u l a r l y o n e r o u s on t h e p r i v a t e i n c i i v i d u a l who h a s s e v e r a l
p o l i c i e s . A good d e a l o f t!ic sciise o f s e c u r i t y a nd p e n c e o f
mind w h i c h s h o u l d b e p r o v i d e d by i n s u r a n c e m ight w e l l be l o s t .
In o u r v i e w this a p p r o a c h may b e a p F r o p r i a t e f o r I o n g - t e r n
c o v e r e x t e n d i n g o v e r a p e r i o d o f s c v c r a l y e a r s w h i c h i5 a
f e a t u r e o f C o n t i n e n t a l i n s u r a n c e p r z c t i c e , b u t we t h i n k t h a t
i t is i n a p p r o p r i a t e where c o v e r i s renewed a n n u a l l y , as i s
g e n e r a l l y t h e case i n t h i s c n ' m t r y .

112. O f e q u a l i m p o r t a n c e from t h e i n s u r c r ' s p o i n t o f

v i e w , t h i s a p p r o a c h would p r e v e n t h i m from l a y i n g down
c o n d i t i o n s w h i c h he t h i n k s a r e c o m m e r c i a l l y n e c e s s a r y f o r
th2 c -..-.. .-
C V I L - La-
".,^.- +:--
YL-JLIUA.. Tcr z;:zEGl?, ie i l l d t i i h(Jll12
~ : ~ ~ E L : .

be wholly i m p r a c t i c a b l e t o e x p e c t t h e insurance market t o

p r o v i d e f i r e i n s u r a n c e w i t h o u t b e i n g e n t i t l e d t3 impose

180 S e e p a r a s . 147-157. below.

69
i c a r r a n t i c s on t!ie i n s u r e d x i t h r c g a r d t o s u c h x 3 l t c r q a s
s p r i n k l e r systci!is and o t h e r p r e c a u t i o n s ai?3 w i t h o u t b c i n g
c n t i t l c d t o repudiate t h c p o l i c y i f t!:c-sc p r c c a u t i o n s x r e
n o t b c l n g ol-rservcd.

113. I t scems t o us t h a t t h e d i f f i c u l t i e s i n t h e
prac:icn? 2 ~ ~c 1 a t i1o : > c i n,-nnn:-tiol?z!
r--r- it), p r i n c i p l ~i n
. . 4 1 ~ coun'irj- t o ;chic:; iic h a v c a l r c n d y r c f c r x d i n p z r z g r a p ! : ~
+IL

55 a n d 5 6 a b o v c a p p l y t o t h e same c x t c n t , and p e r h a p s 5
f o r t i b r i , when a p p l i e d t o ;1 continuing duty o f disclosurc. 161

Our p r o v i s i o n a l c o n c l u s i o n

114. O u r p r o v i s i o n a l conclusion i s t h a t t h i s approach

would n o t b e a p p r o p r i a t e f o r c o n t r a c t s o t h c r t h a n t h o s e of
l o n g d u r a t i o n a n d t h a t i t would bc u n d c s i r a h l e t o s u p c r i n i p o s e
i t on E n g l i s h i n s u r a n c e l a x a n d p r a c t i c e .

(ii) A modj.Iied s y s t e m o f \ t a r r a n t i e s

Limitation
-- of w a r r a n t i e s t o terms m a t e r i a l t o the risk

115. I n o u r view t h e s y s t c m o f w a r r a n t i e s i n E n g l i s h
i n s u r a n c e l a a s h o u l d Le r e t a i n e d , b u t s h o u l d b e m o d i f i e d t o
t h e e x t e n t n e c e s s a r y t o accommodatc t h e c r i t i c i s m s wc h a v e
made. I n t h e p r e s c n t law t h e c h a r a c t e r i s t i c of a w a r r a n t y
is, a; ,;ie >ds,-c se;n,ld2 -.. --.. L
-I_-.. ..--.., 1.
..--.Lib.. -....--
I L J rf;c izr.2rcr
t o repudiate the policy. However, w e c o n s i d e r t h a t i n s u r e r s
s h o u l d n o t h e e n t i t l e d t o r e p u d i a t e a p o l i c y f o r t h e b r e a c l i oE
a n u n d c r t a k i n g which i s i n m a t e r i a l t o t h e r i s k , even i f t h e
word " \ v a r r a n t y " i s u s e d o r i f , on the t r u e c o n s t r u c t i o n o f t h e
c o n t r a c t , t h c c o u r t s conclude t h a t t h e p a r t i e s intended such a
result. A c c o r d i n g l y , he make t h e p r o v i s i o n a l recommendation

181 See p a r a . 1 5 3 , bcloi\- f o r a d e s c r i p t i o n and a n a l y s i s o f

t h e relevant provision of t h e d r a f t d i r e c t i v e .
182 S e e p a r a . 9 9 , above:

70
 f;
i
t h a t a t c r m o f t!ie c o n t r a c t s h o u l d c n l y he e f f e c t i v e a s ;
i

i wzrranty i f it i s i i a t e r i a l t o t h c r i s k , i n t h e sense that. it

i. i s an u n d e r t a k i n g v:hich \\,oulc! i n f l u c i i c c B p r l i d e n t il;siirer i n
; d c c i d i f i g w h z t h c r t o a c c e p t t h c r i s k and i f s o a t what p r c m i u x .

i
1
__Onus - o- _-
l ' L r -o-o___
1 oi rnat.eriality
I
i 116. S i n c e t h e matcria1it.y o r other~i!.se o f a p a r t i c u l a r
; w:rrxty dope::ds =:: it; i n Z l u c n c e ~ i the i jiid9,nillli. C J ii~
f prudent i n s u r e r x i h e t h e r 01- n o t t o t a k e t h e r i s k a n d i f s o a t
1
f what premium, i t would b c i n a p p r o p r i a t - e a n d u n d u l y h a r s h on
f t i l e i n j u r e d i f t h e 0 n i . 1 ~o f d i s p r o v i n g n i a t e r i z i i t y w e r e p l a c e d

I
i
on him. The onus s h o u l d a c c o r d i n g l y be on t h e i n s u r e r t o
p r o v e t h a t t h e w a r r a n t y b r o k e n was m a t e r i a l t o t h e r i s k .

1 -s of warranty
i
I 117. As wc h a v e s e e n , w a r r a n t i e s a.re c f two t y p e s :
! w a n a n t i e s a s t o p a s t o r p r e s e n t f a c t , and p r o n i s s z r y
warranties. I n v i c w of o u r p r o v i s i o n a l i-ecoinmcndation a s
r e g a r d s " b a s i s o i t h e c o n t r a c t " c l a u s e : i n s t i r e r s r:ishir.g t o
i n t r o d u c e w a r r a n t i e s of t h e f i r s t t y p c w i l l no l o n g e r bc z b l c
t o do s o by means c f 9 g e n e r a l d e c l a r c t i o n by t h e i n s i i r e d i n
a p r o p o s a l f o r m ; i n s u r e r s w i l i h a v e t o i n t r o d u c e them
i n d i v i d u a l l y i n c o i v p l . i n n c ~'::;:it5 t h e f 2 r m a l r c q a i r c z c - t s s c t
o u t i n t h e p a r a g r a p h n e x t f o l l o w i n g . However, y e a n t i c i p a t e
t h a t , as a m a t t e r o f u n d e r w r i t i n g p r a c t i c e , i n s u r e r s w i l l
o n l y f i n d i t n e c e s s a r y t o i n t r o d u c e such u a r r a n t i e s i n
r e l a t i v e l y few c a s c s , u s u a l l y as t h e outcome o f n e g o t i a t i o n s
\:it,? ttc i n s u r e c l . Tiius a i though the! p r o v i 5 i o r i a i .
r e c o m m e n d a t i o n s i n t h i s P a r t arc: i n t e n d e d t o a p p l y b o t h t o
w a r r a n t i e s a s t o p z s t o r p r c s c n t f a c t and t o p r o m i s s o r y
w a r r a n t i e s t h e y will be a p p l i c a b l e i n t h e main t o p r o m i s s o r y
warranties.

Formal r e q u i r e m e n t s f o r w a r r a n t i e s

118. We now t u r n t o t h e s e c o n d o f t h e t h r e e c r i t i c i s m s
o f t h e l a w o f w a r r a n t i e s w h i c h we made i n p a r a g r a p h 1 0 6 .
T h i s was t o t h e e f f e c t t h a t i t would b e d e s i r a b l e f o r a n
i n s u r e d t o b e a b l e t o r e f e r t o a w r i t t e n document w h i c h
c o n t a i n s t h e m a t c r i a l w a r r a n t i c s by w h i c h he i s bound. In
o u r view t h c i n s u r e d s h o u l d b e e n t i t l e d t o b e f u r n i s h e d by
71
 t h e i r z s u r e r i i i t h s u c h a document \ \ . i t h i n a r e a s o z a b l e t i m e o f
h i s g i v i n g t h e w a r r a n t y i n q a e s t i o n a s a c.onditj.on p r e c e d c n t
t o i t s l e g a l effectiveness. IVhcrc hi. !ias CGEi3lCted 2
p r o p o s a l i o n c o n t a i n i n g p r o m i s s o r y w a r r a n t i c s he o u g h t
s c c o r d i c g l y t c j be e n t i t l e d t o r c c c i v i . ii copy o f i Z as
c o m p l e t e d a n d i t w i l l be r e c a l l e d t h s t we ha vc made a
-p -~ - o ~ r ; c i~ ~n ~
A
., l l L L l ~ ~~p la n ~ l - + +4ne tnh i - cffcct.ls3 !!!hem " 5
~ n
A U C V l ,,L.A%..L...A"AA .U

p r o p o s z l form h a s b c e n co i n p l et cd a n d t h c i n s u r e d h a s gl.vcn a
promissory warranty o r a warranty as t o p a s t o r prescnt f a c t 184
we c o n s i d e r t h a t i t s l r o u l d b e iiicorpoi-ate: a s a n i n d i v i d u a l
term o n :hc f a c e of t h e p o l i c y ( o r i n a n c n d o r s e m c n t t h c r c o r . )
i f t h e r e i s o n e . llowever, we a r e a v a r e t h a t i n somc c a s e s ,
f o r exaiiiple whnre s h o r t - t e r m c o v e r i s g r a n t e d , no p o l i c y i s
e v e r i s s u e d an d t h a t i n o t h e r s , f o r e x a m p l e , wherc p r o v i s i o n a l
c o v e r i s g r a n t c d a p o l i c y may n o t b c i s s u e d w i t h i n a
r e a s o r ! a l . l e t i m e o f t h e w a r r a n t y h zv i iig be e n g i v e n . 111 t h e
c a s e o f p r o v i s i o n a l c o v e r , a w a r r a n t y xiay o i t e n be g i v e n o v c r
the telephone. I n a l l s u c h c 2 s e s t h e j,r!surer 5hc;uld h e
r e q u i r e d t o c o n f i r m , i n w r i t i n g an d \ \ + t h i n a r e a s o n a b l e t i m e ,
t h e w a r r a n t y g i v e n by t h P i n s u r e d . T h i s m a y b e done ir! 2
c o v e r - n o t e , i n 2 c e r t i f i c a t e o f i n s u r a n c e o r e v e n by a
letter. J f t h e j n s i i r e r faj.15 t n cnvply w i t h t h e s e f o ~ m a l
r e q u i r e m e n t s h e s h o u l d i n o u r view b c p r e c l u d e d from r e l y i n g
on a b r e a c h o f t h e w a r r a n t y i n q u e s t i o n i n o r d e r t o
r e p u d i a t e t h e p o l i c y o r r e j e c t a claini. N e v e r t h e l e s s , i f a
l o s s o c c u r s i n t h e i n t e r i m , b ef cl r e a r e a s o n a b l e time h a s
e-,apsc& fo;. rL"vl;rLGfi
r.----:-: Ly t!;c insi;r-.:- 2; s a c k :.;rittc.

c o n f i r m a t i o n , t h e n t h e i n s u r e r s h o u l d be e n t i t l e d t o r e l y on
an o r a l warranty.

183 See p a r a . 7 7 , above.

184 Our p r o v i s i o n a l r eco mmen d at i o n s a s r e g e r d s " b a s i s o f
t h e c o n t r a c t " c l a u s e s x i 1 1 n a k c i t Inpossib:c f o r
insurers t o create warranties as t o past o r present
f a c t i n t h e p r o p o s a l form: s e e p a r a s . 86 a n d 1 1 7 a b o v e .

72
~ e ~ eaf i le c t o f a b r cacl i o f \ \ a r r a n t y

113. I f t h e i n s u r e r s u c c c c d s i n d i s c h a r g i n g t h e o n u s of
p r o v i n g t h a t t h e b r o k e n I c n r r a n t y was m a t c r i a l t o tllc r i s k ,
t h e n , providcd t h a t t h c formal rcquircmciits rcfcrred t o i n
t h e p r e c e d i n g paragr?.pli a r c s a t i s f i e d : hc w i l l . b c e : i t i t l c d
t o r e p u d i a t e t h e p o l i c y B S froii: t h e d a t e 0 : tlic b r e a c h , x i t h
t h e c o n s e q u e n c e t ! i a t , i T 11e Jots s o , h e c a n a l s o reject r!ll
slaiiiis f o r iosses o c c u r r i n g a f t e r r c p u d i a t i o n . T h i s i s h i s
r i g h t u n d e r t i i c p r e s e n t law. ~ ~ o i v ' c v e r~, i i sr i g h t t o
r e j e c t a p a r t i c u l a r claim f o r a loss occurrinz prior t o
r e p u d i a t i o n s h o u l d i n o u r v i cw be r e s t r i c t e d i n t h e manner
e x p l a i n e d i n t h e p a r a g r a p h s wh i ch f o l l o w .

Loss o f a n a t u r c o u t s i d e t h e p u r p o s c o f b r o k e n w a r r a n t y

120. Generally, i f a p a r t i c u l a r warranty i s material t o

t h e r i s k , t h e c o m mer ci al p u r p o s e o f t h e w a r r a n t y w i l l be t o
guard a g a i n s t l o s s e s r e l e v a n t t o t h e type of insurance i n
q u e s t i o n , a n d l o s s e s wh i ch o c c v r ir! p r a c t i c c ~ i 1 1gerii.ral.iy
b e l o s s e s o f t h i s t y p e . I'hus t h e p l i r p o s e o f w a r r a n t i c s i n
f i r e p o l i c i e s w i l l be t o g z c r d i g a i n s i 105s b y f i r e a nd t i l e
p u r p o s e o f w a r r a n t i e s i n a b u r g l a r y p o l i c y wj1.l b e t o g u a r d
a g a i n s t l o s s by burg1flx-y. T h ~ 2 . n%a;. ! i ~ : ~ ~ c vbce i c la iiiis i n
s i t u a t i o n s where t h e r e h a s been a brcach o f a m a t e r i a l
w a r r a n t y b u t where t h e n a t u r e of t h e l o s s i n q u e s t i o n c o u l d
h a v e h a d n 3 c o n n e c t i o n wh at . ev er w i t h t h e c o m m e r c i a l p u r p o s e
of the warranty. In such c a s e s t h e breach uould be c l e a r l y
i r r e l w z n t tc t h c 10z.s anJ we a r e a'i preseelit r i r x l y o f t h e
v ie w t h a t i t w o u l d be u n j u s t t o p e r m i t t h e i n s u r e r t o
r e j e c t t h e cl-aim. I n o r d e r t:, i l l u s t r a t e t y p e s or' l o s s
o u t s i d e t h e c o m m z r c i a l p u r p o s e of a w a r r a n t y we s e t oEt B
number o f e x a m p l e s . When c o n s i d e r i n g t h e s e examples i t must
b e b o r n e i n mind t h a t a l l t h e w a r r a n t i e s m e n t i o n e d a r e

~ ~~

185 See p a r a s . 7 9 , 5 9 and 103, a b o v e .

73
 c l e a r l ) - m o t c r j a 1 j.n. t h e c o n t e x t . o f t h c p a r t i c u l . a r t y p e
of i n s u r a n c e , a n d t ! i a t u n d c r tlic p r c s e n t 1 . a ~t h c i n s u r e r
c a n r e j e c t ..-.--_I
t ~ v e r vc.lnii?! i.n a71 t h e s e casts.
~

i \inrr;lnty i n 2 mnlor policy t h a t the

v c h i c l e i s t o b e k c p t i n a roadicorthy
condition. 1 tic w n r r a i i ~ y is broken.
-.
1112

v c h i c ~ e i s t h e n s t o l e n . I t seems t o u s
t h a t a r r j e c t i o n o f the claim i n such a
C ~ \\*ould
P bc "tccl!nj c a l " : I I > ~ s h o l l l d I?ot.
hc p e r m i t t e d : h e c a u s c t h e t y p e 01 l o s s
which has o c c u r r e d , t h a t j.s t h c f t , was
u n r e l a t c d t o t.he commercial purpose o f
t h i s warranty.

A brokcn warranty as i n (a) but the

vehic1.e i s r u n i n t o i i l i i i e i t i s p n r k c d
w i t h o u t anyone i n i t . It stem t o us
t h a t i n t h i s c a s e i t s h o u l d h c open t o
t h c i n s c r e d , i: iie c s t a b l i s h c s t h c s c
f a c t s , t o resist rc.jrction of the claim
on t h c same p r o ~ i i i d its i n ( a ) .
A w a r r a n t y i n a motor p o l i c y t h a t t h e
i n s u r e d h a s had a d r i v i n g l i c e n c c f o r
10 y c a r s . He h a s i n f a c t o n l y h e l d i t
for 9 y e a r s . The v e h i c l e i s s t o l e n .
I t seen15 t o u5 t i l d t i l ~A i s c a > e , -13 i r .
( b ) , r c j c c t i o n o f t h e claim s h o u l d n o t
b e p e r m i t t e d : t h e p u r p o s c cf t h e w a r r a n t y

74
 was n o t t o g ~ : i ~ (al g a i n s t t h c t y p e o f
l o s s w h i ch i n f a c t o c c u r r c d .

(d) A warranty j.11 a f i d e l i t y policy that

t h c i n su r cc! c c p l o y c r i i i l i c’ilgage lio one
x i i t h o u t f i r s t h a v i n g t a k e n up s s t i s i a c t o r y
r e f c r e n c c s . The e m p l o y e r f a i l s t o do s o
i n r e l a t i o n t o r n ~ L o y c eii v:!:c ; t c n l s h i s ,
C . : ~ ~ O ~ C Z ’ , l h , ~ d . ~ y .Ii: S ~ U I I I S C G u s t h a t tile

i n s u r e r s h o u l d . c l e a r l y bc e a t i t . l c d t o r c j e c t
the c l a i m , because t h c comswrcizl purpose
o f t h e w a r r a n t y was t o g u a r d a g a i n s t t h i s
v e r y t y p e of l o s s ; i t s!iould n o t h e Gpen
t o t h e i n s u r e d t o r e s i s t t h i s by s e c k i n g
t o show, f o r i n s t a n c e , t h a t ,Iw o u l d ha vc
produced s a t i s f a c t o r y o r f o r g e d r e f e r e n c e s
i f lie h a d b e e n a s k e d f o r a n y .

