REFORMING INSURANCE LAW: - Law Commission

Continuing obligations in marine insurance
Express marine warranties
7.24 The ALRC in its 2001 report on marine insurance 376 discussed whether the provisions of
the 1984 Act should be extended to the marine market. The ALRC rehearsed the familiar
objections to warranties and then considered whether s 54 of the Insurance Contracts Act 1984
could operate in the marine context. The ALRC had reservations, noting the problems which had
been caused by professional indemnity policies, and also commenting that s 54 was “more
consumer oriented than one would expect in legislation dealing with marine insurance which
operates in the vast majority of cases in a wholly commercial context”, that adopting s 54 would
be a sweeping reform which rewrote the terms of the cover and which had the potential to
increase room for dispute as to whether a claim was payable, and that the proportionality test
gave rise to uncertainty. 377 The ALRC thus recommended a more limited reform, based on
causation, as follows: 378
(1) The existing law on express warranties should be abolished.
(2) Insurers should be able to include a term that they are discharged from liability,
but only for loss proximately caused by the breach of an express policy term. If a
loss is proximately caused by breach of a term, the policy remains on foot but the
insurers have the right of cancellation on notice, as is the case under ss 59 to 60 of
the Insurance Contracts Act 1984.
(3) If there is a breach which proximately causes the loss, the principle that the
insurers are automatically discharged from liability should be retained, so that
there is no argument about waiver or estoppel by reason of failure to notify a
decision not to pay.
(4) If there is a breach of a continuing obligation, that obligation is to be construed as
suspensory only, so that if the breach is remedied before any loss has occurred the
assured is entitled to recover.
7.25 The question is whether the adoption of different approaches in non-marine and marine law
is justified. It is a common theme that the “warranty” should be excised from the law, and indeed
it should be pointed out that as far as the London Market is concerned the Institute Hulls Clauses
2003, with one specific exception (which is apparently oversight), no longer refer to warranties.
If warranties are to go, the question is, how are insurers likely to react? Matters covered by
warranties will be dealt with in some other way. However, the marine proposals are not
comprehensive. They are concerned only with warranties, and do not address the problems of
classification of duties – warranty, condition, condition precedent, policy exclusion – which are
expressly covered by s 54 of the 1984 Act. It may thus be possible for insurers to achieve the
effects of warranties by appropriate drafting. The argument that the 1984 Act is consumer
376 ALRC 91, chapter 9.
377 ALRC 91, paras 9.117 to 9.1.21..
378 ALRC 91, para 9.129.
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