REFORMING INSURANCE LAW: - Law Commission

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(the existing s 40(1)); or (b) the insurer’s liability is excluded or limited if a claim against the assured or any third party beneficiary in respect of a loss suffered by some other person is not made before the insurance cover provided by the contract expires; or (c) the insurer’s liability is excluded or limited if a claim against the assured or any third party beneficiary in respect of a loss suffered by some other person is made before the insurance cover provided by the contract expires, but notice of the claim is not given to the insurer before the insurance cover expires. The common theme here is that the assured has no contractual right to notify circumstances likely to give rise to a claim, so that reliance on s 54 is not possible. Secondly, the draft revised version of s 40(3) maintains the principle that the assured (or a third party beneficiary) has a statutory right within the policy period to give notice of circumstances that may give rise to a claim at some future date, but gives the assured an additional 28 day period after expiry of the policy to give such notice: this is partial compensation for the fact that s 54 relief is unavailable if the statutory right to notify circumstances is not exercised. Thirdly, a new draft s 40(4) requires the insurers to notify the assured of the consequences of a failure to notify under s 40(3), by written notice given not later than 14 days before the cover expires: by this means the assured is to be alerted of the fact that, unless he notifies circumstances within 28 days following expiry, he will lose cover if a claim is made thereafter. Finally, new draft s 40(5) extends the s 40(4) notice obligation to the case in which the assured cancels the policy before its due date of termination: the insurers are required to give the statutory warning under s 40(4) as soon as reasonably practicable but no later than 14 days after the date on which the contract was cancelled. Maximum cover obtained for premium 8.35 Section 42 of the 1984 Act states that, irrespective of express policy limits, the assured is entitled to the maximum amount of cover that the insurers would have been prepared to offer at the same premium. This is designed to cover the situation in which the assured believes that he can only afford a limited amount of cover, which he specifies to the insurers, where the insurers would have been willing to provide a higher limit of indemnity for the same premium. 509 It is unclear whether this provision has any practical effect. Average clauses 8.36 Section 44 of the 1984 Act imposes a prohibition on the use of average clauses unless specifically drawn to the assured’s attention. 510 An average clause bites where the assured is underinsured and suffers a partial loss, average having the effect of reducing pro rata the amount of recovery by reference to the ratio between the actual value of the insured subject matter and the insured value. Although average is used in the commercial property and marine markets, its use in the consumer market is frequently little more than a trap for the assured. The ALRC had been pressed to abolish average, but chose instead to recommend its retention coupled with appropriate warnings. 511 Section 44, as amended in 1997, does make two important concessions towards the holders of domestic buildings and contents policies: if the sum insured is at least 509 ALRC 20, para 275. See Sutton, para 15.197. 510 Sutton, paras 15.191 to 15.195. 511 ALRC 20, paras 271-274, with Kirby J dissenting and favouring abolition. 97
80% of the market value at the date of the policy then the average clause is ineffective; and if the sum insured is less than 80% of the market value at the date of the policy then the insurers are entitled to reduce the amount payable by reference to the ratio which 80% of actual value bears to the sum insured. The compromise adopted here is an interesting one, although at least in the domestic and small business markets there is much to be said for the solution rejected by the ALRC, given that the effects of average would probably not be appreciated even with an explanation. Double insurance and contribution 8.37 Section 45 deals with the familiar problem of “double insurance” terms in policies. Such terms are designed to cast any loss onto other insurers should they exist. Double insurance clauses may operate absolutely or they may require the policy to be treated as an excess layer cover only, and they may take a number of different forms, including rendering the policy void, requiring the assured to warrant that no other insurance exists or will be taken out or simply transferring liability. The English courts have refused to allow the assured to be prejudiced by these clauses, and any attempt by two insurers to cast the burden of loss onto each other will be ineffective. 512 The solution adopted by s 45(1) 513 is to outlaw such clauses, although there is necessarily a saving for an excess of loss policy specifically drafted as such. 514 8.38 Section 76 of the Insurance Contracts Act 1984, misleadingly headed “Contribution between insurers” is in essence a restatement of the common law rule that the assured who has double insurance may recover from the insurers in such order as he thinks fit up to the limit of indemnity. 515 The section goes on to preserve the insurers’ rights of contribution inter se. 516 The section does not appear to change the common law in any respect. 