C o n n c c t i c n b e t w e n t h e b r e a c h o f \ J a r r a n t ; and t h e actun: loss,

121. Although t h e i n s u r e r s h o u l d g c n c r a l i y be e i ? t i t l ? d
t o r e j e c t a claim f o r b r c a c h o f a material. warranty i € . t L e
p u r p o s c o f t h e ? < a r r a n t y 1 v i l 5 t c g u a r d a g a i n s t t h e loss o f
the r y p e which h a s i n f a c t o c c i i r w d , i t is s t i l l n c c c s s a r y t o
examine v h c t h c r 9 b r e a c h o f s u c h B w a r r a n t y s h o u l d c n t i t l e
t h c i n s u r c r t o r e j c i t a ciairri i n r e s p e c t of m y l o s s o f s u c h
t y p e . The s i m p l e c a s e i s vhen t h e b r e a c h i s d i r e c t l y
c o n n e c t e d i \ r i t h , o r cv cn c a u s a t i v e oi, t i l e l o s s . I t secms
s e 1 . f - e v i d e n t t h a t t h e i n s u r e r m u s t b e e n t i t l e d . t o reject t h e
c l a i m i n s u c h c a s e s - f o r e x m p l c , where t h e c x t e n t o f a
l o s s by f i r e may h av e b e e n i n c r e a s e d b y t h e b r e a c h o f a
[ ( a r r a n t ) . t G m a i n t a i n a s p r i n k i e r s y s t e m , o r rvherc t h e r e h a s
b e e n a l o s s by b u r g l a r y an d t h e e n t r y by t h e t h i c v e s may
have been f a c i l i t a t e d b y t h e b r e a c h o f a !:‘arrznty t o m:!intain

75
a b u r g l a r alarm. Howevcr, t h e r e will a l s o b e c a s e s j.~. w h i c h
i t would i n o u r vicw b e u n j u s t t o p e r m i t t h e i n s a r e r t o r e l y
on t h e b r e a c h , b e c a u s e tlicre niay b e n o p o s s i b l e c o n n e c t i o n
b e t w e e n t h e brencli and t h e a c t u a l 1 . 0 s ~ . 1~ o r d c r t o
i l l u s t r a t e t h e d i f i c r e n t s i t u a t i o n s w h i c h ca!i a r i s e we s e t
o u t a number o f C u r t h e r c s a m p l c s i n w h i c h t h e r e are
$! f f c y n . i t d e ~ ~ r ’ oncf C n v n e r t i n n hetr..:epv t h e h r e r ~ c hayci ri1.v
l o s s , t o g e t h e r w i t h scme comments. Agai.n .it must be
remembered wlicn c o n s i d e r i n g thesc! e x a m p l e s t h z t a l l t h e
w a r r a n t i e s a r e clearly m a t c r i a l i n t h e c o n t e x t o f t h e
p a r t i c u 3 , a r t y p e of i n s u r a n c e aid t h a t undcr t h e p r e s e n t iau
t h e i n s u r e r can r e j e c t every claim i n all these cases.

(e) The f a c t s a s i n ( d ) i n t h e p r e c e d i n g
p a r a g r a p h , b u t t h e t h e f t i s committed
by s m p l o y e e E who h a s s u p p l i e d
satisfactory xfcrences. I t seems t o
’ u s t h a t , a l t l i c u g l i the :ypc c f l o s s
[ b r e a c h o f f i d e l i t y ) lies w i t h i n t h e
cominerciai a m b i t o f rhe w a r r a n t y
b r o k e n i n r e l a t i o n t o employee A , t h i s
{ a c t s:,oui3 jlU; e , i < i < lLci l e ii;surc.i-
..-.
cu

r e j e c t t h c claim i f t h e i n s u r e d c a n
e s t a b l i s h t h a t t h e r e c o u l d have hecn n o
c o n n e c t i o n between t h c b r e a c h i n r e l a t i o n
t o A and t h e t h e f t by B.

(f! A w a r r a n t y i n a f i r e p o l i c y on a f a c t o r y
t h l t an e f f i c i e n t s p r i n k l e r s y s t e m will
be maintained throughout. A f i r e occurs
i n a w o r k s h o p a t one e n d o f t h e f a c t o r y
where t h e system i s p r o p e r l y m a i n t a i n e d ,
b u t t h e r e i s no s u c h s y s t e m i n a w o r k s h o p
a t t h e o t h e r end t o w h i c h t h e f i r e do,os
not spread. I t seems t o u s t h z t on p r c o f
o f t h e s e f a c t s t h e i n s u r e d s h o u l d be
e n t i t l e d t o r e c o v e r f o r t h e same r e a s o n s
a s in ( e ) a b o v e .
76
 (sJ A iiaryalii). in i: b u r g l a r y p o l i c y t h a t ;I

b u r g l a r :!lam \ < i l l b c i i r a i n t a i n e d cn a i l
doai-5 a n d uinclows t o t h e p r e m i s e s . The
i n s u r c d f a i l s t o niailitain t h e b u r g l a r
nl.ariii i n i i c r k i n g c o n d i t i o n . l' liie vc s g a i n
e n t r y by t u i i n e l l i r i g o r by niaking a h o l c i n
t h e c e i l i n g , a n d ;I l o s s o c c u r s . I t seems
t o u s t h a t t h e i n s u r e d s!iould o n l y bc: a b l e
t o ...A.--..A- : r I... .... i J ;ab;;5;l
- - - . - s . - - .LA I L L . C L l l l i i i u L i l l ai.i
t h e c i r c m s t m n c e s h i s f a i l u r e tcj m a i i i i a i i i
t h e b u r g i a r a l a r m c o u l d ha1.e hc d n o
connection w i t h t h e l o s s x h i c h Gccurred.

Although such examples i n tliemsclves rcp.reseiit u n u s u a l

s i t u a t i o n s i n c o m p a r i s o n 1:-i t h t h e g c n r r a ? r u n o f i n s u r a n c e
claiiiis, t h e y could o f course b e m i l l t i p l i e d indcfinite2.y. In
many, p c r h n p s t h e g r e a r n a j o r j . t y : t h c a s w e r vihich j u s t i c e
r e q u i r e s may w e l i b e o b v i o u s . I!owever, i n some i t w i l l n o t
b e , and i t i s n e c e s s a r y t o d e v i s e 3 s a t i s f a c t o r y t e s t f o r
d e a l i n g w i t h a l l . o f them. T h e t e s t 1\711Fch we F ' C P O S ~ i s t h e
t e s t s u g g e s t e d by e x a m p l e ( g ) a l c v e : t h e i n s u r e r sho:ild on1.y
b e d e p r i v e d o f hi., r i g h t tc r e j e c t a clair.! f o r R bi-i.;c.il of
a m a t e r i a l w a r r a n t y , t h e p u r p o s e o f which was t o g a a r d a e a i n s t
l o s s o f t h e t y 9 e which i n f;rc+ o c c c r r c d , F E t h e i n s u r - l C G
e s t a b l i s h t h a t t h e b r e a c h could have had no connzction w i t h
t h e a c t u a l l o s s . IVe w i l l f i r s t e l a b o r a t e upon t h e t e s t
w h ic h we p r o p o s e m.d t h e n d i s c u s s s h o r t l y o t h e r t e s t s whic!:
we have c o n s i d e r e d and r e j e c t e d .

Our p r o p o s e d t e s t
122. A more d e t a i l e d e x p l a n a t i o n of t h e t e s t w h i c h we
p r o p o s e is as fol1ov;s:

( a ) The w a r r a n t y must b e m a t e r i a l t o t h e r i s k .

(b) The t y p e o f l o s s must. f a l l v i t h i n t h e

coiiaci-eial p u r p o s e of t h e w a r r a n t y .

77
P i a c i n g t h e oniis uiidcr { d ) on t h e i n s u r c d r e q u i r e s l i t t l e
coniinent. A p a r t from f h c f a c t t h a t rhc o v e r r i d i n g t e s t s i i o u l d
bc t h a t unclcr ( c ) , s o t h 3 t t h c o n u s o f s a t i s f y i n g ( d ) s h o u l d
n a t u r a l l y € a l l on t h e i . n s u r e d , t h e n e c e s s a r y f a r - i s i n o r d o r
t o s c e k t o s a t i s f y ( d ) w u l d u s u a l l y b e l i k e l y t o be w i t h i n
t h e kliOkJleclgt: o f t h e i n s u r c d , r a t h e r t h a n t h e i n s u r e r .

Other p o s s i b l e s o l u t i o n s
-

123. Ife l l i t i s t m e n t i o n a number o f p o s s i b l e a l t e r n a t i v e

s o l u t i o n s which we h av e c o n b i d e r e d i.n r e l n ? i o n t o p a i a g r a p k x
1 2 0 - 1.22 which a p p e a r u n s a t i s f a c t o r y t o u s .

(a) A t . e s t of " r e a s o n a b l e n e s s "

For t h e r e a s o n s a l r e a d y s t a t e d a bove ,18' we

do n o t c o n s i d e r i t s a t i s i a c t o r y t o m a i n t a i n
tlie law i n i r s prcserit f o rm s u b j e c t t o t h e
s e 1f - impos ed "S t a temcn t s o f P r a c t i ce"
c o x e r n i n g "consurner" i n s u r a n c e w hic h a r e
n o t l e g a l l y e n f o r c e a b l e and u n d e r w hic h t h e
i n s u r e r s a r e themselves t h e j u d g c s o f
r e a s o n a b l e grounds f o r r e p u d i a t i o n .
The q u c s t i o n i s t h e n w h e t h e r a t e s t o f

186 See p a r a s . 4 - 1 0 , above.

78
 r e a s o n a b l e n e s s s h o u l d be l e f t t o t h e
covrts. .Altiiough WE! were i n f a v o u r o f
such a test i n t h e context of exemptim
c l a u s e s i n c o n h r z c t s o f insu:-znce, 1 8 7
t h e s e were u l t i n i a t c l y o n i t t e d Eron t h e
s c o p e o f tl?c Ur.fair C c , r . t r a c t ? c r m
A c t 1 9 7 7 . E x p e r i e n c e will n o d o u b t show
w h e t h e r t h i 5 poli.cy decision ~ 1 rsi g ! ? % , b u t
we c a i i c e T t a i r . ? y s e e n o s t r o n g c r r c a s o i ; for
appiying a reasonnblcness t e s t t o breaches
of inaterin! m r r a n t i e c t h a n f o r a p p l y i n g
s u c h a t e s t t o e x e w p i i o n c l z u s e s . @RC c a n
s e e t h a t s u c h a t e s t m i g h t i n a n y e v e n t be
open t o t h r c r i z i c i s n t h n t i t c r e a t e s t o o
much u n c e r t a i . n t y : t h e w a r r a n t y on x h i c h t h e
i n s u r c r w o u l d s e e k t o r e l y would a l m o s t
c e r t a i n l y be t e i s o n a b l c i n i t s e l i , s i n c e
i t s m a t e r i a l i t y t o t h e cover i n question
i s a s s u m e d . T!ie i s s u s f o r t h e c o u r t iqnuld
t h e r e f o r e be w h e t h e r i n a l l t h o
circumstances i t i s reasonable t h a t tF:e
i n s u r e r s h o u l d be c n t i t . l e d t o r e j e c t a
c l a i m on t h e g r o u n d o f a b r e a c h o f i t .
T h i s may r e 1 1 be t h o u g h t t o b e t o o w i d c ,
a t a n y r a t e w i t h o u t some g u i d c 1 i r . e ~ w h i c h
w o u l d i!i t h e m s e l v e s have t o i n c l u d e t h e
k i n d o f t e s t s w h i c h we a r e h e r e c o n s i d c r i n g .
!\re t l ! e r t i o r p tb,j.nk f!::t 5 7 ...-..I
'.UL.-L L- L-*---
..iU - - L - .

t o devise a definitive t e s t .

187 See OUT S e c o n d R e p o r t on Exemption C l a u s e s ( 1 9 7 5 )

Law Corn. No. 6 9 ; S c o t . Law Corn. No. 3 9 , p a r a s .
745-21?.

79
(b) Csusation

We c o n s i d e r c d a t e s t s i m p l y based on
causation, t h a t is t h a t insurers shouid be
e n t i t l e d t o r c j c c t a clzim f o r a b r e a c h o f
any n i a t e r i a l w a r r a n t y u n l e s s t h e i n s u r e d
shows an a b s e n c e o f any c m s z ~connection
b~~.,.Jf..> t b L C b y e s & &e 7
I U ~ > . O u r xilain
reason f o r r e j e c t i n g t h i s t c s t i s t h a t j.t
slight o f t e n h a d t o i n j u s t i c e t o t h e iiisurer
and would i n a n y e ~ e i i tLe l i k e l y t o
l e a d t o a f l o o d of l i t i g a t i o n , o f t e n
w i t h o u t p r o v i d i n g any s a t i s f a c t o r y answer.
l-or i i i s t a n c e , i n exainple (d) i n p a r a g r a p h
1 2 0 a b o v e , wc t h i n k t h a t t h i s would b e t h e
case. I t seeins t o u s t h a t i n t h i s c z s e
the insurer should bc entitl.cd t o r e j e c t
t h e c l a i m e v e n i n t h e a b s e n c e of any
provable c a u s a l connection, because t h e
comer.cia1 purporc o f t h e warranty is
c l e a r l y t o g u a r d a g a i n s t t h e r i 5 k of t h e
a c t u a l l o s s , znd I;ecau.;c t.lie b r e a c h i s
prima f a c i e s u f f i c i e n t l y c l . o s e l y c o n n c c t e d
w i t h i t t o l e a d t o t h e c o n c l u s i o n t h a t t!ie
a b s c n c e cf m y c a u s a l c o n n e c t i o r , s h o u l d b e
r e g a r d e d a s i r r e l e v a n t . I n e xa m ple (d) i t
mi g h t w e l l be u n c l e a r w h e t h - r o r n o t t!ie
e m p l o y e r w o u l J h a v e e n g a g e d e m ploye e A h a d
h e t a k e n up r e f e r e n c e s , a nd t h i s s h o u l d
c l e a r l y be i r r e l . e v a n t t o t h e i n s u r e r ' s r i g h t
of r e j c c t i o n ; s i m i l a r l y t h e m p l o y e r s h o u i d

80
 i n s u c h a c a s e n o t be e n t i t l e d t o invoke
t h e rirgurnent t h a t t h e r e i c r e n c c s w o u l d
have bccn wholly s a t i s f a c t o r y i f h e had
t a k e n tlicn ap. I n such C ~ S C Sa tcst
req u i 1-i n g c nus a 1 c oiin c? c t i on b e twc cn t h e
b r c a c h a n d t h e l o s s wouid. n o t p r o v i d e any
s a t i . s f a c t o r y answer; y e t CQ~!!OQII srnse
,~ 1 i i.,' ij.u* .,;ieii
U.U .?ic=Laie t;-,..L~ r L j . u i . i - 1 5
should b c c n t i t l e d t o r c j e c t thc claim.
0thcriv.ise t h e s a f e g u a r d t o t h e i n s u r e r
o f compliance w i t h m a t e r i a l w a r r a n t i e s
would b e s u b s t a n t i a l l y eroded.

( C) Rc iis o-iab le f nresee atr i 1i t y

Another t e s t which I ~ Chave on b a l a n c e

r c j e c t c d i s w h e t h e r a t t h e time o f t h e
b r e a c h i t would have b t e n r e a s o n s h l y
f o r e s e e a b l e t h a t t h e act.ua1 l o s s might
ensue f r o m t h e b r e a c h i n question. A t
f i r s t s i g h t t h i s appcai-s to be B more
a t t r a c t i v e t e s t than t h a t o i cnusal
c o n n c c t i o n , because t h e c c u r t s have on
t h e whole Ioimd r e a s o n a b l e l o r s o e a b i l i t y
a s a t i s f a c t o r y and f l e x i b l z t e s t i n t h e
law of t o r t . f!owever, we t h i n k t h a t
a l t h o u g h t h i s t e s t h a s proved s z t i s f a c t o r y
i n d c t e r m i n i n g w h e t h e r a "duty)'
r e l a t i o n s h i p e x i s t s b e t u e e n A and B by
reason o f t h e i r s i t u a t i o n v i s - a - v i s e a c h
o t h e r , i t h a s proved much less s a t i s f a c t o r y
when u s e d a s a b a s i s f o r d e c i d i n g w h e t h e r A
i s l e g a l l y l i a b l e to B f o r an a c t u a l loss
o f a p a r t i c u l a r type which B h a s s u s t a i p c d
a s a r e s u l t o f a b r e a c h by A. Its
a p p l i c a z i o n for t h i s p u r p o s e i n t h e r u l e s
a s t o remotencss of damage i n t h e law of
t o r t has given r i s e t o d i f f i c u i t

81
 ( c ) :.'L.c p r e s c r i t l a w o f h - : i y r a n t i . e s Fi8ij.s t o
strike R f a i r i ~ a l r j n c cbetwecn t h e i n s u r e r
-._.I
air..
.I.
L..L
_, .:.
i.:L":2; :
.A
.
. _.
"L'&.,C
.
\.,,;1\::.2!r
.
LO-1
.9.2

changed ( p a r a g r a p h s 106-1072.
( b j Thc s y s t e r n O F w a r r a n t i e s s h o u l d be
retained; i n p a r t i c i l l a r a c o i i t i n i t i n g
d u t y to r i o t i i y i n c i e a s e s ur' t h e risk
t a ~ l dx o t 5 c a p p r o c r i a t e € o r c o n t r a c t s

18s S e e , f o r examp's, S m i t n v . Leech BraiA 119621 2

Q . B . 4 0 5 and T r e m a G T Pike 1196YJ 1 W.L.R.
1556.

82
 o t h e r than t h o s e o f l o n g d u r a t i o n and
i t w o u l d b e u 2 c s i r a b i e t.3 s u p e r i n p o s c
i t on E n g l i s h i n s u r a n c e law a nd
p r a c t i c . e ( p a r a g r a p h s 1.09-114).

( c ) l’he s y s t e m o f w a r r a n t i e s sho:ild
h o wev er b e n i o d i f i c d : a tcrin s k o u l d
only be cffccli.ve as a wairanxy i f it
1.5 m a t e r i a l t o t h e r i s k and t h e r i g h t

of t h e i n s u r e r t o r e j e c t a claim w he re
t h e r e has b e e n a b r e a c h of a m a t e r i a l .
warranty should be r e s t r i c t e d
(paragraphs 115-123).

j d ) A term o f a c o n t r a c t o f i n s u r a n c e s h o u l d
o n l y b e e ’ f f c c t i v e as a w a r r a n t y i f i t i s
material t o the r i s k , i n the sense t h a t
i t i s a!i u n d e r t a k i n g wh i ch w o u l d i n f l u e n c e
a p r u d er i t i n s u r e r i n d e c i d i n g w h e t h e r t o
a c c e p t i h e r i s k and i f s o ;It w n a t
premium ( p a r a g r a p h ilS).. The c n u s s h o u l d
b e on t h e i m u r c r t o p r o v e t h a t t h e
w a r r a n p i b r o k e n u a s m a t e r i a l t o t h e risk
( p a r a g r a p h i16j.

( e ) I f t h e i n s u r e r d i s c h a r g e s t h e onus o f
p r o v i n g t h a t thE b r o k e n w a r r a n t y was
m a t e r i a l t o t h e r i s k , and t h e f o r m a l
-A .
-bq3:-L,~ ,.,..-- ---:I- - 2 I., (g; bCi“K ha”%
..-_..=*. de-L,A.J1.I
b e e n s a t i s f i e d , he w i l l b e e n t i t l e d t o
r e p d i a t e t h e p o l i c y a s from t h e d a t e 3f
t h e b r e a c h w i t h t h e c o n s e q u e n c e t h a t lie
can a l s o r e j e c t a 1 1 claims f o r l o s s e s
occurring a f t e r repudiation (paragraph
119).

a3
(f] The i n s u r e r s h o u l d b e e n t i t l . e d t o
r c j c c t a c l a i m i n r c s p e c t o f i? l o s s
occurring a f t e r t h e d a t e of the breach
of a m a t e r i a l u a r r a n i y but before
r e p u d i a t i o n of t h e p o l i c y i f t h e purpose
o f t h e w c i r r a n t y was t o gi.iarci a g a i n s t a
l o s s o f t h e t y p e w hic h i n f a c t o c c u r r e d ,
-1. -
..-7 - I -

LJLG i n s i i i - 4 e s f a b l i s i i e s . i n [.he
c i r c u i i i s t a ~ i c e so f a p a r t i c u l a r c a s e , t h a t
t h e b r e a c h c o u l d ha ve had nc c o n n e c t i o n
w i t h t h e l o s s ( p a r a g r a p h s 120-123).

( g ) itliere n o p r o p o s a l form has be e n c o m p l e t e d

an d t h e i n s u r e d h a s g i v e n a p r o n i s s o r y
warranty or a warranty a s t o Fast o r
p r e s e n t f a c t i t should be i n c o r p o r a t e d
as a n i n d i v i d u a l term on t h e € a c e of t h e
p o l i c y (or i n an endorsement tnercon) i f
t h e r e i s o n e . I f however 110 p o l i c y i s
e v e r i s s u e d , o r i.f no p o l i c y i s i s s u e d
w i t h i n 3 r c a s o x b l e t i n e o f t h e warraiity .
h a v i n g b ecn g i v e n , t h e i n s u r e r s h o u l d b e
ry1.iird to c c n f i r m , i n x r i t i n z and x i t ! i i x

a r e a s o n a b l e t i m e , t h e w a r r a n t y g i v e n by
the insured. If t h e i n s u r e r f a i l s t o
comply w i t h t h e s e f o r m a l r e q u i r e m e 3 t s h e
s h o u l d b e p r e c l u d e d from r e i y i n g on a
a--.
I i e a c l i I;? tile i V r 8 i c i i i i j in qbesLioIi i n
order t o repudiate the policy o r reject
a claim. Nevertheless, i f B l o s s occurs
in t h e interim, before a reasonable t i m e
h a s e l a p s e d f o r t h e p r o v i s i c r : by t h e
insurer of such written confirmation,
then the i n s u r e r should be e n t i t l e d t o
r e l y on a n o r a l w a r r a n t y ( p a r a g r a p h 118).

