REFORMING INSURANCE LAW: - Law Commission
REFORMING INSURANCE LAW: - Law Commission
REFORMING INSURANCE LAW: - Law Commission
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The subscription market<br />
4.74 The practice at Lloyd’s and in the London subscription market is for the slip to be<br />
scratched successively by different underwriters. In principle each of them is required to assess<br />
the risk for himself, but in practice it is common for the judgment of the leading underwriter to<br />
be taken into account by the following market. A legal problem arises where a false statement is<br />
made to the leading underwriter but not repeated to the following market: if the leader is<br />
induced, the following market may argue that although nothing has been said to them they are<br />
entitled to rely on the presentation to the leader. This argument has little to commend it,<br />
particularly since the adoption of the actual inducement test in Pan Atlantic, and it was rejected<br />
by the Court of Appeal in General Accident v Tanter, The Zephyr 213 where it was held that a<br />
false statement made to the leader could not be relied on by the following market to deny<br />
liability. However, in a series of later first instance decisions 214 the courts have reached the<br />
contrary view, the reasoning being variously that it was understood by the market that the<br />
followers would rely on the leader or that if a false statement is made to the leader there is an<br />
obligation to disclose it to the followers. 215<br />
4.75 This point was unsurprisingly not considered by the ALRC in is 1982 Report on general<br />
insurance, but was discussed by the ALRC in its 2001 Report on marine insurance, the latter<br />
concluding that “following underwriters should be deemed to have been induced to enter into the<br />
contract if all the leading underwriters were induced. For this purpose, leading underwriters<br />
should be defined to be those underwriters whose earlier acceptance of part of the risk induced<br />
the following underwater to do so as well.” 216 There are no reasons given for this conclusion,<br />
and it may be that the issue should be fully reviewed in any proposals for reform.<br />
5 THE CONTINUING DUTY OF UTMOST GOOD FAITH<br />
The implied term<br />
5.1 The Insurance Contracts Act 1984 effectively abolishes the continuing duty of utmost good<br />
faith 217 and replaces it with an implied term in s 13 whereby the parties are required to act<br />
towards each other, in respect of any matter arising under or in relation to the policy, with the<br />
213 [1985] 2 Lloyd’s Rep 529.<br />
214 The two root cases are Aneco Reinsurance Underwriting Ltd v Johnson & Higgins [1998] 1 Lloyd's Rep. 565 and<br />
International Lottery Management Ltd v Dumas [2002] Lloyd's Rep IR 237.<br />
215 An argument which can be right only if the broker making the false statement was aware that he had done so,<br />
given that a broker is not required to disclose what he does not know.<br />
216 ALRC 91, para 10.130.<br />
217 Re Zurich Australia Insurance Ltd (1999) 10 ANZ Ins Cas 61-429. There remains some doubt as to this<br />
proposition, and it is arguable that ALRC 20 had intended to preserve and extend the duty of utmost good faith. The<br />
point is probably insignificant given the development of the law since the passing of the Act.<br />
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