517 The ALRC in its 1982 Report had addressed the problem of contribution and, having considered the various forms of contribution which could be applied, recommended that the law adopt the independent liability rather than the maximum liability approach. 518 This means that if there are two insurers liable for the same loss, apportionment is based on their respective liabilities for the actual loss suffered by the assured rather than on the notional limits of indemnity set out in the policy. The recommendation did not find its way into the 1984 Act. The position in England is uncertain. Insurers in practice do apply the independent liability approach, 519 although there do remain 512 Weddell v Road Transport and General Insurance Co Ltd [1932] 2 KB 563. 513 Adopting ALRC 20, Chapter 11; Sutton, chapter 12. 514 S 45(2). See HIH Casualty & General Insurance Ltd v Pluim Constructions Pty Ltd [2000] NSWCA 281. 515 Codified in the Marine Insurance Act 1906, s 32. 516 See Marine Insurance Act 1906, s 80. 517 It may render inapplicable the rule in s 32(2)(b) of the Marine Insurance Act 1906 which applies where the assured has both a valued and an unvalued policy: if he claims under the unvalued policy first and fails to recover a full indemnity, any claim that he has against the insurers under the valued policy is reduced by the sum that he has received. Accordingly, if the valuation is less than the actual loss, the assured will suffer a shortfall. It is unclear whether this rule applies in non-marine insurance, and it is noteworthy that ALRC 91 recommended no change to the marine rule. The problem can in practice be sidestepped by claiming against the valued insurers first, so that if there is a shortfall it can be recovered under the unvalued policy (subject to policy limits). 518 See paras 291 to 298. 519 Commercial Union Assurance v Hayden [1977] QB 804. 98
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REFORMING INSURANCE LAW: IS THERE A
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6 FRAUDULENT CLAIMS 6.1 Meaning of
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legislation as it relates to substa
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different fate. On 9 September 1976
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invaluable in that it was devised a
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in deciding whether or not to appro
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3.8 As regards misrepresentation, t
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with the duty of disclosure unless
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confirmed by s 28 which requires th
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easonable proposer for a marine pol
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in the revised version of s 22 set
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4.23 The section is hardly a model
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elevant to the decision of the insu
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treated as misrepresentation if it
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therefore, an assured who uses a br
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the matter could be resolved by an
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here, in that there can be non-disc
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Cases other than fraud: damages 4.5
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elevant facts or the assured’s mi
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and investment policies with surren
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developed has raised exactly the sa
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Co-assureds 4.68 English law draws
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Temporary cover 206 4.72 English la
Page 48 and 49: utmost good faith. 218 The remedy i
Page 50 and 51: purpose, 232 proof of honesty is no
Page 52 and 53: of the insurers under the policy, u
Page 54 and 55: 5.14 A second obvious possibility i
Page 56 and 57: has been held - perhaps inconsisten
Page 58 and 59: is unduly harsh. Whatever the effec
Page 60 and 61: 56(2), 298 and that what is require
Page 62 and 63: Warranties of fact 7.3 Warranties o
Page 64 and 65: person not to do the act or to avoi
Page 66 and 67: the risk and is purely administrati
Page 68 and 69: 7.14 The position in Australia has
Page 70 and 71: personal injury claim failure by th
Page 72 and 73: 7.20 Treasury Review I, 2003, found
Page 74 and 75: Continuing obligations in marine in
Page 76 and 77: contributed to by the illegality an
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Page 80 and 81: changing market, and the Court of A
Page 82 and 83: unresolved issues as to whether the
Page 84 and 85: 8.14 Although the point is not fina
Page 86 and 87: which the need for each of the part
Page 88 and 89: Review II, 2004, as an appropriate
Page 90 and 91: 8.21 Finally, s 68 seeks to protect
Page 92 and 93: also include an address and telepho
Page 94 and 95: Standard cover 8.28 Standard cover
Page 96 and 97: period. In addition, such policies
Page 100 and 101: disputes as to whether the correct
Page 102 and 103: interests to do so. However, insure
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REFORMING INSURANCE LAW: - Law Commission

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