54
Geii e r A 1

126. The p r o p o s a l s c o n t a i n e d i n A r t i c l c s 2 , 3 a nd 4 o f t h e
d r a f t d i r e c t i v e woilj d pl-ovicle a n a l t e r 1 1 a t i v e i:u t h o s e i u l e s
o f o u r p r e s e n t law of i n s u r a n c e which f a l l w i t h i n t h e i r s c o p e .
I\r:ic?c 2 d c a l s i;ith t ! ; c d u t y G $ t h ~insiii-cd it pioi;idC.
c e r t a i n i n f o r m a t i o n t o t h e i n s u r e r p r i o r t o tlie c o i ~ c l ~ i s i oo ~f i
t h e c o n t r a c t ; b o t h t h e a m b i t o f t h e d u t y and t h e c c n s e q u e n c e s
o f a b r e a c h d i f f e r f r o m o u r p r e s e n t law o f n o n - d i s c l o s u r e . It
t h e r e f o r e pra.ditles an a l t e r n z t i v e a p p r o a c h t o t h e law o f
non-disclosure. A r t i c l c 3 dcals with the duty of t h e insured
t o d e c l a r c c e r t a i n c h a n g e s i n c i r c u m s t a n c e s w hic h o c c u r a f t c r
t h e c o n t r a c t has bcen c o n c i u d e d a n d o n c e a g a i n t!ie c o n s e q u e n c e s
o f i t s b r e a c h a r e s e t o u t . Under o u r p r e s e n t law n o s u c h d u t y
e x i s t s b u t tlie i n s u r e r i s o f c o u r s e e n t i t l e d t o i n c l u d c
w a r r a n t i e s i n t h e c o n t r a c t o f i n s u r a i i c e w i t h which t h e i n s u r e d
i s bound s t r i c t l y t o comp1.y. A r t i c l e 4 d e a l s w i t h t!is e f f e c t
of a d i m i n u t i o n of t h c r i s k w h i l e t h e c o n t r a c t i s i n f o r c e ;
o u r p r e s e n t law makes n s p r o v i s i o n ir. t h i s r c g a r d . !xitiClcs 3
and 4 t h u s p r o v i d e an a l t e r n a t i v e t o o u r p r e s e n t sy ste m o f
warrmtics.

127. The c o n s i d e r a t i o n s o f p o l i c y u n d er1yir.g t h e t h r e e

A r t i c l e s a r e , i i r s t , t h a t t h e i n s u r e r s h o u l d be g i v e n t h e
p r o t e c t i o n he needs i n o r d e r t o b e a b l e t o run h i s b u s i n e s s
an;, s c L o i i i . ; ~, t i , a c ~ i , ci I I J t i r t C i jiidu;C; L s g i s e n tile p i o t e c t i o i i
and s e c u r i t y which he i s e n t i t l c d t o e x p e c t from a c o n t r a c t o f
i n s u r a n c e . The p u r p o s e o f t h e A r t i c l e s , t a k e n t o g e t h e r , i s
<
t o s t r i k e a f a i r b a l a n c e b et ween t h c s e c o n s i d e r a t i o n s . Our
p r e s e n t 131.: g i v e s e f f e c t t o t h e f o r m e r c o n s i d e r s t i o n h u t a t
t h e e x p c n s e o f t h e l a t t e r 1 8 ’ and 1L.e t h i n k i t r i g h t t h a t a
f a i r e r b a l a n c e s h o u l d be s t r u c k . We t h e r e f o r e welcome . 4 r t i c l e s
2-4 a s a move i n t h e r i g h t d i r e c t i o n . However, we a r c n o t
c o n v i n c e d t h a t t h e y p r o v i d e t h e b e s t way o f s t r i k i n g a f a i r e r
-
189 See p a r z s . 35-41, 80-81, 2nd 1 0 6 , a b c v e .
85
(i) A l t e r n a t i v e a p p r o a c h t o t!Te law o i n o n - d i s c l o s u r e

I n t r o du c t i on

128. I n P a r t I1 o i t h i s i i o r k i n g p a p e r w e have ccnsiclcrcd

t h r e e p o s s i b l e ways of r e f o r m i n g oiir l a w o f n o n - d i s c l o s u : : : . The
s e c o n d o f t h e s e ways ( r i h i c h \ce do n o t r e c o m e n d ) i s t)ic
r e t e ~ ~ t j oonf t h e e x i s t i n g d u t y o f d i s c l o s u r e 'cut t h e
introduction of the propartioriality principic. This is
s u b s t a n t i a l l y t h e a p p r o a c h takcri b y A r t i c l e 2 o f t h c d r a f t
directive. The A r t i c l e c o n t a i n s d e t a i l e d p r o v i s i o c s v:ith
~ e ~ a rt od t h e iiisureci's d u t y o f d j . s c l o s u r e p r i o r t o t.iie making
of a c o n t r a c t o f i n s u r a n c e , t h e v a r i o u s w a y s i n whic!i t h e d u t y
may b e b r o k e n , tlie c o n s e q u e n c e s o f b r e a c h i n e a c h c a s e ai?d t h e
e f f e c t c f b r e a c h on s u b s e q u c n t c l a i ! ~ . The p r o v i s i o n s a p p e a r
t o b e i n t e n d e d on t h c o n e h a n d t o p r o - v i d e t h e i n s u r e r i i i t h a i l
CL..
i.ll
inf3.."..."
....L&:.,..A"hc Z"??.F 5"- t e n :??SP=5!!!?6'- ci +!?? ?-is'.: R t ?!-&a
d a t e t h e c o n t r a c t i s e n t e r e d i f i t o a n d on t h e o t h e r t o e n a b l e
t h e I n s i l r e d t o make a p r o p o r t i o n a t e r e c o v e r y o f h i s c l a i m
w h e r e h i s b r c a c i i d o e s n o t j u s t i f y t h e r e j e c t i o n of t h e c l a i m
in its entirety. I n t h i s \Gay t h e A r t i c l e s e e k s t o b a l a n c e t h e
i n t e r e s t s of i n s u r e r and i n s u r e d .

129. The p m v i s i o n s o f . 4 r t i c l e 2 d i f f e r from o u r p r e s e n t

l a w i n two m a j o r r e s p e c t s . F i r s t , w h e r e a s u n d e r O U T 131s. a
m a t e r i a l n o n - d i s c l o s u r e by t h e i n s u r e d e n t i t l e s t h e i n s u r e r
t o r e p u d i a t e t h e p o l i c y i r r e s p e c t i v e of whether t h e i n s u r e d
86
tias a c t e d i n i i o : - e r : t ~ y , n e g l i g e i i t l y o r i r n u d u l c n t l y , 1 9 0 t11e
consequences of :I b r c a c l i o r :lie d11t.y p r a s c r i b c d b y r l r t j c l v 2
d c p e i 1 d upon t h e n a t u r e of t h o i n s u r e d ‘ s b r c a c i i . 191 Secondly,
\ \ . h e r e a s u n d c r o u r 1a:i a n i a t c r i a l !ion-disclost::-c 1;y :lie
i n s u r e d e n t i t l e s thr i n s u r e r t c r e f u s c t o pay a n y p a r t o i 3

claii.i, A r t i c l e 2 pcrnii t s p r o p o r t i o n a t c x c c w r y in soil~e

cases. ii‘e m i i s t noi\’ e x a m i n e tile p r o v i s i o n s o f A r t i c l e 2 i n
-.
r l l -.
v ~ cd c . ’ c a i l .

The d u t y

130. A r t i c l e 2 (1) p r o v i d e s t h a t p r i o r t o t h e c o n c l u j i o l l
of t h e c o n t r a c t t h e i n s u r e d s h a l l d i s c l o s e t o t h e i n s u r e r any
c i r c u m s t a n c e s o f rcliicli he i s a w a r c which may i n f l u e n c e t h e
i n s u r e r ’ s aSSeSScicr1t o r a c c e p t a n c e o f t h e r i s k , s a v e f o r
c i r c u n i ~ t a n c e sa l r e a d y known t o t h c l a t t e r o r wliicii a r e coninon
knowlcdge. F a c t s a s t o which s p e c i f i c q u e s t i o n s a r c n s k e d i n
w r i t i n g a r e t o b e r e g a r d e d a s i a a t e r i a l i r i t h e a b s e n c e of p r o o f
t o t h e c o n t r a r y a n d t h e i c s u r c d mast r e p l y t o them f u l l y 2r.d
accurately.

131. The d u t y d i f f e r s s l i g h t l y from t h e e x i s t i r i g d u t y o f

d i s c l o s u r e i n I i n g l i s h law i n t h a t t h e m a t e r i a l . i t y o f 2
p a r t i c u l a r f a c t i s t o be j u d g e d n o t by r c f e r c n c e t o w h e t h e r i t
would i n f l u e n c e t h e assessment o f t h e “ p r u d e n t i n s u r e r ” l S 3
b u t by r e f e r e n c e t o & h e t h e r i t would i n f l u e n c e t h e a s s e s s m e n t
of t h e a c t u a l i n s i r r e r . The d r a w b a c k i n b o t h cases i s t h a t t h e
s t a n d a r d o f d i s c l n q u r s t h ? ? . t h e ir.sor:l is r;q-;;.zd iG nice;
i s o n e w h i c h he has n o means o f a s s e s s i n g . With r e g a r d t o
t h e t e s t i n A r t i c l e 2(1) i t seems t o 11s t h a t i n p r a c t i c e i t
would b e e x c e e d i n g l y d i f f i c u l t f o r t h e i n s u r e d t c l e a d
evidence t o controvert t h a t of the a c t u a l insurer.

190 See p a r a . 25, above.

191 See p a r a s . 135-140, below.
192 S e e p a r a . 1 4 3 , below.
193 See p a r a s . 23-24, above.
194 See p a r a s . 37-38, above.
a7
132. The i n s u r e d ' s d u t y i s c o n f i n c d t c tlic c l i s c l o s u r c of
t h o s e c i r c u n s t , a n c c s o f which he i s a w n r c ; An i n s u r e d ~ o u l d
n o t t h e r e f o r e bc i n b r e a c h o f h i s d c t y ii h e r a i l e d t o
d i s c l o s e f a c t s v l i i c h h e d i d n o t kiioli btit ~ c ! ~ i c !ie
h ought. t o
h a v c known. Ke t h i n k c h a t Llieri i s a c z s c [ o r a t t r i b u t i n g
t o t h e i n s u r e d scmc d c g r e c o f c o n s t r u c t i v e k ~ i o i ~ r l e d garid e~~~
i 96
ZUT \'i~1:! ! S ~ h a r c ' t i i > v ~ l i c~ o x i t c 1lurnp4rrn
' CICS A s s u r a n c e s
( h e r e a f t e r r e f e r r e d t o a s Li,e C . E . A > w!i3 have s u g g e s t c d t h a t .
t h e d u t y s h o u l d e s t e n d t o c i r c u m s t a n c e s known t o t h e i n s u r e d
o r which h e c a n r e a s o : i i b l y ue expec'icd t o know.

133. Therc i s a presumption t h a t f a c t s a s t o uliich

s p e c i f i c q u c s t i c n s h av e becn n s k r d i n w r j t i n g a r e m a t e r i a l .
T h i s p r e s u m p t i o n seems t o assumc t h e u s e o f p r o p o s a l i o r m s
by i n s u r e r s . lShilc w e a g r c e t h a t t h e r e s h o u l d be a
p r e s u m p t i o n t h a t € a c t s a s t o whi.-h q u e s t i o i i s h;ve b e e n asked
on a p r o p o s a l f o r n a r e m a t e r i a l , o u r p r o v i s i o n a l v i e w , a s
e x p l a i n e d i n P a r t 11,198 i s t h a t n o f a c t s h o u l d b e t r e a t e d
a s m a t e r i a l u n l e s s i t forms the s i ~ b j e c t - i i ~ a t t oe f~ a q u e s t i o n
i n r h e p r o p o s a l rorm. I c a l s o a g r e e t h a t t h c i n s u r e d s h s u l d
p r o v i d e full and a c c u r a t e a n s w e r s t o s p c c i f i c q u e s t i o n s i n
.
WI i t i i i g

i n w hi ch t h e d u t y may-ke broken
134. A r t i c l e 2 l a y s dolin t h r e e ways i n w hic h t h e d u t y may
b e b r o k e n by t h e i n s u r s d :
(i) Under A r t i c l e Z ( 2 ) h e may h ave b r o k e n i t
i n n o c e n t l y ; 199

195 For o u r p r o v i s i o n a l reconmendation i n t h i s r e s p e c t ,

s e e p a r a s . 63-64, 7 0 , an d 9 7 ( d ) and ( f ) a b o v e .
196 The C o mi t d Europe'en d e s A s s u r a n c e s i s a body
r e p r e s e n t i n g t h e E u r o p ean i n s u r a n c e i n d u s t r y .
197 For a d i s c u s s i o n of p r o p o s a l f o r m s see p a r a s . 6 5 - 7 7 ,
above.
198 A t p a r a s . 66 an d 9 7 ( e ) ab o v e .
199 The term " i n n o c e n t l y " i s n o t u s e d i n A r t i c l e 2 ( 2 ) of
t h e d r a f t d i r e c t i v e b x t we u s e i t h e r e t o d i s t i n g u i s h
a b r c a c h u n d e r A r t i c l e 2 ( 2 ) frorr, t h e o t h e r ways i n
w h i c h t h e d u t y may b e b r o k e n .
88
 (ii) Undcr A r t i c l e 2 ( 3 ) h e may h av e b r o k e n i t a nd
"may b c dccincd t o h av e a c t e d i m p r o p e r l y " ; 2 0 0

(iii) Under A r t i c l c 2 ( 4 j h e may have broheri i t

w i t h t h c i n r c i l t i o n 01d e c e i v i n g i h o i n s u r e r .

The c o n s e q u e n c e s o f b r e a c h will b e a i z f e r c n t i n c n c h c a s ~ . ~ "

1.55. *rile: c?xpb.i-i.ence c ~ tf h e ~ ! i g l i s h c o i i r x s i.5 t i ? n r Eiie

most u s u a l c a s e 01 n o n - d i s c l o s u r e i s wherc t h e i n s u r e d h a s
beer, n e i t h e r f r a u d u l c n t n o r f i e g l i g e n t . Indeed, t h e
f o r m u 1 a ti c : i c f A r t i c l e 2 a t f i r s t s i g h t a l s o s u g g e s t s t h a t
innocent breaches undcr A r t i c i e 2(5) w i l l be t h e usual case
and t h a t b r e a c h e s u n d c r A r t i c l c Z ( 3 ) and 2 ( 4 ) w i l l b e t h e
e x c e p t i o n a l c a s e s . !lowever w e u n d e r s t a n d f r o m t h e numerou,
m e e t i n g s w h i c h havk b e e n h e l d w i t h t h e Commission o f t h e
E u r o p e s n Communitics i n B r u s s e l s t h a t A r t i c l e 212: i s G n l y
i n t e n d e d t o c o v e r e x c e p t i o n a l c a s e s 'aidwc t h e r e f o r e f e e l
t h a t t h e s t r u c t u r e o f A r t i c l c 2 ( 2 ) , 2 ( 3 ) a n d Z ( 4 ) is
m i s l e a d i c g . It!, u i d e r s t z n d thz: i t i s i n t e n d e d t!,at a b r e a c h
o f d u t y m d e r A r t i c l e 2 ( 1 ) w i l l o n l y come w i t h i n A r t i c l c 2 ( 2 )
i i i t a r i s e s as a r e s u l t o f f a c t o r s o u t s i d e t h e c o i i t I o i o f
t h e i n s u r e d a s , f o r e x a m p l e , wh er e t h e l e t t e r ! d i s c l o s i n g t h e
f n c t s ir. lcst i n *-L* ci.ci past. I f t h i s i s cci-xc'. t h c n innocca:
b r e a c h e s a n d b r e a c h e s wh er e t h e r e i s an i n t e n t i o n t o d e c e i v e
t h e i n s u r e r w i l l o b v i o u s l y b e t h e e x c e p t . i o n a 1 c a s e s and
i m p r o p e r b r e x h e s will b e t h e u s u al . s i t u a t i o n . Ne s h a l l b e
d e a l i n g w i t h t h e p r o v i s i o n s of A r t i c l e 2 on t h i s b a s i s .
h i o r h e r yrobieiri i s t i i a ~it. may b e d i f f i c u l t io d e c i d e wiien

200 The u s e o f t h e \cord " i m p r o p c r l y " i n t h i s c o n t e x t

seems t o b a b a s e d on p r i . n c j . p l e s o f Gerinan 1a!i
w h e r e b y a b r e a c h o f c o n t r a c t i s co mmi t te d Oilly i f
in addition t o breakin2 the contract the guilty
p a r t y i s " r e s p o n s i b l e " f o r n i s b r e a c h and h e i s
only "responsible" f o r it i n t h i s sense i f the
b r e a c h h a s b e e n c o m m i t t e d by h i m " n e g l i g e n t l y o r
i n t e n t i o n a l l y " : s e e E . J . Cohii, !!anual o f Gcrfian Law
( 2 n d e d . , 190s) V o l . 1, p a r a s . 2 2 0 - 2 2 1 .
201 S e e p a r a s . 1 3 8 - 1 4 0 , b el o w.
89
t h e i n s u r e d has brvkcm the d u t y w i t h t h c i n t e n t i o n o f d c c c i v i r . g
the insurcr. I t i s n o t c l e a r w h e t h e r t h e t e r m '?ii tii t h c
i n t e n t i o n O F d c c e i v i : ? g t h c insurer" h a s t h e same incaning as
" f r a i . i d u l . c n t 1 . ~ ". I~Io!icver, f o r t h e a v c i d z n c e o f d o u b t i t seeins
p r e f e r a b l e t o use t h e i a t t c r term.
_.
ui5(;oyci i;. :-,-:., -..-.-
._
.LC..
,-;
i-i..:.
_-
L,."r,.C
Lt:.:'-.--.

136. Tlic f i r s t p a r t o i A r t i c 1 . e 2 ( 2 ) ( a ) e n v i s a g e s a
s i t u p t i o n i n wh i ch t . h e r e has b e e n n o bi.eac!i of d u t y by t h e
i n s u r e d and i n wliich c i r c u m s t a n c e s which w e re unknown t o bot!i
p a r t i e s whcn t h e c o n t r a c t was c o n c l u d e d s u b s e q u e n t l y c3me t o
l i g h t . T h e c o n s e q u e n c e s are t h e sane a s w he re t h e r e h a s b e e n
a n i n n o c e n t bre3c.h o f d u t y b y t h c i n s u r e d . 2 0 2

Burden o f p r o o f
_I_

137. The b u r d e n o f p r o v i n g i m p r o p e r o r " f r a u d u l e n t "

c o n d u c t i s on t h e i a s u r e r . 205 A r t i r i c 2 i s s i l e n t on t h e
b u r d e n of p r o o f wh er e t h e b r e a c h i s i n z c c e n t .

C o n s e q u e n ces o f b r e a c h
133. Whcrc t h e i n s u r e d h a s b r o k e n rhe d u t y and may b e
deemed t o h a v e a c t c d i n p r o p e r l y t h e i n s u r e r h a s t h e o 3 t i o n c t
t e r m i n a t i n g t h e c o n t r a c t o r o f p r o p o s i i i p an amendment o f i t s
terms. 204 I f t h e c o n t r a c t i s t e r m i n a t e d t h t i n s u r e r m i s t n a k ?
a p r o p o r t i c n a t c r e f u n d o f t h e premiuni i n r e s p e c t of i h e p e r i o t i
for which c o v e r h a s n o t b e e n p r o ~ i d e d . ~ " I f t h e i n s u r e r
p r o p o s e s an amer.dment t o t h e c o n t r a c t t h e i n s u r e d may a c c e p t
o r r e j e c t it. I f h e r e j e c t s it o r f a i l s t o r e p l y w i t h j n t h e
time a l l o w e d t h e i n s u r e r may t e r m i n a t e t h e c o n t r a c t upon
g i v i n g n o t i c e . 206
~~

202 S c e p a r a . 1 3 9 , b el o w.
203 A r t i c l e Z(5).
204 A r t i c l e Z(3).
205 A r t i c l e Z (3) (b) .
206 Article 2 (3) ( a ) .

