REFORMING INSURANCE LAW: - Law Commission

disputes as to whether the correct approach is either of these or indeed a third possibility,
common liability, under which the insurers bear equally any loss up to the maximum amount of
cover provided by the lowest value policy, with the balance being borne by the other policy. 520
Clarification in this jurisdiction would be useful, and independent liability appears to be the
fairest measure as it disregards limits of indemnity which in practice are most unlikely to be
reached. Other uncertainties affecting the operation of contribution remain untouched by the
legislation: that which has given rise to the most judicial conflict of opinion is whether a
contingent right of contribution which arises when the insured peril occurs is lost if the assured
fails to comply with policy terms and conditions so that by the date of payment the insurers from
whom contribution is sought no longer face liability to the assured. 521
Sale of insured property
8.39 At common law the sale of property does not transfer with it any insurance which relates to
the property, 522 and the policy becomes worthless in the hands of the vendor because he no
longer has any insurable interest. 523 That rule is quite properly left untouched by the Insurance
Contracts Act 1984, as it must be a matter for the insurers to decide whether they wish to insure
an entirely different assured who may represent an enhanced risk. However, one particular
problem with this rule is in relation to the sale of land (and, less commonly, goods) where the
risk in the subject matter passes to the purchaser before the transfer of title: once again, the
purchaser cannot derive any benefit from the policy even though, in the event of a casualty, he
remains under an obligation to pay the purchase price. 524 The problem is addressed by s 50 of the
Insurance Contracts Act 1984, 525 which operates to transfer the benefit of the policy to a
purchaser in the period between the passing of the risk (contract) and the passing of property
(conveyance). In this jurisdiction, section 47 of the Law of Property Act did purport to achieve a
similar outcome, but the provision has proved to be of little or no value. The matter is in practice
520
Common liability was rejected as a possible measure in marine cases in O’Kane v Jones [2005] Lloyd’s Rep IR
174, on the ground that it was not an apportionment at all, as required by s 80 of the Marine Insurance Act 1906.
ALRC 91 recommended no change to the equivalent provisions of the Australian Marine Insurance Act 1909 on this
point.
521
The conflicting authorities are considered by Longmore LJ in Bolton Metropolitan Borough Council v Municipal
Mutual Insurance [2006] Lloyd’s Rep IR 15. Quaere, however, whether this should be the case if the assured has
made a fraudulent claim against insurer B, and then turns to insurer A for indemnification. In principle there is no
difference between this situation and that in which the assured has simply failed to claim against insurer B, given
that what is at stake is the right of insurer A to obtain a restitutionary remedy. There is no reported case in which this
has occurred: the usual scenario is a straightforward failure to claim from insurer B. The point does not arise in
Australia, as any breach of condition is likely to be cured under s 54 of the 1984 Act, leaving the contribution claim
intact.
522
North of England Pure Oil Cake Co v Archangel Marine Insurance Co (1875) LR 10 QB 249; Marine Insurance
Act 1906, s 15.
523
Powles v Innes (1843) 11 M & W 10; Ecclesiastical Commissioners v Royal Exchange Assurance (1895) 11 TLR
476. Contrast the sale of a motor vehicle, as the assured may retain an insurable interest in his liability while driving
other vehicles: Dodson v Peter H Dodson Insurance Services [2001] Lloyd’s Rep IR 278.
524
So that if the insurers do indemnify the vendor, they have subrogation rights against the purchaser. See: Rayner v
Preston (1881) LR 18 Ch D 1, Castellain v Preston (1883) LR 11 QBD 380.
525
Based on ALRC 20, paras 130-132.
99