REFORMING INSURANCE LAW: - Law Commission

is not reinstated when the assured’s breach of the warranty is remedied. It follows that any loss
arising after breach of warranty is uninsured, and this in turn means that there is no need for any
causal connection between the breach of warranty and the loss. 305 One particular curiosity of the
law is that because the insurers are automatically discharged, they cannot waive the breach other
than by putting themselves in a position whereby they are estopped from reliance on the
breach. 306 There is also a doctrine of strict compliance with warranties, so that any breach other
than one which is minuscule is fatal to the risk. 307 A long-standing device for creating warranties
is the basis of the contract clause, which appears in the proposal and which purports to
incorporate all of the assured’s answers into the policy as warranties. 308 The advantage to
insurers of the warranty is any immaterial and non-inducing false statement which has been
warranted can be relied upon, whereas the policy cannot be avoided for misrepresentation in the
absence of a material false statement. Any failure to disclose cannot amount to a breach of
warranty: a positive false statement is required. The defects in the law of warranties have been
recognised regularly by the courts, from which there has emanated a series of disparaging
comments 309 and the adoption of a number of devices to mitigate the harshness of warranties,
including narrow construction, 310 confining the warranty to a specific part of the policy 311 and
treating what would otherwise be a continuing warranty as merely suspending the risk so that
once the breach has been repaired the risk reinstates. 312
7.2 The Law Commission in its 1980 Report recognised that the law of warranties was
unsatisfactory, in four respects: cover could be lost for failure to comply with a term immaterial
to the risk; there was no need for a causal link between the breach and any later loss; warranties,
despite their significance, were not readily accessible to the assured; and basis of the contract
clauses were a particular problem because they deemed all statements to be warranties, whether
or not they were material to the risk and without drawing the assured’s attention to them. The
Law Commission’s solution was to: (a) abolish basis clauses and require insurers to give
assureds a written statement of any warranties as soon as practicable after the contract was made,
possibly by providing the assured with a copy of the proposal form; and (b) require insurers to
pay despite a breach of warranty unless the assured could show that the breach of warranty was
immaterial to the risk, that the type of loss fell within the commercial purpose of the warranty
and that there was no causal connection between the breach and the loss. It was also of the view
that whether or not the insurers were required to pay, they could give notice terminating the
policy for the future.
305
Forsakrings Vesta v Butcher [1989] 1 Lloyd’s Rep 331.
306
HIH Casualty and General Insurance v Axa Corporate Solutions [2003] Lloyd’s Rep IR 1.
307
Marine Insurance Act 1906, s 33(3).
308
Yorkshire Insurance v Campbell [1917] AC 218.
309
Notably by Lord Griffiths in Forsakrings Vesta v Butcher [1989] 1 Lloyd’s Rep 331, bemoaning the absence of
any causal link between the breach and the loss.
310
Hide v Bruce (1783) 3 Doug 213.
311
Printpak v AGF Insurance [1999] Lloyd’s Rep IR 502.
312
As exemplified by Provincial Insurance v Morgan [1933] AC 240 and Kler Knitwear Ltd v Lombard General
Insurance Co Ltd [2000] Lloyd’s Rep IR 47.
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