90
139. h'herc t h c i n s u r c d ' s breach o f d u t y l i a S i n n o c e n t t h c
i n s i l r e r niay p r o p s e an aciendcient. O E t h c tcrrns G f t h e c o i l t r a c t
b u t !ie i s n o t e r i t i t l e d t h c r c arid t h e n t o te ri!iiria te tlic
coii t i - a i l t . '07 ~ i i cp r o c e d u r e f o r p r o p o s i n g 51-1 aiiiciidinent i s
i d c i i t i c a i w i t h r h n t o u ' i l i n c d a b o v c . 'OS ~f t~:c i n s u r e r
t c r n i i n a t e j tiic c o n t r a c t i n a c c o r d a n c e w i t h t h ~p r o c c d u r e € o r
ainend~nent he n w s t make a p r c p s r t i o n a t c r c f u n d o f prenijuiii i r i
?nn
, , s p c c t 05 aiiy pi.i.iod ~ I > Vv h i r i ? co?rcr ~ R F .:lot br..:
r- ;yz>;:z~j.

140. Where t h c i r i s u r c d h a s i a i l c d t o comply v i t h t h e d u t y

w i t h tile i n t e n t i o n o f d e c e i v i n g t h e i n s u r e r t h e l a t t c r may
t e r r i i i n a t c t h c c o n t r a c t i n u n e d i a t e i y a n d inay r e t a i n a ny premiums
a l r e a d y p a i d a n d c o l l e c t any p r e m i u m s t i l l o u t s t a n d i n g i n
r e s p e c t o f t h e " c u r r e n t i n s a r a i i c e p cr i r j d ". 2 10

141. Time l i m i t s a r c s p e c i f i e d witl!in whicii e a c h p r o c e d u r a l

s t e p must b e t a k e n . 211 The p r o v i s i o n : ; d e s c r i i x d a bove c o n f e r
r i g h t s on t h e i n s u r c r i n t h e e v e n t of a b r e a c h o € t h e d u t y by
t h e i n s i i r e d , biLt 2 0 p r o v i s i o n i s niaJe :or t h c s i t u a L i u n w he re
t h e i n s u r e r d o e s n o t c x e r c j s c h i s r i g h t s a f t e r hec.oining a w a r e
o f t h e b r c a c h . ? r e s u m a b l y i f tlre time l i m i t s h a v e e x p i r e d w i t h -
o u t t h e i n s u r e r h a v i n g e x e r c i s e d h i s r i g h t s he m s t b e t a k c x
+ n h a w b.'aiv'?d t h e insured'; b r c ~ c h liis J u i y and t h e c o n -
t r a c t will c o n t i n u e a5 i f t h e r e h a d b e e n a d i s c l o s u r e o f a l l
m a t e r i a l f a c t s . I n t h e n e x t p a r a g r a p h we c o n s i d e r t h e s i t u e t i o n
i f P claim arises before t h e i n s u r c r has exercised h i s r i g h t s .

- .- -. -
207 A r t i c l e 2(2) (a).
208 S e c p a r a . 1 3 8 , ab o v e.
209 A r t i c l e 2(2) (b) (2;.
210 Article 2(4) (5).
211 See Articles 2 ( 2 ) ( a ) , 2 ( 2 ) ( b ) , 2(3) (a) and 2 ( 4 ) ( a ) .
Time s t a r t s t o r u n a g a i n s t t h e i n s u r e r ir. r e s p e c t . o f
t n e f i r s t p r o c e d u r a l s t e p v!ien h e becomes aware of
t h e breach.

91
The e I f c c t o f a b r e a c h on claixis

142. A l o s s iiiay o c c u r when I l i c I e l i n s bccn a h r e a c h o f

d u t y and t h e i n s u r c r h a s n o t e s e l c i s e d h i s r i g i i t s t o p r o p o s c
an amendment t o t h e c o n t r a c r o r t o te rm inc lte it. I n d c c J t ! : c
i n s u r c r will u s u a l l y o n l y bccoinc aw a re o f t h e b r e a c h whcn a
r--.LA;,;
!..;." .
' :
1 ?:?,I<:. : { ? - c i C l f 2 z i l l - ( ' o l, i h ~ ~ > :
iilZkCS . .
pTc:'1Slo?! f o r the
e f f e c t o f t h e b r c a c h 011 tlic i i l s i i r e r : ~l i a b i l i t y to p z y :he
c l a i m . Once a g a i n t!ie c f f c c t x i 1 1 depend up"" tlic n a t u r e o f
t h e i n s u r e d ' s f a i l u i - c t o comply !-!it11 t h c d u t y .

143. \\'here t h e i n s u r e d i n b r e a c h may b e deemcd t o h a v e

a c t e d i m p r o p c l - l y , wh i ch a s u e h av e secnZ1' a p p e a r s t G b c t r e a t c d
a s t h e U S L I : ~ c~ n s c , lie i\,il.L o n l y be c n t i t l e d t o , n p r o p o r t i o n a t e
r c c o v C r y o f his c l a i m . The p r o p o r t i o n o f t h e c l a i n w hic h he i s
e n t i t l e d t o r c c o v e r w i l l . Jcpend G i l t h e r a t i o be tw e e n t h e
premium a c t u a l l y p a i d by hin; a n d t h e prciniilm w hic h would h a v e
bee11 c h a r g e d l L a 2 t h c t r u c r i s k been known ( t h e ' :!iotionnl
premiup") . T h i s incthod o f determining t h e amount w hic h :fie
i n s u r e d i s e n t i t l c d t o r c c o v e i i s k n c m as t h e F r o p o r t l n r l a l j t'y
p r i n c i p l e a n d i t w i l l o p e r a t e i n most C ~ S C S where t h e r e h a s
been a b r e a d 1 ljl' da:y 50??3::c< by 2 c l 2 i F . We h a v e a l r e a d y
r c f e r r e d t o t h e d i f f i c u l t i e s of o p e r a t i n g such a p r i n c i p l e iF.
t h i s c o u n t r y and h a v e e x p r e s s e d t h e p r o v i s i o n a l v i e w t h a t i t s
i n t r o d u c t i o n uould n o t be a d e s i r a b l e i n n o v a t i o n . 2 1 4

144. % I i s r e t h e i n h u r e ( l ' 5 i,i.ecLii rid:. in:.o;c:.t, k z is ~ n t i t ! ~ J

t o r e c o v e r t h e wh o l e o f h i s c l a i m s u b j e c t o n l y t o t h e d e d u c t i o n
o f the d i f f e r e n c e b e t w e e n t h c p r c s i i i m a c t u a l l y p a i d a n d t h e
n o c i o n a l premium. 21s I f however t h e i n s u r e d tlioke t h e d u t y
w i t h t h e i n z e n t i o n of deceiving t h e i n s u r e r t h e n t h e l a t t e r
w i l l n o t b e l i a b l e f o r t h e payment o f a n y p a r t o f a s u b s e q u e n t

212 See p a r a . 1.35, above.

213 Article 2 ( 3 ) (c) .
214 S e e p a r a s . 5 2 - 5 7 a n d 97(b), a bove .
215 A r t i c l e 2 ( 2 3 ( b ) (3) .
92
 c l a i m and may r e c l s i m a n y p ay men t s a l r c a d y made by him t o
t h c insured. 216

145. Tha p r e s e n t d r a f t p r o v i s i o n a l l y i n c l u d e s 3 cl.ause

( A r t i c 1 . e 2 ( 6 ) ) w h i ch g i v e s t h e i n s u r e r r h e r i g l i t t o r e f u s e
payincnt c f a n y p a r t o f a c l a i m i f he c a n p r o v e t h a t he would
n o t , f o r v a r i o u s s p e c i f i e d r c a s o n s ,'I7 h av c a c c e p t e d t h e t r u e
, r i s k 2: a l l . :ii -L l~- I G scirc:limstanccz
~ v..!ill hnra:~i:cr 9~
o b l i g e d t o reluilci a n y premiums p a i d . A r t i c l e 2 ( G ) h a s
b e e n i n c l u d e d i n tlis p r e s c n t d r a f t a t t h e r c q u c s t o f t!ic
C.E.A. I ~ c u n d e r s t a n d however t h a t t l i e r c i s c o n s i d e r a b l e
i o p p o s i t i o n r.0 i t a1id i t i s by n o means c c r t a i n t h a t i t w i l l
i
s u r v i v e . We have a l r e a d y d i s c u s s e d t h e d r aw ba c ks o f s u c h a
p r o v i s i o n ; 2 1 s h o wev er , i t seems t o u s t h a t t h e p r o p o r t i o n a l i t y
p r i n c i p l e would i n a n y e v e n t be u n wo r k ab l e i n t h i s c o u n t r y
without it.

Our p r o v i s i o n a l v i e \ < on A r t i c l e 2

146. Our p r o v i s i o n a l v i cw i s t h a t A r t i c l e 2 i s OxJCfI to

two m j o r c r i t i c i s m s :

[?) t h e f c r n u l s t i o z G Z t h e A r t i c l e ds r e g a r d s t h e
v a r i o u s \ i a y s i n wh i ch t h e d u t y may b e b r o k e n
i s m i s l e a d i n g and t h e a m b i t o f e a c h t y p e o f
breach is n o t defined rtith p r e c i s i o n ;
(b) we d o u b t \ : h e t h e r t h e p r o p o r t i o n a l i t y p r i n c i p l e
c o u l d b e madc t o work s a t i s f a c t o r i l y i n
219
p r a c t i c e i n t h i s country.

216 Article 2 (4) (c) .

217 " E i t h e r becrruse o f t h e n a t u r e o f h i s i n s t r u c t i o n s o r
h i s own i n t e r n a l r i s k s , O i a s a r e s d l t o f t h e s p e c i a l
c o n d i t i o n s imposed by i r s u r a i i c e t e c h n i c a l i t i e s . . .."
218 See p a r a . 5 6 , a b o v e .
219 S e e p a r a s . 5 2 - 5 7 , an d 9 7 ( b ) , a b o v e .

93
 i 11 t r o d u c t i on

147. I n t'rirt 111 o i cliis w o r k i n g p a p c r we ha ve

c o n s i d e r e d t u n p o s s i h 1 . e ~ n y so f r c f o r m i n g t h e l a w r c 1 a t i E z
t n y ~ r r ~ n r .1 i ti!r!
p ~ 5rrngd T i > p rl%:t~ _.
anri!.n:ic!i.(,F (lib i c i l i i v d(.i
n o t recommndj is tlic a b o l i t i o n o f w a r r a n t i e s and t h c
i n t r o d u c t i o n o f a c o n t i n u i n z d u t y on t h c i n s u r e d t o n o t i f y
i n c . r c a s c s of r i s k t o t h z i n s u r c r . T h i s ap;;roach t o r c f o r s i
i s s u b s t a n t i a l i y t h a t r a k c n by A r t i c l e 5 o f t h e d r a f r :
d i r c c t i v c . Ife i i n d c r s t a n d t h a t h r t i c l c 3 i s n o t i n t c n d e d t o
c o - e x i s t w i t 1 1 any syste rr. 31 w a r r a i i t i c s ; i t s iniplil:;e nta tion
would t h e r e f o r e p r e s u p p o s e t h c a b o l i t i o n o f t h i s s y s t e m i n
E n g l i s h I aw. The A r t i c l c c o n t a i n s d e t a i l e d p r o v i s i c n s c o n c e r n i n :
t h e i n s a r e d ' s d u t y 01 n o t i E i c a t j . o n , t h e v a r i o u s w a y s i n v h i c i ;
t h e d u t y may b e b r o k e n , t h e c o n s c q u e n c c s o f h r c a c l i i n e a c h
case -nd e r i c c t C b r e a c h on s u h s c q u e n t claims. Article 4
d e a l s w i t h d i m i n u t i o n o f t h e r i s k arid entitles t h c i n s u r e d
t o t c r i n i n l i t e t h e c o w t r a c t ii tiic i l : sure r r e i u s c s t o r e d u c e
t h e pre:nium. The p r o v i s i o n s o f A r t i c l e s 3 and 4 , t a k e n
t o g c t h c i - , a p p c a r t o b c iztcn2:c2:

t o provide the i n s u r e r with a l l t h e information

he n e e d s € o r t h c c o n t i n u o u s a s s e s s x e n t o f t h e
r i s k t h r o u g h o u t t h c t e r n o f t h e c o n t r a c t a nd
f o r tile LOI r-,>pur:ciing aGj I?S L : I K I I ~ o i Lhe pre:rliuni
as t h e r i s k c h a n g e s f r om t i m e t o t i m e d u r i n g
that period;
t o e n a b i e t h e i n s u r e d t o make a p r o p o r t i o n a t e
r e c o v e r y o f h i s claim w h e r e h i s h r c a c h o f t h e
continuing duty t o n o t i f y increases i n t h e r i s k
d o e s n o t j u s t i f y t h e r e j e c t i o n o f t h e w hole of
his c l a i m ;
t o p r e v e n t t h e i n s u r e d from b e i n g o b l i g e d to
c o n t i n u e t o p ay a premium t h a t h a s become
e x c e s s i v e b e c a u s e of a d e c r e a s e i n t h e r i s k .
94
, 148. '!'hess p r o v i s i o n s f o r m a n a r k e d c o x t r a s t t o E n g l i s h
law u n d e r i\.iiich t h c i i i s u r c d ' s d u t y o f d i s c l o s u r e o n l y a r j . s e s
: b e f o r e an.d a t t h e ii:akj:ig o f t h e c o n t r a c t . 2 2 0 T h c r c a f t c r t h e
i n s u r e r c a n , by t h e u s e o f w a i - r a r i t i e s w i t h w h i c h t h e i n s u r e d
i s bound s t r i c t l y t o conipiy, e n s u r e t 1 m t d u r i n g t h e c u r r e n c y
o f t h e c o c t r a c t t h e c i r c u m s t a n c a s m a t e r i a l t o t h e r i s k rcrnaiii
a s d i s c ~ . o s e da t t h e t.iii\e o f i t s making. 1.11 ~ r i g ! . i s h law b r e a c h
o f t h c d u t y o f disc!.os:ire o r S r c z c h o f ;>rcri-;ii1ty- e n t i t l e s Lilt?
?-J?
iiiStii.er iu I - e f u e p:iYneiir o f my pal-t of a s u t i s e q u c n t c l a i m . - - '
B e f o r e wc c o n s i d e r t h c d e t a i l e d p r o v j s i o n s of A r t i c l e s 3 a n d 4
w e sliould p o i n t o u t t h a t they appear t o have been d r a f t e d t o
c a t e r mainly f o r long-terni c o n t r a c t s o f i n s u r a n c z e x t e n d i n g
222
o v e r s e v e r a l y e a r s . Long-tcrm cover i s , a s w e h a v e s e e n ,
a f e a t u r e o f C o n t i n e n t a l b u t n o t of E n g l i s h i n s u r a n c e p r a c t i c e .
I t i s f o r c o n s i d e r a t i o n whether tliesc provi'sions a r e a p p r o p r i a t c ,
o r a p p r o p r i a t c t o t h e same e x t e n t , €01- i n s u r a i i c e c o n t r a c . r s O C
a n n u a l d u r a t i o n , w h i c h a r e t h e most ~ i s u a lt y p e o f i n s u r a n c e
contracts i n t h i s country.

Article 3

The d u t y oC-_llotiiication

149. A r t i c l e 3(1) p r o v i d e s t h a t from t h o t i m e t l i a c o n t r ~ c t

i s e n r e r e d i n t o t h e i n s u r c d i s uncicr a d u t y t o n c j t i f y t h e
i n s u r e r oi any nerv. c i r c u m s t a n c z s o r c h a n g e s i n c i r c u m s t a n c e s o f
which t h e i n s u r e r h a s requested n o t i f i c a t i o n i n thc c o n t r a c t .
A l t h o u g h n o t s t a t e d e x p r e s s l y , i t i s c l e a r b y i m p l i c a t i o n ' ""3
t h a t t h j . 5 d . r t y 1. o n l y t = dj=,cl@rc ". . .-. I7, . '-L--d...>&.-,.LCS
-:--*.---*--- a, chsngs5

220 See p z r a s . 2 3 - 2 4 and 3 4 , a b o v e .

221. See p a r a s . 2 1 - 3 5 , a b o v e f o r t h e p r e s e n t law a s t o non-
c l i s c l o s u r e a n d p n r a s . ? S - l P S , above f o r t h e : ) r e s e n t
law as t o breach o f ~ a r r a n t y .
222 S e e p a r a . 111, a b o v e .
223 The A r t i c l e i s h e a d e d " I n c r e a s e of r i s k " and t h e s e krords
o r v n r i n t i o n s o f t!iex a r e r e p ~ a r e dt h r c u g b c u t t h e
A r t i c l e . See e . g . A r t i c l c 3(1) ( s e c o n d p a r a g r a p h ) ,
A r t i c l e 3 ( 2 ) , A r t i c l e 3 [ 3 ) and A r t i c i e 5 ( 6 ) ( c ) .

9s
i n circiii-Instances i i h i c h i i i c r c s s c t h e r i s k t o r;hich t h e i n s i ~ r c r
3 2 .I
is subjcct. \ i h c r r t!ie i n c r e a s e i n t h e r i s k h a s b e e n
b r o u g h t a b o u t 1)). t h c i n s u r c t i i i i i : i s c l f , hc m u s t g i v c p r i o r
1 1 o t i : i c a t i o i i o f it t a i h i : i i l s u r e i - ; i n a l l o t h e r c a s e s
n o t i l i c a t i e n rnust b r i:!:icic ~ L S sooii as :he i n s u r e d bccoiiies
1'5
aware o f tlic i n c r c a s e . LIIIOII r c c e i v i n g n o t i f i c a t i o n o f a ny
i n c r n n s c i~ t!:c r i s k , c\r !:.it!iin 2 s ? e c i f i e d t i i x +!icrca.fter,
riic i i i r u r c r iiiay p r o p o s e t i i a c tile L C ~ I I I So i t l i e CoiiLr;iCL b e
.'''
a iiic n dc \I 'l'iic L-fIcct o f A r t i c i c 3 ( 1 ) i s t h a t t h r o u g l i o u t t h e
teriii o f t h e c o n t r a c t tlie i n s u r e d i s s u b j e c t t o a c o i i t i n u i n g
227
duty t o disclose the mattcrs rcfcrrcd to i n the c m t r a c t .

Thc ways i n u h i c h t h e d u t y may be b r o k e n

150. A r t i c l e 3 l a y s down t h r e e ways i n w hic h t h e d u t y of

n o t i f i c a t i - o n may b e b r o k e n by t h e i n s u r e d and t h e s z c o r r e s p o n d
w i t h tlic a n a l o g o u s p r o v i s i o n s o f A r t i c l e 2 . For e a s e of
r c f e r e n c e we s e t them o u t a g a i i l : t h e ' i n s u r e r inay h a v c b r o k e n
t!ie d u t y inr,cccn::y,22Y ~ : csa;- h a v c b r o k e n i t 2nd nay ~c 2cc:;:cl
t o h a v r a c t c d i n i p r ~ p e r l y , ~ o~ r' h e may ha ve b r o k c n i t w i t h t h e

224 l i o ~ e v e r , A r t i c l e j ( 3 ) prcwides ; h a t a f a i l u r e t o n o t i f y
"a n c i r ' c i r c u i t i s t m c e O T a ch a nge i n c i r c u x s t a n c e s whj c h
i s n o t i a b l e t o z i p p r e c i a b l y 211ri pei,mar:eztl;. i : i c r e i s e
t h e r i s k and l e n d t o an j - n c r e a s e i n t h e premium" ~ i i l l .
n o t p r c d u c e any a t i v c r s e l e g a l c o n s e q u e n c e s f o r t h ?
insureci.
225 k r t j . c l c 3(1) ( s e c o n d p a r a g r a p h ) ; i t seems t h e r e f o r e
t h a t t h e i n s u r e d Liould n o t be i n b r e a c h o f h i s d u t y i f
h e Is.:!s 'ii..:~:? of y::; c i - c * : ~ r t : ~ ~ , ~ s .z!;a;.gc .:i
c i r c u m s t a n c e s b u t n o t awar e t!iat t h e y c o n s t i t u t e d a n
increase i n the risk.
226 A r t i c l e 3 ( 2 ) ; the p r o c e d u r e f o r amendment i s s e t o u t
i n A r t i c i c 2 ( 2 j ( b ) : s e e p a r a . 138, above.
227 The C . E . A . h a v e p r o p o s e d t h a t t h e i n s u r e c i s h o u l d h e
d u t y - b o u n d t o d i s c l o s e e v e r y new o c c u r r e n c e o r c h a n g e
o f c i r c u m s t a n c e s i c c r c a s i n g t h e r i s k i r r e s p e c t i v e cf
w h e t h e r d i s c l o s u r e h a s b een r e q u e s t e d i n t h e c o n t r a c t ;
s e e p a r a s . 1 0 9 - 1 1 4 , a b o v c and p a r a . 1 2 5 ( b ) , a b o v e f o r
o u r c r i t i c i s m o f ;he i cr r ; i n uia g d u t y 0 2 d i s c l o s u r e .
228 See p a r a s . 134-135.
2 29 Article 3 ( 5 ) .

