REFORMING INSURANCE LAW: - Law Commission

8.21 Finally, s 68 seeks to protect the assured in the event that he has entered into an agreement
with a third party which excludes or limits his liability to the assured and thus prejudices the
rights of the insurers. 470 Section 68(2) reverses the rule that the existence of such a contract is a
material fact, 471 and s 68(1) provides that a policy term which removes cover in the event that the
assured enters into such a contract after the risk has incepted is of no effect unless he has been
informed of it in writing. 472 The latter measure is unarguably right, and reflects the common law
position that the courts will not imply a term prohibiting the assured from entering into such
contracts. 473 As to s 68(2), it is only in exceptional circumstances that an absence of subrogation
rights is material even under the present definition of materiality, and any change in the law of
materiality is likely to render this type of contract immaterial. That point aside, s 68(2) seems
eminently sensible. 474
Brokers
8.22 As brokers play a central role in the placing of insurance in England, particularly in the
placement of commercial, marine and reinsurance risks, a few words on their role are appropriate
at this stage. Both Australia and England treat a broker as the agent of the assured as a starting
point, although the jurisdictions recognise that there are many situations in which a broker may
operate both as an agent for the insurers or as a “common agent”. These conflicts are largely
tolerated or explained away in the cases, although on occasion the English courts at least have
pointed out to brokers that if they choose to act in a fashion which gives rise to conflicts of
interest then the courts will not bail them out. 475 There is little relevant legislation in either
jurisdiction on the substantive duties of brokers, each system having adopted an administrative
approach more concerned with qualifications and the holding of professional indemnity cover. 476
8.23 The most important aspect of a broker’s duties is that of placement, and the use of brokers
was discussed above. Here it suffices to note that there are some key differences between marine
and non-marine broking, the most important being that marine brokers are required to pay the
premium. 477 The marine rule is based on the curious fiction that the broker has paid the premium
(a) the relevant contract of insurance; and
(b) any agreement made between the insurer and the insured after the loss has occurred.
(8) In this section:insured’s overall loss, in relation to a loss incurred by an insured to which this section applies,
means the amount of the loss reduced by any amount paid to the insured by the insurer in respect of the loss.
470
ALRC 20, paras 307-308.
471
See: Tate & Sons v Hyslop (1884-1885) 15 QBD 368; Talbot Underwriting Ltd v Nausch Hogan & Murray, The
Jascon 5 [2006] Lloyd’s Rep IR 531. For the operation of s 68(2), see Sutton, paras 16.44 to 16.46.
472
Sutton, para 16.47.
473
State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228.
474
ALRC 91, paras 12.19-12.28, have recommended the adoption of s 68 for marine insurance.
475
The authorities on conflicts of interest are numerous. The cases are discussed in the author’s Colinvaux’s Law of
Insurance, 8th ed, paras 15-27 and 15-28.
476
Statutory in England under the Financial Services and Markets Act 2000; self-regulatory in Australia following
the repeal of the Insurance Brokers and Agents Act 1984.
477
Marine Insurance Act 1906, s 53 (England); Marine Insurance Act 1909, s 59 (Australia).
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