REFORMING INSURANCE LAW: - Law Commission

100% (on the basis that the insurers would have refused to insure) to nil. 372 The problem here is
that the prejudice contemplated by s 54(1) is not related to the degree to which the assured’s
conduct contributed to the loss, but rather to the insurers’ loss of opportunity to refuse cover. It
should be made clear in any English legislation that apportionment is to be on causation grounds.
7.22 The point was considered by the New Zealand Law Reform Commission in its 1998
Report. The Law Commission considered and rejected the adoption of s 54. Under New Zealand
law as it stands, s 11 of the Insurance Law Reform Act 1977 prohibits reliance on a term
excluding or limiting liability in circumstances where there is an increased risk of loss “if the
insured proves on the balance of probability that the loss in respect of which the insured seeks to
be indemnified was not caused or contributed to by the happening of such events or the existence
of such circumstances.” This creates the requirement for a causal link between the assured’s act
or omission and the loss suffered by the assured. The Law Commission expressed dissatisfaction
with its own provision on the ground that it had been interpreted in a fashion which imposed
liability on insurers where the assured was in blatant breach of a term delimiting the risk but the
loss had not been caused by such breach. 373 Although s 54 would give rise to proportional
recovery rather than to an all or nothing approach in such cases, the New Zealand Law
Commission felt that the Australian approach gave rise to an unacceptable degree of
uncertainty 374 and also allowed an assured to recover something in circumstances when he ought
to have recovered nothing. Its solution was to recommend the retention of s 11, but with the
addition of a new subsection which takes particular risk-defining terms found to have given rise
to difficulties outside the scope of the indulgence granted by s 11:
(3) A provision is not an increased risk exclusion for the purposes of this section that
(a) defines the age, identity, qualifications or experience of a driver of a
vehicle, a pilot of an aircraft, or an operator of a chattel; or
(b) defines the geographical area in which a loss must occur if the insurer is to
be liable to indemnify the insured; or
(c) excludes loss that occurs while a vehicle, aircraft, or other chattel is being
used for commercial purposes other than those permitted by the contract
of insurance.
7.23 Finally, it should be noted that there is nothing in s 54 which touches upon the rights of coassureds.
375 Domestic legislation should deal with this matter expressly, presumably by
confirming the accepted rule that a composite assured is not tainted by the wrongdoing of other
policyholders. Whether the same rule should continue for joint assureds is a matter to be
resolved.
372 Sutton, para 8.78.
373 New Zealand Insurance Co Ltd v Harris [1990] 1 NZLR 10; State Insurance Ltd v Lam 1996, unreported.
374 “Sweeping and unfocused”.
375 Sutton, para 8.34.
72