96
L
? ,
i 8
C '

i 39
intcrition o f decciving the iiisurer. Thc c o n s c q u c n c c s o f
!
b r e a c h w i l l be d i f - I c r e n t .ill cacli c2.se.ll3 '-' .\s 1.iit11 A r t i c l e 2 ,
+.he iaost i m p o r t n n i o f t h e t h r a c i n p a c t i c e r i i l l , we
b c t h c s c c o i i d , c y c n tlioug11 t!ic p r o v i s i o n s a r e
a g a i n i o n l u l a t o d i,n a way 1<Iiich s u g g c s t s t h a t b r e a c h e s Liill
g e n e r a l l y be i n n occ: i t , s i n c c r h c ct ! i cr d e g r e e s o f f a i l u r e t o
comply w i t h t h e d u t y a r c t r e : l t c d ;is n c r c c x c c p t i o n s t o t h i s
ru1.e. Thc d i f i i c u l t i e s conccr!i.iiig t h e p r e c i s r n m h i t o f t!ic
oan.ar21 ?-(!jc! 21!(.! <>f i t s .C!xc.:;:icns=3 ai.i: a ~ ; i l i i ....-
I G i C L ' r i i i i.

Burden o f p r o o f
i
i
j 151. Articlc 3 ( 7 ) p r o v i d e s t h a t t h e burden of proving
t h a t t h e i n s u r e d f a i l e d t o comply w i t h t h e d u t y i n an i n i p r o p e r
o r " f r a u d u l e n t " 2 3 4 iday will j.n g e n e r a l r e s t on t h e i n s u r e r .
However, t h e r c i s an e x c e p t i o n rvherc t h e i n c r c s s e i n t h e r i s k
has bcen brought about by t h e i n s u r e d h i m s e l f : i n t h i s c a s e
t h e b u r d e n o f d i s p r o v i n g iiriproper o r " f r a u d u l c n t " c o n d u c t r e s t s
011 him. Although the purpose of t h i s e x c e p t i o n is c l e a r l y t o
d i s c o u r a g e t h e i ns u i . ed fro111 t a k i n g p o s i t i m s t e p s t o i n c r e a s e
t h e r i s k a n d t h e n € a i l i n g t o n o t i f y t h c i n s u r c r , we c o n s i d e r i t
u n d e s i r a b l e a s a m a t t e r o f p o l i c y t h a t t h e i n s u r e d s h o u l d bc
u a d e r a n o n i ~ sof d i s p r o v i n g h i s own g u i l t .

The c o n s e q u e n c e s o f b r e a c h

152. The c o n s e q u c n c e s o f b r e a c h will b e i d e n t i c a l w i t h t h o s e

p r e s c r i b e d by A r t j . c l e 2 € o r e a c h d e g r e e of n o n - c o m p l i a n c e . 2 3 5

230 Article 3(6).

231 See p a r a . 1 5 2 , below.
232 S e e p a r a . 1 3 5 , ab o v e.
233 See p a r a . 1 3 5 , ab o v e.
234 T h i s term was i n t r o d u c e d a t t h e r e q u e s t o f t h e C . E . A .
a n d i t s meaning a p p e a r s t o b e t h e same as " w i t h t h e
i n t e n t i o n of deceiving".
235 S a v e t h a t , wh er e t h e i n s u r e d h a s b r o k e n t h e d u t y w i t h
the i n t e n t i o n oi d e c e i v i n g t i i z i n s u r e r , i t seems t h a t
t h e i n s u r e r will n o t b e e n t i t l e d t o r e c l a i m a n y
p a y m e n t s made t o t h e i n s u r e d p r i o r t o t h e b r e a c h :
cf. A r t i c l e 2 ( 4 ) ( c ) ; s e e p a r a s . 1 4 3 - 1 4 4 , a b c v e .
 tt.c tIii.ii1; t h a t this iiould be uiiJuly onerous
01: t h c i r ? s u r c d n1:J t i i n t i t K O L I ~d c~ p r i v e 1ii:ii
o f I I : L I C ~o f t h e s e c ~ i r i t yaiid p c a c c o f inind lie
i s cntitJ.ccl t o cxiicct iron] a c o n t r a c t o f
insur;iiice ;

[b) i t i s by n o m c m s c l e a r how i t s p r o v i s i o n s
rdjil work i n p r a c t i c e o r whcthrr t h e y z r e
ai; i.c;p i'i ri i ;
0 i' iii5 5 j: i'l-d1 I-Uii uL iii~uiiii~ce

c t s i n t h i s coun t r y .
con t 1-3

Articie 4

15s. Ilhcrcas A r t i c l e s 2 and 3 d e a l , c i t l i e r expressly o r

by iinplication, with increase of r i s k , A r t i c l e 4 ieals with
d i i ~ i i n u t i o n o f rlic r i s k . I t sccms i n t c n d c d t o p r o v i d e a
c o u n t e r - b a l a n c c t o A r t i c l c s 2 and 3 s i n c c i t c o n f e r s r i g h t s
on t h c i n s u r e d a n d o b l i g a t i o n s on t h e i n s u r e r r a t h e r th;:n
--
vice versa. Thc A r t i c l e p r o v i d e s t h a t t h e i n s u r e d s h o u l d bc
e n t i t l e d " w i t h c u t . corr.ponsatior." t c t e r a i n a t c t h c -.O F . + - - - ' i-'
A,
l l C I 0 L L

w h i l e i t i s 0x1 f o o t , t h e r i s k t o w h i c h t h e i n s u r e r i s s u b j e c t e d
h a s d i m i n i s h e d " a p p r e c i a b l y and p e ~ n i a n c i ~ * t l ys"o a s to j u s t i i y
a d e c r e a s e i n t h e preniium a n d tiic i n s u r e r has rcfu5;cd t o a g r c e
50 such B reductizc. Tkc r i g h t t3 t c r n i n z t c t h c coiiti-hct
a r i s c s a s soon a s t h e i n s u r e r r e f u s e s t o a g r e e t o t h e r e d u c t i o n
o r w i t h i n a s p e c i f i e d time of a request t o t h i s e f f e c t being
made $0 t h e i n s u r e r . P r o v i s i o n i s made f o r a p r o p o r t i o n a r e
r e f u n d o f premium t o b c made t o t h e i n s u r e d w h e r e t h e c o n t r a c t
has b e e n t e r l l l i n a t c u by i i i i i : u n d e r the A r t i c l e . 'i'nc F r c s c f i t
d r a f t includes a p r o v i s i o n i n square brac.kets t h a t t h e A r t i c l e
s h o u l d n o t a p p l y i n c a s e s where t h e r i s k d i m i n i s h e s a f t e r a
c l a i m h a s b e e n made. T h i s p r o v i s i o n was i n c l u d e d a t t h e
r e q u e s t of t h c C . E . A . a n d i t i s n o t c l e a r w h e t h e r it . i i ? l be
incorporated i n the f i n a l draft.

159. T h e r e ma.y w e l l b e d i s a g r e e m e n t between t h e i n s u r e d

and t h e i n s u r e r as t o t h e e x t e n t o f t h e d e c r e a s e i n t h e
premium w h i c h i s j u s t i f i e d . No m a c h i n e r y i s p r o v i d e d f o r t h e

100
r e s o l u t i o n o f s u c h a d i s p u t e . It i s a l s o n o t a p p a r e n t t o u s
why t.hc making o f 2 c l a i n p r i o r to d i m i n u t i o n o f t h e r i s k
should deprive t h e i n s u r e d of h i s r i g h t s of tcrijiination under
t h c A r t l c-lc.

-
Our p r o \ - i s i c r . a l c o n c l u s i o n s on t i e l a i r . c i i r c c t j r-e a=
a 1t e rn 3 t i r c app r o a c h t o n 011 - d i s c 1 o .s 1 I r c and w n r r a n t i ~ 2 .

itO. ive r c c o g i i i s e t h a t i n t h e d r a f t d i . r e c t i ? . e ar: atteinp:

Iiss b e e n made t o s t r i k e n f a i r b a l a n c e b etw e e n t!ic interests
o f t h e i n s u r e r and t h o s e o f t h e i n s u r e d . Hoircvcr, we e n v i s a g e
iiiajor d i f f i c u l t i e s i f t h c s e p r o p o s a l s wer e t o be a d o p t e d i n
t h i s country.

161. The p r o p o s a l s i n A r t i c l c 2 seem t o u s w o r k a b l e o n l y

on t h e a s s u m p t i o n t h a t tlicrc i s i n e x i s t e n c e a c o m p r c h e n s i v a
s y s t e m o f t a r i f f s s o t h a t g c n e r a l l y the n o t i o n a l prc m iim c a n
r e a d i l y b e a s c e r t a i n c d . T h e r e i s n o s u c h systciii o f t a r i f f s
i n t h i s c o u n t r y b u t o u r p r o v i s i o n a l view i s t h a t t h e p r o p o s a l s
I n Article 2 v o i l l d be u i i s a t i s i a c t o r y e v c n i f t i i c r e C C ~ E . The
m o s t i m p o r t a n t c o n s i d e r a t i o n rvhich has l e d i1s t o t h i s view i s
t h a t t h e i n s u r e r ' s r i g h t , u n d e r A r t i c l c 2 ( 6 ) , t o c o ~ t c n dt h a t
h e w o u l d n o t h a v e t a k e n t!ie r i s k a t 211 i s v i t a i t o t h e
o p c i z t i j i i o f A r t i c i e i y e t a t t h e s a n e t i n c i: i n p a i r s t h e
most v a l u a b l c f e a t u r e o f t h e p r o p o s a l s by r e - i i i t r o d u c i n g t h e
" a l l o r nothing" result i n c e r t a i n circumstances.

162. S i m i l a r c o n s i d e r a t i o n s a p p l y t o A r t j c l e 3. 2 4 2
Fiirth?rl?r?ru, v h r r - a s ~ 2 : : - o u r ;ai\ tiic r i g i : t s arid obligations o f
t h c p a r t i c s a r e frozen f o r t h e period of insurance (usually a
y c a r ) , u n d e r A r t i c i e 3 t h e i n s u r e d h a s o b l i g a t i o n s imposed on
hiin a f t e r h e h a s c o n c l u d e d t h e c o n t r a c t , which we t h i n k x c u l d
be u n d e s i r a b l e .

163. A r t i c l e s 2 an d 3 p r o v i d e f o r t h e o p e r a t i o n of
complicated procedures during t h e currency of the contract
which 3:;ould i n c r e a s e a d m i n i s t r a t i v e c o s t s and m i g h t l e a d t o an
i n c r e a s e i n premium.
242 See p a r a s . 3 5 3 - 1 5 3 , a b o v e . S c c a l s c p a r a . 155, a bove
f o r t h e a d d i t i o n a l p r o b l e m o f how t o a s s e s s the n o t i o n a l
premium u n d e r A r t i c l e 3 .
101
1G4. A r t i c l e s 3 and 4 e n v i s a g e t h e a d j i i s t m e n t of t h e
prcmium f r o m t i m c t o t i m e i f t h e r i s k i n c r e a s e s o r d e c r e a s e s
during t h e cutrcncy of the c o n t r a c t . T h i s iiould b e d i f f i c u l t
t o o p c r a t e u n d e r s u r s y s t e m b c c a a s e o f t h e a b s e n c e o i $ixcd
tariffs.

166. Comments a r c i n v i t e d o n t h e d r a f t d i r e c t i v e and i n

p a r t i c u i a r w h e t h e r an d how i t would w o r k i n p r a c t i c e i n Eilglai?ri.

102
167. I n t h i s P a r t o f t h e w o r k i n g p a p e r ire d c a l 1 i i r h L l i O
m i s c e l l a n e o u s m a t t e r s i n r e s p c c t o f r \ h i c h we a r c m a k i n g n o
d e t a i l e d p r o v i s i c n n l r cco mmen d n t i en s . Thcy a r c :

(i ) t h e r e 1a t i oil s h i p be t x c e n o u r p r o v i s i sn a 1
r e c o ~ n me~ i cl ar i o n as s t o l i o n - d i s c l o s u r e anti
w a r r a n t i e s arid t h e c x i s t i n g l a d o f
m i s r e p re s cn t a t i o n an d f r a u d ; a nd
(ii) whether our p r u v i s i o n a l recomnendations
s h o u l d a p p l y t o c o n t r a c t s 31 r e - i n s i u c a n c s ;

(i) P l i s r e p r e s c n t a t i o n and f r a u d
168. I n P a r t s I1 an d 111 o i t h i s w o r k i n g p a p e r we p u t
f o r w a r d o u r p r o v i s i o n a l r eco mmen d at i o n s f o r r e i o r m o f t h e
law r e l a t i n g t o n o n - d i s c l o s u r e and w a r r a n t i e s r c s p e c r i v e l y .
I t i s n e c e s s a r y f o r u s t o ex ami n e b r i e f l y t h e r e l a t i o n s h i p
betwecr. t h e r i g h t s and r e m e d i e s u n d e r o u r rc c om m e ndntions
a c d t h e r i g h t s and r e m c d j e s u n d e r t h e c x i s t i : i g la:: 01
m i s r e p r e s e n t a t i o n and f r a u d .

(a) No!] - f r a u d u lent m i s z p r e s e n t a t i o n

169. A b r e a c h bj- t h e i n s u r e d o f t h e d u t y o f d i s c l o s u r e
may a l s o ainount t o a p o s i t i v e m i s r e p r e s e n t s t i o n sf e x i s t i n g
f a c t . T h i s i s l i k e l y t o b e t h e c a s e wh ere t h e b r e a c h c o n s i s t s
of the g i v i n g of i n s c c u r a t e i n f o r m a t i o n i n answer t o a m a t e r i a l
q u e s t i o n i n t h e p r o p o s a l f o r m. 2 4 3 W E e n v i s a g e a s i t u n t i o n ir?
w h ic h t h e i n s u r e r m i g h t h a v e t h e a l t e r n a t i v e o f p u r s u i n g h i s
r e m e d i e s ( a ) u n d e r o u r p r o v i s i o n a l r eco mm e nda tions f a r non-
d i s c l o s u r e , o r (b) under t h e e x i s t i n g l a w f o r m i s r e p r e s e n t a t i o n .
He n i g h t t h i n k i t a d v a n t a g e o u s :G seek h i s r e m e d i e s u n d e r (b)
r a t h e r t h a n t h o s e u n d e r ( a ) . Our p r o v i s i o n a l r e c o m n e n d a t i o n s
in regard t o non-disclosure a r e designed t o s?rike a f a i r

24'3 See p a r a . 30, ab o v e.

105
h a l a n c e bctvcen t h e i n t e r e s t s o f t!ic i : i s u r e r and o f t h c
i n s u r e d a i i J ~,:e t h i n k t h a t t1il.s b ; l l anc c ~ i l i g h t be u ; > s c t i f
t h e i n s u r e r liere c n t i t i c d t o p u r s u c h i s a l t c r n a t i v e re ine dic s
f o r n i i s r c p r c s c n t a t i o n . c7Gr v i c x i s t h c r c f o r c thzit i n s u c h
a s i t u a t i o i : t h e i i i s u r c r s h o u l J l;c co!ifiiied t o tlie r i g h t s a n d
reinc d. i c s 11 r o v i dc d un 3c I' o u r p I' o v i s j 011 a 1 re conniicnd a t i on s i n
TC g a r d t o non - d i s cl.O S U-re.

(b) Fraud

170. The C i r c u i n S t a i i w s i n \ * h i 4 1 a n i i i s u r ~ ds u p p l i e s
i n f o r i i i a t i o n t o h i s i x s u r c r i n p u r s u aric c o f h i s d u t y o f
d i s c l o s u r e may b c s u c h a s t o f a l l i \ , i t I i i n t h c r u l e s g o v e r n i n g
fraudulcnt niisrcprescntations. T h c i n s u r e r m i g h t ;n sucii
c a s e s h a w t h e a l t e r n a t i v e o f p u r s u i R g h i s r i g h t s and
r e m e d i e s u n d e r o u r p r o v i s i o n a l . recoininendations i n r c g a r d t o
n o n - d i s c l o s u r e o r o f p u r s u i r . g h i s r i g h t s a nd r e m c d i e s {or
f r a u d . Ilc m i g h t r cg ar cl t h e l a t t e r as more a d v a n t a g e o u s t h a n
t h e former. Our p r o v i s i o n a l view i s t h a t t h e p r e s c x c e a f
f r a u d i s an e s s e n t i a l d i s t i n c t i o n and t h a t it uculd Se u c j u s t
t o d e p r i v e t h e i n s u r e r ir. s u c h c a s c s o f h i s a l t e r n a t i v e
r i g h t s and remedies i n . f r a u d .

171. We a r e awar c t h a t t h e i n s u r e d may a l s o iiiake

f r a u d u 1e n t m i s r e p r e s e n t a t i 011 s o r o t 11c r w i s c ac 1: f r a u d g 1ell t i y
when h e makes a c l a i m b u t we d o n o t i n t e n d t o d e a l w i t h t h i s
t o p i c a t t h i s s t a g e a n d a r e t h e r e f o r e o m i t t i n g i t from t h i s
working p a p e r .

(ii) Contracts of re-insurance

172. When 3n i n s u r e r u n d e i u r i t e s a r i s k h e may c o n t r a c t

w i t h t h i r d p a r t i e s (known as r e - i n s u r e r s ) t o i n d e m n i f y him
a g a i n s t a n y l i a b i l i t y in r e s p c c t o f t h e r i s k : t h i s i s a
c o n t r a c t of r e - i n s u r a n c e . There are a l s o e t h e r types of
c o n t r a c t s s u c h a s " c e s s i o n s " a n d " t r e a t i e s " , -whereby i n s u r e r s

104
may a g r e e t o " c c d c " p a r t 0.f t h e premium and of t h e l i a b i l i t y
t o o t h e r i n s u r e r s , t o ~ h i c l is i m i l a r c o n s i d e r a t i o n s a p p l y a s
t o contracts of re-insurance. I t i s n e c e s s a r y f o r us t o
c o n s i d e r heth her t h e p r o v i s i o n a l r eco n u ! m?d a tions 1.n t h i s
w o r k i n g paper a r e a p p r o p r i a t e f o r such c o n t r a c t s .

173. The p a r t i e s t o s u c h c o n t r a c t s will a l n o s t a l w a y s b e

ir.su:-crs t h c c i s c l v r s ; 6; s u c h t h e y c a r r y 011 b u s i i ? e s s i n a
rirar'ker g o v e r n e d b y well-known an d l o n g - s t a n d i n g r u i e s o f
law a n d p r a c t i c e . Thc c o n s i d c r a t i o n s i ~ h i c hp c r s u a d e d u s
that M AT s h o u i d b c c x c l u d c d fron! .the s c o p e of t h i s w o r k i n g
p a p e r Z q 4 t ~ i e r e f o i - e a p p l y g f o r t i o r i t o c o n t r a c t s of
r e - i n s u r a n c e and similar c o n t r a c t s . Furthermore i n OUT v i e w
t h e p r o v i s i o n a l r c c o r m e n d a t i o n s s e t o u t i n Parts I 1 a nd I 1 1
o f t h i s w o r k i n g p a p e r may \ < e l l b e i n a p p r o p r i a t e f o r S U C I ~
contracts.

174. Iv'c u n d e r s t a n d t h a t i t i s n o t i n t n n d e d t h a t c o n t r a c t s
of r e - i n s u r a n c e s h o u l d f a i l w i t h i n t h e a n b i t o f t h e C r a f t
directive.

