REFORMING INSURANCE LAW: - Law Commission

Co-assureds
4.68 English law draws a distinction between joint assureds (those with indivisible interests in
the same subject matter) and composite assureds (those with different interests in the same
subject matter whose respective rights and interests are insured in a single document). The
former are treated as having just one contract with the insurers, so that in the event of breach of
duty by either then both are disqualified from recovery. 194 By contrast, if the policy is composite,
the co-assureds are treated as having separate contracts with the insurers so that breach of duty
by one does not affect the validity of the policy for the others. 195 The distinction between the two
depends upon the nature of the parties’ interests and the wording of the policy: spouses, and
arguably partners in a commercial partnership, are generally to be treated as joint assureds 196
unless the policy provides otherwise. The 1984 Act is silent on the position of co-assureds,
although it was held in Advance (NSW) Insurance Agencies Pty Ltd v Matthews 197 that the nondisclosure
and misrepresentation provisions of the legislation have removed the distinction and
that a breach of duty by one party gives the insurers the same remedies against both. 198 The point
was discussed by Treasury Review II, 2004, 199 the conclusion being that further work was
required but that there was merit in the court being given a discretion to relieve an innocent coassured
from the consequences of the guilty co-assured’s breach of duty. There is nothing on this
matter in the draft Insurance Contracts Amendment Bill 2007 other than the proposal that third
party beneficiaries – non-parties but who have a right to claim under the policy – are subject to
any defences which would have been available against the assured. However, the rights of such
persons are clearly derivative and cannot affect the approach which may be appropriate to coassureds.
4.69 The ruling in Advance is perhaps not as damaging as would have been the case had insurers
retained their absolute right of avoidance, but there is a need for the Law Commissions to
consider whether joint and composite assureds should be treated in the same way rather than
leaving the matter to be resolved by the courts. The English rule has operated for many years,
although the author’s own experience is that insurers have not always appreciated the principle
that an innocent co-assured has a claim in his or her own right and have expressed surprise when
faced with the point. The point is one which must not be overlooked in any reform of UK law.
Group policies and declaration policies
4.70 Various forms of policy are issued to an employer or other organisation for the benefit of
employees or members, as the case may be. Such policies may provide life or accident cover.
194 Cf Direct Line Insurance v Khan [2002] Lloyd’s Rep IR 364
195 Wooolcott v Sun Alliance [1978] 1 Lloyd’s Rep 629.
196 The New Zealand courts have rejected the notion of joint insurance as between spouses: Maulder v National
Insurance Co of New Zealand Ltd [1993] 2 NZLR 351. See also Holmes v GRE Insurance Ltd [1988] Tas R 147.
197 (1989) 166 CLR 606.
198 The policy may reverse this rule and give protection to innocent co-assureds: FAI General Insurance Co Ltd v
Sherry [2002] SASC 431. See Sutton, paras 3.147 to 3.160.
199 Chapter 9.
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