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1.1 The treatment of breaches of insurance warranties in England and Wales has long been recognised as a source of injustice and a potentially damaging slight on the reputation of the London insurance market and the English legal system. Any breach, however minor, historically resulted in automatic termination of the policy, regardless of the absence of a causal link between breach and loss. The playing field was tilted firmly in favour of the insurer. A number of overseas jurisdictions have introduced legislative change in order to seek to redress this imbalance. It was not until the Insurance Act 2015, which became law in August 2016, that similar change was introduced in England and Wales.
1.2 In critically reviewing the reform initiatives implemented to date, the objective of this volume is to examine whether it is possible to develop a ‘one size fits all’ approach that provides a simple and clear pathway for addressing breaches of insurance warranties (and other provisions giving the insurer the ability to escape liability), while at the same time delivering outcomes that provide an equitable balance between the interests of the insured and insurer.
1.3 This book is confined to the law of insurance warranties in commercial insurance; it does not address the law in relation to consumers. This author is of the view that it is on the area of commercial insurance that the reputation of the London market most relies and that it is the impact of the Insurance Act 2015 on the commercial insurance market that will most affect that reputation.
1.4 While in some jurisdictions, such as Australia, marine insurance is subject to a separate regime from other commercial insurance, this is not the case in the UK. Nevertheless, there are aspects of marine insurance, notably the regime of implied warranties, that are unique to that sphere. Implied warranties were not abolished by the Insurance Act 2015; accordingly this book examines implied warranties in marine insurance and considers whether a separate regime for marine insurance warranties can be justified in the UK. The Insurance Act (s10 and s11) specifically applies to implied warranties, and the view of this author is that a failure to reform implied warranties represents an omission, not least because in the modern era they are an increasing source of controversy. Accordingly the proposals for reform set out in this volume include specific recommendations in relation to implied warranties.
1.5 The history of insurance warranties is reviewed, both in terms of statutory provision under the Marine Insurance Act 1906 and the common law, highlighting the historic imbalance in favour of the insurer. Attempts by the courts and the market to address the shortcomings of the law are assessed with the conclusion that ultimately they were no substitute for statutory reform. The evolving position of the Law Commission regarding
reform of the law in this area, culminating in its latest report in 2014 which led directly to the measures now incorporated in the Insurance Act 2015, is critiqued.
1.6 The approach adopted in England and Wales in the Insurance Act 2015 is compared with reform initiatives in Australia and New Zealand; prior to the enactment of the Insurance Act, these were the two common law jurisdictions that had already reformed the law of insurance warranties. As a result these jurisdictions provide an excellent basis for examining both the challenges and pitfalls of reforming this sphere of the law. In the view of this author, while the approaches in both Australia and New Zealand have their (different) merits, neither is successful in providing a comprehensive solution to the historic problems and ongoing challenges with the law of warranties. In examining the approach adopted in each of these jurisdictions, this volume analyses both the merits and shortcomings of the particular mechanisms; this analysis is then supported by comprehensive ‘stress testing’ of the approaches in which each jurisdiction’s regime is hypothetically applied to the facts of a range of key historic cases. This analysis demonstrates that, while in both New Zealand and Australia, reform has undoubtedly improved the position of the insured, the approaches in each jurisdiction have their own, separate, shortcomings, confirming that, in the view of this author, neither can be seen as offering a template for a long-term comprehensive solution.
1.7 In critically reviewing the provisions of the Insurance Act 2015, a number of the reforms in the Act are welcomed, but analysis demonstrates several shortcomings and potential problems posed by the legislation. In particular, this author argues that the final form of s11 of the Act is likely to create an unwelcome degree of uncertainty and consequential litigation. This volume demonstrates that the ‘risk as a whole’ formula, incorporated within s11, is likely to be especially problematic. It is suggested that the purported absence of a causal linkage mechanism is a further missed opportunity and analysis shows that it is unclear to what extent s11 addresses exclusion clauses and conditions precedent. It is further argued that the inability to take account of any prejudice suffered by the insurer and the lack of a right for the insurer to terminate in the event of a breach will hinder the ability of the legislation to deliver balanced outcomes.
1.8 In order to test and compare the approach in the Insurance Act with those in New Zealand and Australia, the provisions in the Act are ‘stress tested’ by applying the new legislation to the facts of past cases. This ‘stress testing’ demonstrates that the framework offered by the Act, and in particular s11, is likely to be fraught with issues and uncertainties and falls short of providing a comprehensive solution; at best, it represents a case of two steps forward and one step back.
1.9 Drawing on its evaluation of the approach adopted in the three jurisdictions reviewed, the book summarises the key challenges encountered in seeking to find an equitable and workable solution to the issue of insurance warranties. This provides a picture of the complexity that any alternate solution would need to address and represents a matrix for testing the likely effectiveness of any new approach.
1.10 Building on the experience of all the jurisdictions examined, the author proposes a new and unique solution to the issue of breaches of insurance warranties and similar provisions. Although based firmly on a causal linkage approach, the proposed solution also combines features drawn from the approaches adopted in Australia and New Zealand, as well as elements from the Insurance Act; however, it also introduces new and innovative features proposed for the first time. By ‘stress testing’ this new approach against historic
cases, the book demonstrates that the recommended structure provides a more equitable, straightforward and malleable solution than that offered either by the Insurance Act, or the approaches adopted in Australia and New Zealand.
1.11 Concluding on a note of caution, the book recognises that the many years the Law Commission spent examining this issue, combined with the realities of practical politics and the impacts of the COVID-19 pandemic, means that it is unfortunately very unlikely there will be any appetite to revisit the issue of insurance warranties for several years in England and Wales. The solution offered by s54 of the Insurance Contracts Act in Australia is, despite its flaws, now well accepted by the market and accordingly it is again unlikely that there would be much appetite for radical reform in that jurisdiction, although improvements to the operation of aspects of s54 of the Insurance Contracts Act and the separation of the marine insurance regime remain possible areas of legislative action. While some reform to s11 of the New Zealand Insurance Law Reform Act has been recommended and is again under consideration, this is likely to take the form of tinkering with the existing regime, rather than radical reform.
1.12 Nevertheless, a number of other common law jurisdictions, for example Singapore and possibly Hong Kong, recognise the need to introduce reform in relation to insurance warranties, but have yet to take steps to do so. In those jurisdictions, the solution set out in this book potentially offers a reform package with significant advantages over the approaches adopted in England and Wales, Australia and New Zealand.
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