175. We h a v e t h e r c i o r e c o n c l u d e d t h a t t h e p r o p o s a l s f o r
r e i o r n i i n t n i s w o r k i n g pape r s h o u l d n o t a p p l y t:, c o n t r a c t s o f
r e - i n s u r a n c e 2nd s i n i l a r C o n t r a c t S . Comncnt; a r e in.<ite il.

244 See p a r a s . 1 5 - 1 7 , ab o v e.

105
176. The p u r p o s e o f t h i s w o r k i n g p a p e r i s t o consic!er
t h e p r e s e n t l a w , an d t o s u g g e s t r e f o r m o f i t , i n r e l a t i o n
t o t h e r i g h t s of i n s u r e r s t o repudiate c o n t r z c t s of insurance
and t o r e j e c t clai.ios on t h e g r o u n d s o f n o n - d i s c l o s u r e c f
m a t e r . i a l f ~ c t sand b r c n c h e s ol: warT3ntj.es by t h e i n s u r e d .
Our e x a n i n a z : i o r ~of i i ~ ci a an; ~ pr.uposz15 ,'cr r c f c r i
designed t o o p e r a t e i n a l l ficlrls of insurance o t h e r than
m a r i n e , a v i a t i o n and t r a n s p o r t ("MAT") , 2 4 5 a nd r e - i n s u r a n c e
a n d s i m i l a r c o n t r a c t s . 2 !! 5

A scnmary o f o u r p r o v i s i o n a l c o n c l u s i o n s and
recomnieiidatioris i n r e l a t i o n t o n o n - d i s c l o s u r e i s 5et o u t i n
p a r a g r a p h 9 7 ( a ) t o ( 0 ) a t t!ie e n d o f P a r t 11, and i n r e l a t i o n
t o b r e a c h c s o f w a r r a n t i e s i n p a r a g r a p h 1 2 5 j a ) t o (g) a t t h e '

e n d o f P a r t 111.

We were a s k e d t o d e a l w i t h t h e s e iiiipoz.taiit 6 s p e c t s
of o u r terms o f r e f e r e n c c 2 4 7 a s a m n t t e r c f u r g e n c y . ~e tiave
t h e r e f o r e b e e n u n a b l e t o Jc.3: i n t h i s w o r k i n g p a p e r r.ith
" s p e c i a l c o n d i t i o n s e x c e p t i o n s and t e r n s " i n o u r terins o f
r e f e r e n c e , b u t . oiir c o n s i d c r a t i o n o f n o n - a i s c i o s u r e :mu
b r c a c h c s o f 1 G a r r a n t i . e ~h a s a l s o t o u c h e d on a s p e c t s o f
" n i i s r e p r c s e n t a i i o n b y , o r on b c h n l f o f , th:: i n s u r e d " , and
o u r e x a m i n a t i o n o i t h e d x a f t d i r e c t i v e 218 h..,. i n v o l v e d s o m
c o n s i d e r a t i o n o f " i n c r c a s c and d e c r e a s e of r i s k s c o v e r e d " .

-I

245 See p a r a s . 1 5 - l i , above.

246 See F a r a s . 3 7 2 - 1 7 5 , above.
237 See p a r a . 1, a b o v e .
248 Sec p a r a s . 1 1 - 1 3 , a b o v e , and Part. I\', a bove ; see
a l s o Appcndix E .

106
177. I t sec~iis to 11s t h a t t h e n eed i o r reform o f i r i s u r a n c c
law i n t h e f i e l d s of n o n - d i s c l o s u r e and b r e s c h c s o f w a r r a n t i e s
c o v c r e d by t.Iiis w o r k i n 2 p a p e r i.s n o t open t o d o u b t . The d r a f t
d i r c c t i v e Z 4 * prcviticd tihc irinediaic r e a s o n f o r t h e r e f e r c n c . c
t o u s , b u t t h e n c e d f o r r e f o r m i n thcscr ficl.cls i s d e m o n s t r a t e d
by t h e FSft.5 Rcpcr‘; G f i l i d Laic 2.GCoi-m Cornn!i.ttoc,249 by t h c
many j u d i c i a l and a cad emi c c r i t i c i s , n s o f t h e p r e s e n t law
r e f c r r e d t o i r i P i r t 1.: of this i v o l h i i i c_ _r ~ x p p r ; n n t i b y t!ie
i n s u r a n c e i n d u s t r y ’ s S t a t e m e n t s o I* Ins U r a n c e I-’r a c t i c e wh i c h
show t h a t t h e p r a c t - i c e s of i n s u r e r s a r c i n inany r e s p e c t s more
f a v o u r a b l e t~ t h e i n s u r e d (thougii o n l y a s a n a t t e r o f d i s c r e t i o n ;
n o t o f r i g h t ) t h a n iindcr t h e law i n i t s p r e s e n t s t a t e .

178. The d i f f i c u l t b a l a n c e b et wcen t h e i n t c r c s t s o f t h e

i n s u r e r and o f t h e i n s u r e d , and t h ? d i f f e r e n t ways o f s t r i k i n g
t h i s b a l a n c e a r e r e f l e c t e d i n e v e r y c o d e o r system o i i n s u r a n c e
law o r p r a c t i c e w h i ch u c have e n c o u n t c r c d . Notclhle e x a m p l e s
r e f e r r e d t o i n t h i s wo r k i n g p a p e r a r e t h e d r a f t d i r e c t i v e , Z 5 1
7 C
t h e l a w i n o t h e r common law j u r i s d i c t i c n s , A ” 2 the law i n F r a n c e
251
a n d West G e r i i ~ a n y ,an ~ d~ ~t h e S t a t e m e n t s o f I n s u r a n c e P r a i t i c e .
Our p r o v i s i o n a l c o n cl . ! I s i o n s and rccoiiinzndatioris f o r rile r e f o r m
o f o u r law i n t h e s e f i e l d s f i n d e c h o e s i n all of them. in
p u t t i n g them forward we h a v e hacl f n t i r p r i x i p a l a h s i n mind.
F i r s t , t o r e f o r m o u r law t o t h e e x t e n t t o whic h i t appe ar s t o
us t o b e i n n e e d of reform i n t h e s e f i e l d s . S e c o n d l y , t p
p r o p o s e r e f o r m s w h i ch s t r i k e a f a i r b a l a n c e b e t w e n t h e i n t e r c s t s
o f i n s u r e r s and o f t h e i n s u r e d , an d n o t t o s h r i n k f r o m r a d i c a l
prOpOSalS Where t h e s c 2pi;e;i- io be j u s t i i l e d . :k,ii-Jly, t o
p r o p o s e r e f c r m s w h i ch r e f l e c t :he s p i r i t a n d b r o a d aims o f t h e

-
249 S e e p a r a . 3, above.
250 See p a r a s . 4-10, a b o v e , an d Appendix A.
251 See P a r t IV a n d Ap p en d i x B .
252 See Appendix C. P a r t I .
253 See A p p e n d i x C , P a r t 11.
254 See paras. 4 - 1 0 > a b o v e , and Appendix A.

107
255 See Part 3 V and Appendix B.

108
 RPPESDIS A

T h i s Sti:tcmant i s r c s t y i c t c d t o n o n - l i f e i n s u r a n c e s o f
policyhol(!ers rcs!L&j-,t in ?he Uii anci insured i n t ! i e i r p r i v a t e
capacj t y o n l y .

I. i j r q o s n l I-nrms
...

(a) T h e d e c l a r a t i o : : a t t h e f o o t o f rlic p r o p o s a l form s h o u l d

be r e s t r i c , t e d t o completion a c c o r d i n g t a t!ic p r G p o s c r ’ s
k r i o x l e l g e and ‘ v e % i e f .
(b) I f n o t i n c l u d o d i n t h e d e c l n r a t i o n , p roinj.ne ntly
‘ d i s p l a y e d 011 t h e p r o p o s a l f o r m s h o u l d b e a S t a t e m e n t : -

( i) d r a w i n g t h e a t t e n t i o n o f t h e p r o p o s e r t o t h e
consequences o f t h e f a i l u r e t o d i s c l o s e a l l
m a t e r i a l f a c t s , e x p l . a i n c d 2s t h c s c f s c t s an
i n s u r e r would r e g a r d as l i k c l y t.0 i n i l u e n r e
t h e a c c e p t a n c e an& asscssment o f t h e
proposal;
( i i ) k i a r n i n g tiia1: if t h e p r o p o s e r i s i n an!’ d o u b t
a b o u t f a c t s c o n s i d e r e d m a t e r i a l , he s h o u l d
d i s c 1 0 se t h e i n .
(c) Those m a t t e r s which i r i s : i r er s h a v e r o u nd g e n e r a l l y t o i>e
i n a t c r i a l will b e t h e s u b j e c t o i c l e a r q u e s t i o n s i n
pYGijO.5 5: iOl.1115.

(d) S o f a r as i s p r a c t i c a b l e , i n s ~ i r e r swill a v o i d a s k i n g
q u e s t i o n s which v c u l d r e q u i r e e x p e r t know le dge b e y o n d
t h a t w h i c h t h e p r o p o s e r co l i l d r e a s o n a b l y b e e xpe c te c i t o
p o s s e s s o r o b t ; i i n o r wh i ch ?\ f o u l d r e q u i r e a t r a l u e
j u d g m e n t on t h e p a r t o f t h e p r o p o s e r .
(e) U n l e s s t h e p r o s p e c t u s o r t h e p r o p o s a l form c o n t a i n s
f u l l d e t a i l s o f t h e s t a n d a r d c o v e r o f f e r e d , and w h e t h e r
o r n o t i t c o n t . a i n s an o u t l i n o o f t h a t c o v c r , t h e
p r o p o s a l form s h a l l i n c l u d e a s t a t e m e n t t h a t a copy of
t h e p o l i c y form i s a v a i l a b l e on r e q u e s t .
(f) Unless t h e c o m p l e t e d f o r m o r a co p y of i t h a s b e e n sent
t o a p o l i c y h o l d e r , a copy v i l : b e made a v a i l a b l e ~ h c n
an i n s u r e r r a i s e s an i s s u e u n d e r t h e p r o p o s a l form.

109
 Claims

Uildcr t h e c o n d i t i o n s r eg ar d i i i j ; n o t i f i c a t i o n o f a
c l a i m , t h e p o l i c y h o l d e r s1ial.l n:jt b e a s k e d t o do inore
t h a l r e p o r t 3 c l o i m and subsequent d e v e l o p m e n t s a s
s o c n ;is r e a s o n a i ; l y p o s z i b l e c x c e p t i n t h c c a s e o f leg;^!
p r o c c s s c s and c l ~ l i i , i swhicii I: ~ l i i r d1j:irty r e q u i r e s t h e
p o l i c y h o l d e r t o no: i f s wit.liin ;I f i x c d t i m e , w he re
immcdin t e adi,.ice ciay be r e q ~ irje d .
E x c e p r wlicrc f r a u d , deceptic-111 U T ric gligc r.c e i s
ifi.v-oi\.i;J, -, i l , s , , i c: ; .* ,. 1
A.
<- t..i :-, -" ;-, --k ; ? :.z;c2isrc
l i a b i i i t y t o iiidew1iTy a p o i i c y 1 i o l d e r : -
( i ) on t h e g r c u n d s o f n o n - d i s z l c s u r e o r
m i s r e p r e s e i i t a t .ion of :J. inaterLa1 f a c t .
where knowledge o f t h e i ' a c t w o u l d n o t
mate r i a 11.y I1 ax-e i n f 1uen c c cl t h e
i n s u r e r ' s judgment i n t h e acceptance
o r as s es s men t . o f t h e i . n s u r a n c c ;
( i i ) on t h e g r o u n d s o f a brcr?ch o f w a r r a n t y
o r con d i t i on ~ 1re1 t h~ e ci rcums t an c e s
of t h e l o s s a i c unconnected w i t l i t h e
breach.
The p r e v i o u s p a r a g r a p h 2 ( b ) does n o t a p p l y t o Ma rine and
Aviat.inn p o i i c i e s .

Renewals
Renewal R o t i c e s shou! r! contai:i a :.iorning & o u t t h e
d u t y of d i s c ? o s : j r c irr111:linc t ! i P rlc=crF<jt.y t o advis:P
c h a n g c s a l f c c t i n g t h c i:olicy which h a ve o c c u r r e d s i z c c t h e
p o l i c y i n c e p t i o n o r l a s t renewal d a t e , \ihi,che\:er was t h e
later.

4. Commen cement
Any changcs t o i n s u r a n c e docuirieiils w i l i b e i1:ade as and
when t h e y n e e d t o b e r e p r i n t e d , b u t the S t a t e m e n t will
a p p l y i n tlic meantime.

5. -
EEC
T h i s S t a t e m e n t will n e e d r e c o n s i d e r a t i o n when t h e EEC
C o n t r a c t Law D i r e c t i v e i s t a k e n i n t o E n g l i s h j S c o t s Law.

110
T h i s S t a t c : \ > e l l t r e l a t e s t o ioiiR-term i i i s u l a i l c c c f f e c t e d !?y
i n d i v i d u a l : : residcrnt i n tl?c U:i i n a p r i v i i t c c a p a c i t y .
,4]t!loug>, ;!ic S ~ ~ ~ C I C iCs I 1101 L ~ niar.tiatory, i t has bcen
r e c o g n i s e d b;? I I : C I ~ I ~ C T S oL t h e l.O1\ X L , ~ A S L O ;is a n i n d i c a t i c n o f
i n s u r a n c e p r a c t i c e , i t : bcirig uilr!c;.:-tood t h a t t1iel.c i i i l l
some times b c u x c e p t .i on a 1 c i ~ C L I Et~x S i cc s i\.iicr c t.he 5 t a t e men L
w ou 1d b e i n np p 1.oil r j. :.I I' e.
I d!J 5 t ri 21 1i e: &5 5 , I , ' i l l , { ~ Pr\ _ .
1 1 Cyi?n 1 4 0 " 5 I'7: 2 1 z-2 ; :-. ,ji' c; ; < LL. 2

b y 'Ihr I n d u s t r i . n l A s s u r a n c e A c t s I 9 2 3 t o l ? b 8 reguldtions
i s s u e d t h c r e u n d e i . , t o an e s t e i i t not. providecl f o r o r d i n a r y
branch policyholdcrs. Thc s t a t e , w n t . w i l l , t h e r e f o r e , be
m o d i. f i c d i n i t s ; i p p l i c n t i o n t o i n d : : s t r i a l a.Ssli1*aIlce b u s i n e s s
i n d i s c u s s i o n w i t h t h c I n d u s t r i a 1 A s s u r a n c e Conmi s s i o n e r .
L i f e assurance i s cj.tlicr very i a r g e l y o r c i s c e n t i r e l y a
m u t u a l e n t e r p r i s e and t h c aim o f t h e i i i d u s t r v i n r e c e n t y e a r s
h a s been t o r c d u c e t o i! niinimi:si t h e f o m c i 1 i t i t . s - and
t h e r e f o r e t h e e x p e n s c t o t h e p o l i c y l i o l c l c r - i n v c l v e d i!i
i s s u i n g a new l i f e p o l i c y subjcc: o n l y t o t h e n e c d t o p r o t e c t
t h e g e n e r a l b o d y o f p o l i c y h c l d c r s i r o m t h e c f f e c t s o f non-
d i s c l o s l l r e by LL s m a l l m i n o r i t y 0: p r o p o s e r s .

C 1a i ms
An i n s u r e r will R o t unreasGnab:y r e j e c t a c l z i m .
(However, f r a u d o r d e c e p t i o n will, an(! n e g l i g c r , z c G T
n o n - d i s c l o s u r e o r m i s r e p r c s e n t a t i o i i of 3 n i a t c r i a l fat?
may, r e s u l t i n a d j u s t m e n t o r c o n 5 t i t u t e g r o u n d s {or
rejection). I n p a r t i c u l a r , an i n s u r e r 1.r.i 1 1 not: r n j t t c i
a c i a i m on g r o c n d s o f n o n - d i s c l o s u r e O r : a i s i - e p r e s e n t a t i o n
of n m a t t e r t h a t was o u t s i d e t h e knowledge o f t h e
proposer.
Under any c o n d i t i o n s r e g a r d i n g 3 t i n e : i n i t f o r
n o t i f i c a t i o n o f B c l a i a i , t h e c l a i n x n t will n o t b e a s k e d
t o do more t h a n r e p o r t a c l n i m and s u b s e q u e n t
i&.;cl------- . - sciclii as ?ttt?scnably p c s s i b l e .
u ~ : ~ . G A ~ - dh
>

P r o p o s a l forms
I f t h e F r o p z s a l form c a l i s f o r t h e d i s c l o s u r e o f
m a t e r i a l f a c t s 2 s t a t e m e n t s h o u l d b e iiiclucied i n tlio
d e c l a r a t i o n , o r p r o m i n e n t l y d i s p l a y e d e l s e w h e r e on t h e
f o r m o r i n t h e docuiiient of wh i ch it f o rm s p a r t : -

[i) d r a w i n g a t t e n t i o n t o t h e consequences o f
f a i l u r e r o d i s c l o s e 211 m t e r i a l f a c t s and
e x p l a i n i n g t h a t t h e s e a r e f a c t s t h a t an

111
 L i Le a s s u r ari c e p c i i i i e s o r ::c c o q i a:i y i 112 d ocuii;eii 1.5
s h o u l d i n d i c a t e :-
( a ) t h e c i r c u m s t a n c e s i n wilicii i n t e r e s t w o u l d a c c r u e
Cl...
LIIc;
.... .. -..
LIJ.,U.
-- I- .- -
i i , a t u r c d ; aai:

(b) whether o r n o t t h e r e arc rjghLs t o s u r r e n d e r

v a l u e s i n t h e c o n t r a c t a n d , i f s o , what t h o s e
rights are.
( L o t g : The a p p r o p r i a t e s a l e s l i t e r a t u r e s h o u l d
eqg-jeF\:OIJr : o i . r n p r ~ S s firl n v ~ y s , ~ rh.t
e y ~ wS":e 1j.fe
o r endownient a s s u r a n c e i s i n t e n d e d t o b e a l o n g - t e r m
c o n t r a c t and t h a t s u r r e n d e r v a l u e s , e s F e c i a l l y i n t h e
e a r l y y e a r s , are frequently l e s s than the t o t a l
premiums p a i d . )

Commencemen t
k q y c h a n g e s t o i i i s u r a n c e docunieiits wiil b e made as and
when t h e y n e e d t o b e r e p r i n t e d b u t t h e s t a t e m e n t w i l l a p p l y
i n t h e meantine.

112
 n

Art.icle 2 .
kclaration 0-C risk

Khan c o n c l u d i n g t h e c o n t r a c t , t h e p o l i c y - h o l d e r s h a l l
d e c i a r e t o t h e i z s u r e r any c i r c u ~ n s t n n ~oef ~u h i c h lit! i5
aware w h i c h may i n f l u e n c e t h e i n s u r e r ’ s a s s e s s m e n t o r
acceptance of rhc r i s k . T h e p o l j . c y - h o l d c r s h a l l n o t lie
o b l i g e d t o d e c l a r e t o t h c i n s u r e r . c i ~ c u m s t n n c c swhich arc
a l r c a t l y known t o :;he l a t t e r o r w!iich :ire cornnon k n o w i c d g e .

Any c i r c u m s t a n c e i n r e s p e c t o: :ihich t h e i n s u r e r has

psked s p e c i f i c q v e s t i o n s i n w r i t i E g s h s l i , i n t h e a b s m c e
of p r o o f t p t h e c o n t r n r ’ y : b e r e g a r d e d n s irrf!ucn,c.jng t h p
a s s e s s m e n t and z c c e p t a n c e o f t h e r i s k . The p o l i c y - h o l d c r
must p r o v i d e p r e c i s e and c o m p l e t e m s i i e r s .

(a) I f c i r c i i m s t a n c e s which w e r e u n k n o m t o b o t h p a r t i e s
when t h e c o n t r a c t was c o n c l u d e d conc t o l i g h t
s u b s e q u e n t l y o r i f t h e p o l i c y - h o l d e r h a s f a i l e d 10
f a l i ‘ i l t h e c b l i g a t i o n r e f e r r e d t o i n p a r a g l a p h 1 , the
i n s u r e r s h a l l b e e n t i t l e d , w i t h i n R p e r i o d o f two
( t h r e e ) months from t h e d a t e on w h i c h lie becomes
a w a r e or’ t h e f a c t , t o p r o p o s e a n amendment t o t n e
contract.

