REFORMING INSURANCE LAW: - Law Commission

56(2), 298 and that what is required is severable loss. Assuming that what is required is a severable
loss, the question then becomes, when is a severable loss a minimal or insignificant part of the
total loss. In Entwells Pty Ltd v National and General Insurance Co Ltd 299 it was held that the
exaggeration of a claim of between A$222,589 and A$528,000 by A$27,000 was not sufficiently
large to taint the entirety of the claim, a decision which has not been welcomed. The author’s
own view is that there is a clear need to deter fraud and that this should be the paramount
consideration, but that it should continue to be recognised that not every exaggerated claim is
fraudulent. On balance the discretion conferred upon the courts by s 56(2)-(3) is likely to give
the wrong message, and that the English approach remains correct.
7 WARRANTIES
The common law
7.1 Warranties in their origin were designed to describe and delimit the risk that insurers were
prepared to run. If the risk as described to insurers was not that which they actually faced, it
seemed right for them to treat themselves as discharged from future liability. However, the
original conception has been abused, and by the middle of the twentieth century it had become
common practice for insurers to demand warranties of all manner of matters, many of which
would have had no or little impact on the underwriting decision, such as the marine premium
payment warranty which guaranteed payment of premium instalments on given days. The defects
with the law of warranties are too well known to be rehearsed at any length. It suffices to say that
a warranty as now understood is a guarantee of the truth of a particular statement whether or not
that statement is material to the risk or affected the underwriter’s judgment, or in the case of a
future warranty that a given state of affairs will prevail whether or not that state of affairs was
relevant to the risk. 300 The use of the word “warranty” is not essential, and it suffices that the
intention of the parties to create a warranty is clear: 301 relevant considerations include whether
the term goes to the heart of the risk and whether damages would be an adequate remedy in the
event of breach. 302 All non-marine warranties must be express, although there are implied
warranties of seaworthiness and legality in marine law. 303 If the warranty is broken the risk
terminates automatically, 304 so that in the case of a present warranty the risk never attaches (and
the premium is never earned) whereas in the case of a future warranty the risk terminates from
the date of breach (leaving the premium irrecoverable because the risk has attached) and the risk
298
Riccardi v Suncorp Metway Insurance Ltd (2001) 11 ANZ Ins Cas 61-493. The market in Australia has this view
of the section.
299
Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 6 WAR 68.
300
Marine Insurance Act 1906, s 33(1).
301
Marine Insurance Act 1906, s 35.
302
HIH Casualty and General Insurance v New Hampshire Insurance [2001] Lloyd’s Rep IR 596.
303
Marine Insurance Act 1906, ss 33(2), 39 and 41 respectively.
304
Marine Insurance Act 1906, s 33(3), as construed by Bank of Nova Scotia v Hellenic Mutual War Risks
Association (Bermuda) Ltd, The Good Luck [1991] 3 All ER 1.
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