REFORMING INSURANCE LAW: - Law Commission

without consent should the policy so specify). 319 The result is to treat all policy obligations or
restrictions affecting the assured’s conduct, whether in the form of risk definition, continuing
warranties, conditions or otherwise, in exactly the same way, because they can all have the effect
of entitling the insurers to refuse to pay a claim. 320 English law, by contrast, maintains a
distinction between risk description, exclusions, continuing warranties whose breach is fatal to
the risk irrespective of materiality or causation, suspensory conditions whose breach only
precludes a claim during the period of breach, conditions precedent whose breach is fatal to the
attachment of the risk or to any claim (as the case may be) and bare conditions whose breach is
almost certain not to give rise to any right in the insurers to refuse to pay the claim or to recover
damages for breach. English law in effect turns on the classification of the policy provision as
defining the risk, or as a warranty or condition. If it is a condition then there is a further need to
determine whether it is a condition precedent to any recovery or to the operation of the risk in
given circumstances, or a bare condition. English law has been criticised for confering all or
nothing rights on insurers based on the drafting of the relevant provision rather than on its causal
connection to the loss. Something along the lines of s 54 is clearly called for, and was indeed the
very situation which prompted the ARLC to act. 321
7.5 The provisions of the section 322 may be summarised as follows.
(1) In a case where the act or omission of the assured could not reasonably be
regarded as being capable of causing or contributing to a loss, then under s 54(1)
the insurers are not able to refuse to pay the claim by reason only of the act or
omission but they are entitled to damages and any liability is to be reduced by the
amount that fairly represents the extent to which the insurers’ interests were
prejudiced by the act or omission.
(2) Where an act or omission of the assured could reasonably be regarded as being
capable of causing or contributing to a loss covered by the policy, then on the face
of things under s 54(2) the insurers may refuse to pay the claim.
(3) Where an act or omission could reasonably be regarded as being capable of
causing or contributing to a loss covered by the policy, but the assured proves that
no part of the loss was caused by the assured’s act or omission, the insurers may
not, under s 54(3), refuse to pay the claim by reason only of the act or omission.
(4) Where an act or omission could reasonably be regarded as being capable of
causing or contributing to a loss covered by the policy, and the assured proves
that some part of the loss was not caused by that act or omission, then under s
54(4) the insurers may not refuse to pay that part of the claim by reason only of
the act or omission.
(5) Where the act or omission was necessary to protect the safety of a person or to
preserve property, or it was not reasonably possible for the assured or some other
319 ALRC 20, paras 231-233 and 238-242.
320 East End Real Estate Pty Ltd v C E Heath Casualty and General Insurance Ltd (1992) 25 NSWLR 400; Antico v
Heath Fielding Australia Pty Ltd (1997) 188 CLR 652; FAI General Insurance Co Ltd v Australian Hospital Care
Pty Ltd (2001) 204 CLR 641.
321 ALRC 20, paras 216-220.
322 As amended.
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