( b ) 1. The p o l i c y - h o l d e i s l i a l i (Gc e n t i t l e d t o a p e r i o d of
1 5 d a y s f r o m t h e d a t e on w h i c h h e r e c e i v e s t h e
p r o p o s a l f o r an a m e n h e n t i n w h i c h t o a c c e p t or
r e j e c t it. I f t h e policy-holder r e j e c t s t h e
p r o p o s a l 0:’ f a i l s t o r e p l y w i t h i n t h e a b o v e time
i i m i t , t h e i n s u r e r nay t e r m i n a t e t h e ccjntract
w i t h i n a p e r i o d o f 8 d a y s [ o n e month] by g i v i n g
15 days n o t i c e .
113
5.. I f t.he p o l i c y - h c l d e r h,iz f : l i l e d t o i u l f i . 1 t h e o b l i g a t i o n
r e f e r r e d t o i n paragrnp-I1 1 a n d may b e deemed t o h a v e
a c t e d i m p r o p c r l y , t h e i n s u r e r inay t e r m i f i n t c t h e c m t r a c t
o r p r o p o s e NI aniendnient t o i t .
( a ) The i n s u r e r s h a l l ch o o s e e i t h e r t o t c r m i n a t r t h e
c o n t r a c t o r t o p r o p o s e an mendnicnt t o i t v i t l i i n two
(three) months fyom t h c d a t e on which he becomes
aware of t h a t F a c t . 'I'cri11inatinn s h a l l t a k e e f f e c t
f i f t e e n ciays a f t e r . t h e d a t c 01: w!iich t h e p o l j c y -
h o l d e r i s n o t i f i e d i h o r e g f a t h i s l a s t known a c idre ss.
I f t h e i n s u r e r h a s y r o p o ~ c dan amendrim: t o t h e
c o n t r a c t , t h e p o l i c y - h o ? d s r s i i n i l b e e n t i t l e d t;;
a c c e p t 01' r e j e c t j , t v i t h i n I S d a y s f r o n t:iie d a t e cl11
w h i c h he r c c e i v e s t h e j > r o j > o s a l f o r a n n x e n d m n t . If the
p o l i c y - h o l d c r r e f u s e s t h e p r o posc ll o r f a i l s t n r e p l y ,
t h e i n s u r e r may t er i r i i r . at e t h e c o n t r a c t w i t h i n z i g h t
days [one nionth] b y g i - c i n g f i f t e e n da ys n o t i c e .
(b) I f t h e contract is terminated t h e insurer .shall
r e f u n d t o t h e p c l i c y - h o l d e r t h e p r o p o r t i o n of t h e
premium p a y a b l e i n i - es i i ect o f t h c F e r ? o d f o r w h i c h
c c ~ e ri s not. p r o v i d e d .
( c ) I f a clairr. a r i s e s b ef o i - e t h e c o n t r a c t i s amended o r
i ~ ~t ll i i ;~;.:r;~t k : ~t : : k s ~ e f i r c t - ,.
b e f o r c t e ~ ~ m i n 2 L c.S
t h e i n s u r e r s h a l l be l i a b l e t o provide only such
cover a s i s i n accordnnce i i i t h t h e r a t i o betiieen t h e
premium p a i d and t h c p r emi u n t h a t t h e p o l i c y - h o l d e r
s h o u l d have p s i 6 i f he h ad d e c l a r e d t h e r i s k
c o n ectly.

4. I f t h e p o l i c y - h c l d e r has f a i l e d t o f u l f i l t h e o b l i g a t i o n
r e f e r r e d t o i n p a r a q r a p h 1 ~ i t t.he h intention of
d e c e i v i n g tilt: i n s u r e r , t h e l a t t e r may t e r m i n a t e t h e
contract.

( a ) The i n s u r e r s h a l l t a k e s u c h a c t i o n w i t h i n t w o [ t h r e e ]
months i r o m t h e d a t e on wh i ch h e becomes a rra re o f
s u c h :act.
114
(b) Lf h e terminates t l i e c u x t r s c t i h ~ :ir!.;u!-er :;hell b e
e n t i t l e d t o r e t a i n aiiy premiiurns n l r c n d y p a i d a n d t o
c o l l e c t a n y prcmiuiti 11:1>;1ble i n r e s p e c t o!‘ t l i e c u r r c i i t
insurance period.

( c ) He s h a l l n o t h c l i a b i c [or p a y m n t i n r e s p e c t o € any
c l a i m ; h e s!:clll be e n t i i l c d t o x c i a i n i an)- payzwllts
a l r e a d y made.

[\\’here t h e i n s u r e r c a n p r o v e t h a t h c r ~ o u l d j i i n o
c i r c u m s t a n c e s h a v c a c c e p t e d t h e t I-LIC r i s k , e i t h e r b c c a u s c
of t h e n a t i i r e o f h i s i n s t r u c t i o n s o r h i s o ~ i n i n t e r n a l
r i s k s , or a s a rest:?: o f t h e slneciai c o n d i t i o n s iinposed
by i n s u r a n c e t e c h n i c a l i t i e s , he s h a l l b c r e l e a s c d front
a l l l i a b i l i t y i n t h e e v e n t o € a c l a i m , and s h a l l r c f u n d
t h e m o u n t o f t h e premium p a i d ] ,

115
2. Thc i n s u r e r m y ; w i t h i l i two [ t h r e e ] inontlms o f t h e d n t c on
~ ! i i c h iic ~ 2 ns o ' i i P i e d oi' t h e i n c r e a s e o f t h e T i s I ; ,
. pi-opose a n amcndnicnt. t o t h c c o n t r a c t i n a c c o r d a n c e i,,ith
t h e procrctdurr 1 a j . d down i n A r t i c l e 2 ( 2 ) ( 5 ) .

3. I f t h e p o 3 i c y - h o l d e r - h a s f a i l e d t o f u l r i ? t!ie &!ip:itJon
r e f e r r e d t o i n p 3 ~ 3 g 1 . 3 p h I , sucl: fni'1t:re f o g i w n o t i c e
s h a l i n o t p.ivc r i s e t o 211)' per!;iltry w i i r r p 1 . t r c l a i c s t o a
new c i r c u ! i i s t an ce o r ch an g c i n circimst.::!:cps wi;ich i s n o t
l i a b l e t o a p p r e c i a b l y and pcrnmnncn? I y i n c r c a s c t h e risk
and l e a d t 6 an i n c r e a s e i n i h e premium.

4. I f t h e policy-holdcr has Cailed t o f u l f i l t h e obligation

r c f e r r c d t o i n p a r a g r a p h 1. t h e i n s u r e r n a y , w i t h i n two
[ t h r e e ] iiio~ittis o f t h e d a t e on which he becomes aware o f
s u c h f a c t , p r o p o s e an amcndnient t o thE c o n t r a c t i n
d c c o r d a n c r h i t h t h e p r o c e d u r e l a i d dGiin i n X r t i c l c 2 1 2 ) ( 6 ) .

5. I f t h e p c l i c y - h o l d e r h-s f a i l e d t o f u l f i l t h e o b l i g a t i o n
r e f e r r e d t o in p a ~ i i g I h p i 1
~ ail,l l l i l i r L e L c ~ I ~ K
: ; ~i i t i v i
J
acted improperly, A r t i c l e 2(3) s h a l l apply.

6. I f t h c p o l i c y - h s l d e r hss f a i l e d t o f u l f i l t h c o b l i g a t i o n
r e f e r r e d t o i n paragraph l with t h e iiltcntion of
decei:.ine t h e i c s u r e r , t h e l a t t e r m a y t e r m i n a t e t h e
contract.
( a ) The i n s u r e r s h a l l t a k e s u c h a c t i c n w i t h i n tw o [ t h r e e ]
months from t h e d a t e 011 wh i ch he becomes a w a re of
such f a c t ;

116
( b j I f he t e r m i x a t c s t h e c o n t r a c t t h e j.:isi;rcr s h n l l 130
e n t i t l e d t o r e t 3 j . n any prerniun:s alrc;..d)' p a i d and t o
c o l l e c t a11y prerniu;n payaible i n r c s p e c t o f t h e
c u r r e n t i n s u r ancc p e r-iod ;
( c j l h c i n s u r c r s h a l l . n o t be l i a b l e i n r e s p e c t o f an)'
cl:iim : i r i s i n g a f t e r t!;e ir-crczsc oT t i l e r i s k .

[!Shere t h e i n s u r e r c a n p r o v e t h a t he woulti i n n o
c i r c u m s t a n c e s h a v e :icce?tecl t h e t r u e r i s k , ej.:her b c c a u s e
o f tl:e n a t u r e of h i s i n s t r u c t i o n s o r h i s own i n t e r n a l
r u l e s , o r a s n - r e s u l t of t h e s p e c i a l c o n d i t i o n s isrposed
by i n s u r a n c e t e c ! i n i c a l i t i c s , h c s h a l l be relenscci ITD!:~
a 1 1 l i : i b i ? i t y i n t h e e v c n t o f a c l a i m a n d s h a l l reCLind a
p r o p o r t i o n a l a m o u ~ t of t h e prczi:ims p a i d i n r e s p e c t of
t.he p e r i o d ioS:louirig t h e incr-e-ase o f t h c r i s k ] .

117
I f , while the contract i s i n force, t h e r i s k has diminished
a p p r e c i a b l y and i ) cr i n an en t l y , and i f t h i s j u s t i f i e s a
r e d u c r i o n i n t h e preinillrn, Lile p o i i c y - h o l d e r s h a l l b c
e n t i t l e d t o t e r i r i i n s t c t h e c o n t r a c t i i i t h c u t c c rnpc nsa tic n i f
t h e i n s u r e r d o e s not. c o n s e n t t o r e d u c e t h e prerni~ln;
~ l r ~ J ~ ~ u ~ - ~ ~ ~ l I l ~ ~ ~ ~ ~ ~ .

The r i g h t t o t e r n i i n a t e t h e c o n t r a c t s h a l l a r i s e i m m e d i a t e l y
t h e i n s u r e r r e f u s e s t o r e d u c e t h e premi.uni o r , wlier,z h e f a i l s
t o reply t o t h e p o l i c y - h o l d e r ' s p r o p o s a l , a f t e r a p e r i o d of
15 days following such proposal.
Where t h e c o n t r a c t i s t e r m i n a t e d , t h e i n s u r e r s h a l l r e i u n d t o
t h e p o l i c y - h o l d e r a p r o p o r t i o n o f t h e premium c o r r e s p o n d i n g
t o t h e p e r i o d f o r which coi'er i s n c t p r o v i d - d .
[ T h i s p r o v i s i o n s h a l l n o t aplJly in c a s e s where t h e r i s k
diminishes a f t e r a claim has arisen].

118
i

Non-clj x l o s i i r e

1. The d u t y zf a p r o p o s c r f o r i n s u r a n c c t o d i s c l o s e a l l
m n t c r i n l f . n c t s i s Fniinrl i n ~1 1 rom!iinii. 1 a\<*c.o~.!nt:rics, t!?nugk
tile b L u p e u f Liic Uuiy i s nioiii~i.eci s u b s E a n t i a i l y i n rile b r . i t e d
S t a t e s and s l i g h t l y i n Can:-::ia. Folloving I:nglish a u t h o r i t i e s ,
t h e p r e v a i 1inR v;e i gli t o f c a s L' - 1 al.; e 1s ewhc r e s u p p o r t s t lie
p r o p o s i t i o n t h a t m z t e r i a l f a c t s a r e r l i o s e which a p r u d e n t o r
r e a s o n a b l c- i n s u r c r wcu:d c . o r , i d e r m a t e r i a l and t h a t inilGCent
a s uel.1 a s fr3iidiiJ c n t o r n c g l i g e n t n o n - d i s c l o s u r e r e n d e i - s t h e
policy voidable a t the option of t h e insurer.1
( a ) U n i t e d S t a t e s of A m e r i c a

2. O n l y i n t h e U n i t e d S t a t e s i s t h e 1 a u 0: n o n - d i s c l o s u r e
generally different. In non-marine i n s u r a n c e 2 o n l y t h e
i n t e n t i o n a l c o n c e a l m e n t of a k n o m m a t e r i a l f a c t o r a n a c t u a l
m i s r e p r e s e n t a t i c n g i v e s t h e i n s u r e r t i i e r i g h t t o a v o i d t.hc
p o l i c y . 3 T h e r e i s a c c o r d i n g l y n o g e m r a l d u t y of d i s c l s s u r e .
-3

(b) Canada
i 3. I n g e n e r a l t h e d u t y to d i s c l o s e i s i-hc samc a s i n
I
1 England. Fowevei-, i n r ' e l a t i o i i t o P i r e i n s u r a n c e o n l y t h c r e i s
i n m o s t p r o v i n c e s a m o d i f i e d d u t y , e x i s t i n g b y v i r t u e of
statutory conditions required i n f i x policics. T n t h j s case
o n l y 2 ~ ~ i c r e p : o s n : ; t . ; t ~ . c n c r 2 E r a i t d d a i i ' ; conceaiifieI1C \u.ill a v o i d
: tile p o l i c y . 4
t
Q'3
.I 1 S e e e . g . R a b a t s i k o s v . C a r Owners' M u t u a l [ 1 9 7 0 ] V.R.297.
The A u s t r a l i a n L a w Reiorm Commission i s examifiing a s p e c t s
o f i n s i . i r a a c e l a x , enc! t!-!e !duty o f d i P c l n s i ! r e i:: z r n r ~

t3 t h o s e t o p i c s which i t h a s u n d e r c o n s i d e r a t i o n - s e e
Issues P a p e r No.2, I n s u r a n c e C o n t r a c t s , ( J u n e 1 9 7 7 )
pp.20-25.

I n m a r i n e i n s u r a n c e t h e r e i s a f u l l d u t y of: d i s c l o s u r e :
3
2
;;;8fy: M u t u a l I n s . Co. v. Ocean I n s . CO- 10: 485
U.S.

i 3 S e e e . g . S e b r i n g v . F i d e l i t y - P h e n i x I n s . Co.,255 N.Y.
382 ( 1 9 3 1 ) ; Vznce o n I n s c r a n c e ( 3 r d e d . ) pp. 370 e t seq.
i
f 4 T a y l o r v . London A s s . C o r p n . [ 1 9 3 5 ] S.C.R.'422.
i
4
.i

:.i 119
4. ‘l’he s t r i c t la1i o f l i n r r a n t i e s s u r v i v e s t o t a l l y
unclinl lcngcd i!i oii1.y I; f c v c c i ~ ~ ~ t r oi tehse r - t h a n t h e U n i t e d
Kingdom. l’hc f o l l o v : i n g a r e c~x:!iii~ilcso f soiiie o f t h e cmacted
r e f om s .
(a> A u s t r a l i a

5. “l.
inert ; e g i s l a t l o i i of general c i l e c t r c g a i d i n g l i i c
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,-..-
U-. c. I..

~ j piOvi.Je S t h a t O l i 1 )I i i i a t 2 T ia 1 Ida T T RRt i C S a r c

( C ~ i i l l l i G na~1i tl?
a c t i o n a b l e , e s c c p t i n t h e c a s e o f f r a u d , and e vc n a m a t c r i a l
m j . s - s t . a t e n e nt c ~ fo~.i!id
n a i f o i d a n c e c f tile p o l i c y o:ily w i t h i n
t.h-ree y e a i s 01 i t s b t i j n f i iiia~lc. S c i t i o n 5 3 OL t h a t A c t d e a l s
w i t h t h e p a r t i c u l a r p r o b l e m o f m i s - s t a t e m e n t o f age, w h i c h
by i t s e l f will n e v e r n ~ o i da p o l i c y , t h e s e c t i o n p r o v i d i n g
i n e r c e c t f o r t h e o p e r a t i o n of t h c p r o p o r t i o n a l i t y p r i n c i p l e
t o t a k c a c c o u n t o f t h e t r u e a g e . P r esum a bly t h i s p r e s e n t s
l i t t l e d i i f i c u l t y i n t h i s f i e l d wherc a c t u n r i a i p r i n c i p l e s
would be a p p l i e d . .
6. In t h e fjclci 02 n o ? - l i f e i n s u r a n c e o n l y t h e S t a t e of
V i c t o r i n h n s a p r o v i s i o n s s p e c i f i c a l l y aimed a: w a r r a i ? t i e s ;
t h i s p r o v i s i o n p r ev ci i . t s t h e i n s u r e r . from r c l y i i i g o n i x n n t c r i a l
w a r r a n t i e s u n l e s s he c a n e s t a b l i s h f r a u d . I n Ne!< S o u t h W a le s,
h o w e v e r , t.hc c o u r t may rc!.icve HT! i.nsured froiii b r e a c i i o f a
w a r r a n t y ( o r of a l l y o t h e r t e r m of t h e c o n t r a c t ) i f t h e i n s u r e r
c o u l d n o t be s a i d t o have b een p r c j u d i c c d by t h e b r c a c h . h
7. Rot.11 s t a t u t e s r e q u i r i n g m a t c r i a l i - t y a p p l y o n l y t o
n i s - s t a t e m e n t s m d e nn ;? p ~ ~ i i o s aforin 1 o r on m y v t l i e I
dnciiTnent l - e a d j n g t o t h r c o i i t - r i l r t . W a r r n n t j e s i p t h ? h o d y o f
t h c p c l i c y t h c r c f o r c may s t i l l bc e f f c c t i = . e r e g a r d l e s s oi
m a t e r i a l i t y , and t h e i s i s no requirement of a connection
b e t w e e n b r e a c h and a 1 . 0 ~ ~ The . h‘ew S o u t h Wales p r o v i s i o n
a p p l i e s t o a l l w a r r a n t i e s and c l e a r l y c o u l d b e e f f e c t i v e t o
p r e v e n t r e l i a n c c cr. b r e a c h o f a n a t c r i a ? w a r r a n t y vrhcre t h e r e
i s no c o i i n e c t i o n b e t w e e n t h e b r e a c h and a l o s s .
( b j Canada
8. There i s n e i t h e r g e n e r a l nor any uniform l e g i s i a t i o n .
O f t e n w a r r a n t i e s a r e p e r m i t t e d o n i y i f niateyial t o t h e r i s k . ?
E q u a l l y t h o a g h , i t s eems t h a t i n some P r o - J i n c e s a nd i n r e l a t i o n
t o p a r t i c u l a r r i s k s t h e l a w of w a r r a n t i e s i s a s i n t h i s
country.
5 I n s t r u m e n t s Act 1 9 5 8 , 5.25.
6 Commercial T r a n s a c t i o n s ( P l i s c e l i a n e o u s P r o v i s i o n s )
Act 1 9 7 4 , s . 6 .
7 See e.g. Insurance A c t 1970, s . 9 8 ( 5 ) (Ontario).

120
 9. L e g i s l a t i o c 112s r c c e n t l y been c n a c t c d ' l s i ~ i i c ~ i
i i i t r o t i u c e s refor:::s c o r r e s p o n d i n g i n slJ n i a t e r i 21. r e s p e c t s
i , r i t h t h c p r o v i s i m s i n t h e A u s t r a l i a n I..ire I n s u r a n c e Act
2nd :he V i c t o r i a n I n s t r u ~ i ~ e n tAs c t .

(d) South A f r i c a

10. S e c t i o n 6 i ( j ) o f t h e I n s u r s n c c Act 1943' p r o v i d o s

i n i s r e p i . e s ~ n L a t i o n made t o a n i n s u r e r i s a c t i o n n h l n
.... . . .
i i i d ii
-_,_
J C_
L,.:L,.
L
i t i . i i c l i i i i
A A
I S .... :.<,. iii' i i o i ~ u i ; l i i c p ~ c s e i l ~ i i i iIu:~~
> > ~ * L L , L L ~ - ~s
I ..
LJCCIIxarranted Lv bc true". A r g u a b i y t!iis ; p p i i c s o n l y t o
statcn!ents lihich, h u t f o r t h c prcscncc of a " b a s i s of t h e
contract" c l a w c , :;ould b e inere r e p r c s c r i t a t i o n s , arid hcnce
not t o w a r r a n t i e s c o n t a i n c d i n t!le body o f an i n s i ~ r a n c c
policy.19

(e) y n i t e d S t a t e s o f America

11. I n a m a j o r i t y o f S t z t c r , l c g i s l a t i o n h a s reformed t h e
law on w a r r a n t i e s . :;ot a l l statutes, hoiilcver, f o l l s w t t i e
same p a t t e r n . blost t u r n w a i - r c n t i e s i n t o r e p r e s e n t a t i o n s
o:id t h u s r e q u i r c tiiern t o b e m a t e r i a l . 1 1 , Some r c q u i . r e a
c a u s a l c c ! i n e c t i o n b c t v c c n 3 b r c a c l i oE ~ a r i a n t j 'a n d a l a s ~
before the breach i s operative.12 Frequently l i f e p o l i c i e s
a r e made s t a t u t o r i l y i n c c n t c s t s b l c a i t c r ;I c c r t a i r , p c r i c d ,
a n d i n Some S t a t c s t h e x i i s - s t a t c x z t o f s g e b y :in a p p l i i - . i ~ t
f c r l i f c i n s u r a n c e will n o t a v o i d t l ~ rp o l i c y , b u t !wi!ig.?
i n t o c p e i a t i o n t h e p r G p G i - t i O n & l i t y p r i n c i p l e ; the iES?lTe:i ' 5
r e p r e j e n t s t i v c s a r e e n t i t l e d t o t!:c amcunt !jliic.i: tlic prcr.:i an;
p a i d u ~ u l dliave p u r c h a s e d had t h e agc b e e n c c i r c c t i y s r a t e d . I 3

8 I n s u r a n c e L 3 w i(eforn1 Act 1 9 7 7 , s s . 4 - 7 .
9 I n t r o d u c e d by 1 : i s u r a n c e Amendment A c t 1 9 6 9 , 5.19.
10 S e c G . Gordon, i h c S o u t h A f r i c a n L a w o f I n s u r a n c e
( 3 r d e d . ) p.205.
11 e . g . >:ex Y o r k I n s u r a n c e Law, s . 1 4 3 .
12 e.g. Iowa I n s u r a n c e Code, 3. 515.101.
13 e . g . X e w York I n s u r a n c e Lari, s . 1 5 5 . (See coinment i n
paragraph 5 above).

121
 [a) Frxice

IZ. Thc F r e n c h law r e g u l a t i n g t h e c o n t r a c t o f i:isurance

a s b e t w e e n t h e i.nsurei- and t h e i i i s u r c t i i s c o n t a i n c l j.ii ;hc
Law o f 13 J u l y 1930, 2 s xncncicd by a 1)ec-see o i 15 \J:ily 1 9 7 6 .
'The Decree:, LIlu\<i, 2s :hc " C o d 2 d e s A s s u r a n c e s " , j s a
csrlsolli;ti;-,g ; ; ~ 3.5 ~ 1 , ~ ?z,j.
~ !..?! y i;j!c-~ fo; i ~ i i i f i g~ : < ~ ~ ~ i ~
i s b a s e d on i t s provi:ic::s.

13. _?!_- 31:- d i s c 1 es U re

P l r t i c l e I, 1 1 3 - 2 o f t h e Codc p r o v i d e s t h a t t h e
i n s u r e d i s o b l i g e d t o d e c l a r e a c c u r a t e l y , at t h e i i m o f
c o n c l u s i o n 01 t h e c o n t r a c t , a l l c i r c u n l s t a n c c s knciivn io l i i i n
w h i c h a r e c a l c u l a t e d t o a f f e c t tlie a s s c s s m c n t o f t h e r i s k . -
A c c o r d i n g t o a n n o t a t i o n s i n a s t a z d s r d e d i t i o a o f t h e cod^^^
t!ie F r e n c h c o u r t s h a v e i n t c r p r e t e d t h c l a s t p a r t o f t h i s
p r o v i s i o n a s meaning c i r c u m s t a n c e s r\rhich t h e i n s u r e d o u g h t
t o know a r c c a p a b l e o f l c a d i n g t h e i n s u r e r e i t h e r t o r e i u s e
t h e r i s k o r t o c h a r g e a h i g h e r prei7iii.i:.

14. A r t i c l e L 113-9 p r o v i d e s t h a t , i f t h e i n s u r e d i s
i r . b r e a c h o f the o b l i g a t i o n s i n A r t i c i c L. 11.5-2, ei;!;cr
b e c a u s e lie f 3 i l s t o d i s c l n s e a 1 1 m a t c r i . a l c i r c u n s t a n c e s
known t o him e r b e c a u s e he d i . s c l o s c s thcn i n a c c u r a t e l y ( b a t
h a s riot i:: e i t h e r c a s e a c t e d i r a u d u i e n t l y ) t h e j n s u 1 r r d o e s
n o t autoiiiatical.ly have t h e i i g h t t o r e p u d i a t e t h e c c n t r a c t
of insuraci:. I f t!!e i n s L i - r c d ' s b r e a c h o f o b l i g a t i o n is
d i s ~ c ~ r nb rdf o r a a n y l o s s . t h e i n s u - s c r niay e i t h e r r e s c i n d
tlie c o n t r a c t cr. g i v i n g ~ o i i s ct o t h e i n s u r e d o r may a f f i m
t h e c o n t r a c t i n c o n s i d e r a t i o n o f an i n c r e a s e o f premiuii!.
I f , however, t h e i r l s u r e d ' s b r e a c h of o b l i g a t i o n i s d i s c o \ e r c d
o n l y a f t e r a l o s s , t h e i n s u r e r i s o n l y bounc: t o ;n;' t h 2 t
p r o p o r t i o i l of tlie l o s s : . i i i i C t i t.hc premium p a i d L c ; i r j t c t h a t
w h i c h w o u l d have b c e n p a y a b l e i f t!ie r i s k h a d been c o m p l e t e l y
a n d a c c g r a r e l y d e s c r i b e d . A m o t a t i o n s t g t!?e Code15 i n d i c a t e
t h a t t h e ali!ount o f t h e "Eatior:;ir preiiiid;iI'' 1:. ;i q~i;ti;: :f
f a c t , t o h c d e t c r m i n e d e q u i t a b l y b y t h e c o u r t s , Ke
u n d e r s t a n d t h a t t h e c o u r t s ' t a s k i s made e a s i e r by t h e
e x i s t e n c e i n F r a n c e 01 a c o m p r e h e i i s i v c s y s t e m o i f i x e d
t a r i f f s f o r premiums c o r r e s p o n d i n g t o t h e c i r c u n s t m c c s o f
t h e r i s k s t o be covered. Annotations t o A r t i c l e L 113-9
i n d i c a t e t h a t t h e yusstinn whct . ! i er t h e c i r c u m s t a n c e
c o n c e a l e d o r m i s r e p r e s e n t e d had any c o n n e c t i o n i t i t h t h e l o s s
is i r r e l e v a n t t o t h e i n s u r e r ! s r i g 1 1 t s l 6 .
~~

14 A n n o t a t s d E d i t i o r . o f t h e Code des A s s u r a n c e s ( 1 9 7 6 1 ,
p u b l i s h e d by L'Argus, P a r i s a t p . 11.
15 Ibid., p . 15.
16 Ibjd., p. 15.
122
 ___-._
1!:ie !! t and in i Js- r e 1'c5 c n L
1:raudcle!i 1: con c ~7 a___ t ;i 1 i-
7) on

15. i \ T t j . c l c 1.. 1.15-8 proyi.cles t h a t t h c f r a s d u l c n t

c e n l n c n t. o r ixj, s r c ? 1-c s i'i! t a t i. G n o r a 1113t c r i a l
c i r c u r n s t a n c e b y tI;c i n s u r c 3 r w d e r s the c o n t r a c t 01
i . n s u r a n c c v o i d i r r c s p c c t i v c o f i i l i e t h c r tlic circu:iista!lcc
c o i l c e n l c d o r :i!isreprc.s~nt-z:tlh a d any c o n n e c t i o ~ i~ i i t ht i l e l o s s .
Thc
-- JiltJ
- t o cleclrlrc i n c r e n l : c s i n t h e r i s k
1f? . by : Z r t . i c l c L 1 1 3 - 4 t h e i n s u r e d i.s under 2 d u t y t o
inforin t h e i n s i l r e r o f any i n c r e a s e i n the r i s k o c c u r r i l l 2
du;'l::a t!:o ~ ~ . : T T C ! ! C ) ~ o f t .11~c o n t r a c r wiierc Aiioi~ieclgc o i :!:E
- -
i l l c r c n s c d r i s k i i o ~ i i dilavc a i i ~t...\; . ~ ;;;; i ; % L s ; ; y c r 5' n c r - . : c r n ~ ! ? t
o f t h e r i s k . ' l h c i n s u r e d ' s ducy 01 n o i i f i c a t . i o n Ji.Cfers
ncc.ordin_s t o i i h ~ . t h e ro r n o t t h e i n c r e a s e i n t h e r i s k \\'a:<
I ~ r o u g h t a b o u t by t h e i i i s u ~ e d ' s own a c t . I n e i t h e r case t h e
i n s u r e r iriay i c r i n i n a t c t!lc c o n t r a c t or p r o p o s e L ncii prcir:ium.
J f t!ic p r o p o s e d ncib' preniium i s not. a c c e p t e d by t h c j n s u r e d ,
t h e p o l i c y i s t e r m i n a t e d . T!ie i n s u r e r l o s e s t h e r l . g h t t o
t e r m i n a t e tlie c o n t i - a c t o r t o p r o p o s c a i i c i i prenijrii:; i i , w l t h
knowledge o f t h e insured's b r e a c h o f d u t y , he a f f i r i i i s t l i e
c o n t r a c t b y , f o r e x a m p l e , p a y i n g a c1ai111o r c o n t i n i i i n p , t o
a c c e p t preniiuinsl7.
-
Ikcrcase i n t h e risk

17. A r t i c l e L 113-7 p r o v i d e s t h a t i f d i i r i n g t h e
currency of t h e c o n t r a c t t h e risk decreases t h e i n s u r e d m y
r e s c i n d t h e c s n t r n c t i f t!ie i z s u r t r d o e s not. a y r d e t c an
a 1) p r o p r i a t c r e duc: 1.i o n j n t h e p r emi iiin .
General
18. A g a i n i t i s irnportnilt t o r e z l i s e t h a t t h e abovc
p r o v i s i o n s iiius.i b c i c t c r p r o t c . 2 ic t h e c o n t r x t o f 8 svsteiil
f o r s d m i n i s t r a t i v e c o n t r o l 01 i n s u r a n c c . 'i'he b a s i c l a u
g o v e r n i n g t h e o r g a n i s a t i o n and c o n t r o l o f i n s u r a r . c e
s u p e r v i s i o n i s t h e S t a t u t o r y h C P 2 e of 1 4 J u n e 1 9 3 3 . The
aim o f t h e D e c r e e i s s t a t e d t o b e t o e n s u r e t h a t c o n t r a s t s
of i n s u r a n c e a r e p r o p e r l y p e r f o r i n e d . T c t h i s e n d R i l p r i n t e d
m a t e r i a l w h i c h i s t o be d i s t r i b u t e d t o t h c p u b l i c O T t o

f 17 For a g e n e r a l d i s c u s s i o n of t h c p r o v i s i o n s of French
f law a s t o t h e i n s u r e d ' s d u t y o f d i s c l o s u r e s e e P j c a r d
3 a n d Bessoii Les A s s u r a n c e s T e r r e s t r c s e n D r o i t F r a n c a i s
( 4 t h e d . , 1 9 7 5 - 1 9 7 7 7 - ~ v o ~ J 7 5pp. ) 126-i71. In
4 V o l . I 1 ( 1 9 7 7 ) a t P F . 453-461 t h e r e i s a d i s c u s s i o n o f
?.I A r t i c l e s 2 - 4 o i t h e d r a f t d i r e c t i v e w h i c h s ~ ~ p p o r tZhc
contention t h a t these Articles a r e based s u b s t a n t i a l l y
s

on F r e n c h law.

123
 (b) il'esr Gcrllian):
19. The Ger::ian law r c g u l a z i n g t h e c o n t - r a c t o f
i i i s u r a n c e as b et wcen t h e i r . s n r c r 2nd t h e insured i s
c 3:: t a i n e d i11 t h c Ve r s i c h e r u n gs vc r i r ags g? s c t z ( tlie i II s 11ra:: c e
C o n t r a c t La!$-) [ V V C ) o f 39 ?lay 1 5 0 3 , a s ainenilcd by v:irioiis
laws a n d r e g u l a t i o n s b e t l i c c n 1911 a nd 1967.
Non - d i s c l 0 s u r c
-_
2G. A r t i c l e 1 6 o f t!:c V V G imposes n d u t y on t h e
i n s t i r e d t o d i s c l o s e t o t!ie i n s u r e r , a t t.!ie t i n i e when t h e
c o n t r a c t i s made, 2 1 1 m a t c r i . a l circui::si:ar:ces I:!-:or<n to i i i n ~ .
A c i r c u m s t a n c e i s ! o a t e r i a l i f i t i s o f a : ) a t a r e t o ha:c s n
i n f l u e n c e on t h e i n s : J r e r ' s d c c i s i o n i i h e t h c r t 3 e i i t c r i n t o
t h e c o n t r a c t a t a l l , 01- i v h ct h er t o d o c a on t h e a g r e e d t e ~ m s .
A f a c t as t o which -the i n s u r e r h a s a s k e d a w r i . t t z i ; q i ; c S t i c n
i s deemed t o b e i r a t c r i a l . !irc:3c!i of t h i s diiry b y "Lie
i n s u r e d g i v s s t h c i:?si:rc!- t h e r i p h t t o r c p u d i a t c tlie p o l . i c y .
The i n s u r e r inay n o t houever r e p u d i a t e Lhe p c l i c y i f t o h i s
k n o - d e d g e thi- i i i s u r c d ' s f 2 i l u r e t o d i s c l o s e m a t e r i a l
ci1cdiiis';Lnc:s wzs n o t t h e i n s i i r e J ' s f 2 u l t l 5 . A r t i c l e i 8
o f t h e V V G p r o v i d e s tha'; i f t h e i n s u r e r has asscs3?1: t h c
r i s k o n t h e b a s i s o f t h e i n s u r e d ' s a ~isw e i-st o w r i t t e n
q u c s t i o n s h e may o n l y r e p u d i a t e t?ie p o l i c y f o r t h e
n o n - d i s c l o s u r e sf a f a c t o u t s i d e t h e a m b i t 3f gny o f t h e
w r i t t e n q u e s t i o n s i n t h e even: of the i n s u r e d ' s f r e u d .

18 For a d m i n i s t r a t i v e c o n t r o l o f i n s u r e r s i n Frapce
g e n e r a l l y , s e e Ki mb al l and P f e n n i g s t o r f ,
" A d m i n i s t r a t i v s C c n t r o l o f t h e Terms o f I n s u r a n c e
C o n t r a c t s : - A C o m p a r a t i v e S t u dy" ( 1 9 6 5 ) 4 0 I n d i a n a
L.J. 143 a t 180 and 2C6.
19 A r t i c l e 16(2) p r o v i d e s i n t e r a l i a t h a t t h e i n s u r e r i s
entitled t o repudiatc the policy if the iasured's
f a i l u r e t o d i s c l o s e a m a t e r i a l c i r c u m s t a n c e i s due to
h i s h a v i n g " f r a u d u l e n t l y a v o i d e d knowledge of t h e
circunstznce" .

124
22. The V V G a l s o makes p r o v i s i c n f o r t h e insurer's
r i g h t t o j - c p i l d i a t c t h c p , o l i c y f o r i i ! i s r c p r c s c n t a t i o n by t h e
i!isured. I n aclditi.on i t p r e s e r v c s t h e i.nsuTer's r i g h t t o
r e p u d i a t e t h e p o l i c y on t h e g r o u n d of f r a u d .
G r e a c h o f i z a r x a n t y.

2a. T h e VVG a l s o makes p r o v i s i o n f o r t h e c f f e c t Of aJl

i n c r e a s e o r d e c r e a s e , i n t h e r i s k c:ul-ing t h e 'ccrm 01 t h c
insurance contract. 2-
Procedure f o r repudiation
25. A r t i c l e 2 3 of t h c WG l a y s doiw t h e p r o c e d u r e tc:
b e fo1lov:cd by t h e i n s u i - e r when h c r e p u d i a t e s tk-e p01 i c y .
i t a l s o s e t s o u t some o f t h e p a r t i e s ' o b l i g a t i o c s a r i s i n g
from r e p u d i a t i o n .
Gene 1-a 1

26. It i s i m p o r t a n t t o r e a l i s c t h a t t!?e a l ~ o v c
p r o v i s i o n s m u s t 5:: ~ ? d e r s ? o o dw i t h i n t h e c o n t c s t 01: -
(a) t h e g e n c r a l GcrFian law o f c o n t r a c t s and i n
particL1liy i ? s p r o v i s i o n s r e l h t i n g t o brcach25;
arid
(b) t h c l a w r e l a t iiig t o i n s u r a n c e s u p e r v i s i o n . 2 4

- __ - -
2Q See A r t i c l e i7.
21 See A r t i c l e 22.
22 Se e A r t i c l e s 23-29 an d 3 1 a r e s p e c t i v e l y .
23 F o r a d i s c u s s i o n o f t h e German l a w on b r e a c h o f c o n t r a c t .
bee E . J . Cohn, hlar.ual o f German Law (2nd c d . , 1 3 6 8 ) Vol.
1 pp., 1 1 7 - 1 2 4 . A b r i e f d c s c r i p t i o n of t h e d o c t r i n e of
b r e a c h i n German l a w i s -g i v e n i n t h e kiorkirlg p a p e i z t
n.200.
24 A f u l l d e s c r i p t i o n o f t h e s y s t ei n o f a d m i n i s t r a t i v e
c o n t r o l over t h e insurance industry i s contained i n
Iiimbail and P F e n n i g s t o r f "A+.niinis L r a t i v e C o n t r c ? of t h e
Terms o f I n s u r a n c e C o n t r a c t s : - A C o m p a r a t i v e Study"
(1965) 4 0 I n d i a n a L . J . 1 4 3 a t 1 7 7 an d 182.

125
l'lic l a t t e r i s t h e V c r s i c l i e r ~ i n g s a u € s i c I i t s g e s e t - ( V A C ) of 1 9 0 1 .
Arter t h c T o i n a t i o n o r t h c L c s t ( ; e m a n Fedcrcil Republic I n
2 9 4 9 aii a n c i l l a r y lnis idas p a s s c l : i n c o n n e c t i o n Y i t h i n s u r a n c e
s u p c r i ; i s i o n ; tiiis \..as t l i c ~ u n d c s z u i s i c i i t s g c s c t _ (i3:iS) i 9 5 1 .
T h c ;AG was m::iiily c o n c c r n c d x i t h t!ic s r t . t i r i g ::p.of L'
I c r l e r a l I n s u r a n c e l!epartmc!!t. Under t l i t ' \'AG :in 1 i : s u r w c c
coi!ipany a p p l y i n g t o t h e Geri::an F c d e r a l I n s u r a n c e Uepartmi:iit
f o r a l i c e n c e r o Go L u s i n c s ; m s t al.0 s u p p l y tlie I k p a r t r i i c n t
i v i t l i a y1a11 01 Oi>CI-;1tion, \ i l i i ~ l ! e s p l a i n s t l i c l e g a l , cconoxic:
a n d C i n a l i c i n l b;isii.s f o r i t s b u s i n c s s . ;icT.ong o t h e r t h i n g s
t!,.o i'.! 21: n f c)l,t:xailciii n u s t coztai!! t h e ~ e i i c r a lt e r m s UP
i : i s u r a i i c e p ol ; c.ics t.o b e i s s u e d b y tlic c i r l . i p ~ n y . l'h;s:
:'general policy conditions" i n p r a c t i c e conforn t o stzndard
clriuscs ~ l i i c ha ~ uc s e d t h r o u g l i o u t tlic i n d u s t r y . Thc F e d c r a l
I n s u r z n c e Dcp;!rtr.ient. lias b c e n r c s p o n s i . b l c f o r t b e
dcvclolmi.nt o f t l i c s e s t a n d a r d clauses i n conjunc!:ion wi:h
the i n s u r a n c e i!ldustrjr. l f an i n s u r a n c e company \rrishcs r o
n l t c r i t s e x i s t i n g p o i i c y c o n d i t i o n s o r i n t r o d u c e new u n t l s
i t m u s t f i r s t o b t a i n t l i e a p p r o v a l of t h e F e d e r a l i n s u r a n c e
U e p a r t m e n t . T!ie g c i i e r a l p o l i c y c o n d i t i c n s must a l s o meet
c c r t a i n niinimuin statutory r c q u i r e m e n t s .

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