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13.1 Although the need for reform of the law relating to insurance warranties and other terms has long been acknowledged and has been the subject of several reviews by the Law Commission, it was not until the Insurance Act 2015 that reform was finally implemented in the United Kingdom. Both New Zealand and Australia had previously implemented reform. Shortcomings have been identified with both the Australian and New Zealand approaches; these have been acknowledged in both jurisdictions, as well as overseas. Nevertheless, despite criticism and officially sanctioned reviews, practitioners in both jurisdictions have accepted the respective approaches and now view them as coping reasonably well with the challenges confronting them. Time will tell whether the same result is achieved by the Insurance Act 2015.
13.2 This volume has critically evaluated the reform measures enacted in all three jurisdictions. It is this author’s position that the reforms enacted to date can be improved upon. Unfortunately in this author’s view, the measures contained in the Insurance Act to reform the law of warranties represent a missed opportunity. This volume has demonstrated a number of crucial shortcomings that will result in both uncertainty and additional litigation. While a structure that is both entirely predictable and easily administrated is impossible to achieve, this volume, building on the lessons from the reform efforts to date, outlines an approach that, it is argued, offers tangible improvements over all of the reforms so far developed.
13.3 Through detailed analysis of s54 of the Insurance Contracts Act in Australia, relevant case law to date, as well as ‘stress testing’ of the s54 approach against the facts of several key historic cases, this volume has demonstrated that s54 has blurred the boundaries surrounding the sanctity of scope of contract and represents an unnecessarily complex, and ultimately flawed, approach. On the other hand, examination of the reforms in New Zealand (contained in the Insurance Law Reform Act) demonstrates that efforts to achieve greater balance between the interests of the insured and insurer have resulted in the pendulum swinging too far in favour of the insured. It is perhaps unsurprising that the Law Commission recommended that the approach to reform in the UK should plough its own furrow, rather than follow the path set by either Australia or New Zealand.
13.4 Drawing on the experience from Australia and New Zealand, as well as the Law Commission’s reviews of the law in this area, this volume has undertaken an in-depth evaluation of the provisions in the Insurance Act 2015 dealing with breaches of warranties and other terms. Many of the reform measures contained in the Act are to be welcomed. This volume applauds the proposal to make a breach of warranty suspensory, together with provisions to abolish basis clauses; it also gives a guarded welcome to the proposal to limit suspension to a specific category of risk where the clause that has been breached relates to a particular kind of loss, or loss at a particular location or place. Nevertheless, the analysis
undertaken by this volume has demonstrated a number of failings and shortcomings in the provisions contained in the Insurance Act. It is submitted that, at best, these failings will lead to increased uncertainty and litigation.
13.5 This volume has shown that the main flaw with the Insurance Act lies with s11. This author believes that this likely arises from the way in which, despite the balance of the provisions being the product of careful evolution over a number of years, in its final form s11 was a last minute addition to the statute, and was therefore subjected to very little in the way of parliamentary scrutiny. This volume has sought to demonstrate that, at best, s11 leaves the law facing an uncertain future. The analysis in this volume has shown that the concept of ‘the risk as a whole’1 is flawed, as well as being vague and unclear: it will likely result in increased uncertainty and litigation. The reach of s11, in terms of what provisions are subject to it, is also far from clear. It is this author’s contention that an effective reform of the law in this area must, in addition to warranties, also address exclusion clauses, conditions precedent and other provisions that seek to release the insurer from liability under the policy. This volume has sought to demonstrate it is unlikely, for example, that all exclusion clauses are subject to s11. Analysis has shown that it can be argued that exclusion clauses by definition refer to the risk as whole (and are thus outside s11). Even if this is not correct, it is clear that s11 requires there to be a breach of (or ‘non-compliance’ with) a provision of the contract. Many exclusion clauses are not dependent upon there being a breach as a trigger for the exclusion to take effect and as a result would lie outside the ambit of s11. Similarly, the relationship between s11 and conditions precedent is also uncertain. This volume has shown that at least some conditions precedent will lie outside the reach of s11. This is regrettable. Although the Law Commission eventually positioned itself firmly against the concept of causal linkage, this author believes it is difficult to interpret s11(3) as anything other than a form of causal linkage introduced, effectively, via the back door. Yet the Commission suggested that the consequences of breach should not be considered in light of what actually happened. This volume argues that the outcome is confused and uncertain: far better to adopt a clear causal linkage approach.
13.6 Building on an analysis of the multitude of challenges facing a reform of the law in this area, as well as the lessons from the reform initiatives to date in the UK and overseas, this volume proposes a new approach for addressing breaches of insurance warranties and similar provisions. The analysis acknowledges that there is no perfect solution and that any attempt at reform in this area will come with some degree of uncertainty and a risk of litigation. To assist the development of the proposals and as a basis for assessing the extent to which the proposals adequately address the challenges, this volume has set out the substantial range of issues that any reform initiative in this area must attempt to address, or at least accommodate. It is argued that the approach set out in this volume represents a significant improvement on all previous attempts at reform and is successful in addressing the majority of these issues. This author believes it is essential that any reform does not erode the sanctity of the scope of contract agreed by the parties. In order to address this, the proposals provide explicitly for scope to be the first issue addressed by the court. If the subject matter is outside the scope of the policy, the proposals will not apply and the insured will have no claim.
13.7 This volume argues that causal linkage must lie at the heart of reform of the law of insurance warranties. Central to the proposals set out herein is the granting of sufficient flexibility and discretion to the court to enable solutions to be tailored to the specific circumstances of the particular case. The approach proposed in this volume combines elements of the solutions adopted in the Insurance Act and overseas, but crucially incorporates as a central tenet an evaluative approach based squarely on an assessment of whether or not there is a causal linkage between the breach and the loss incurred. The recommended approach applies not only to breaches of warranties, but also to non-compliance with any term that purports to give the insurer a right to avoid liability. Exclusion clauses are specifically within the ambit of the proposals (regardless of whether or not they are triggered by a ‘breach’ of provision). The mechanism set out in this volume also incorporates an assessment of any prejudice suffered by the insurer. It is further argued that the incorporation of a right of termination for the insurer offers advantages, not only to the insurer, but also to the insured. In order to ensure that the court has the flexibility to avoid decisions that might otherwise be harsh on the insurer, the proposals would give the court the flexibility to grant a measure of proportionality where it has been demonstrated that a breach could have contributed to the loss in a causal manner, even if, on the facts, it did not do so.
13.8 In order to test the approach set out in this volume, the proposals have been stress tested against the facts of a range of well-known cases, drawn from a number of jurisdictions. This analysis supports the contention that this volume’s proposals offer more comprehensive and equitable, and in some respects certain, outcomes than those delivered to date by the reforms in Australia or New Zealand, or those likely to be offered under the Insurance Act 2015.
13.9 Although confident about the effectiveness of its proposals, this author is however realistic about the prospects for the proposals in this volume being utilised as the basis for further reform in the jurisdictions examined. There is little evidence of a current political appetite for further reform of the law in Australia. While in New Zealand there has recently been a further review of insurance contract law, the Review’s proposals in relation to matters considered in this volume are relatively modest and have yet to be implemented.2 In the UK, not only has the Insurance Act only relatively recently reached the statute book, but the backcloth of Brexit and the COVID-19 virus makes further examination of the law extremely unlikely in the foreseeable future. Nevertheless, the proposals developed in this volume, building as they do on the lessons from the three jurisdictions that have developed detailed reforms, could, post COVID, provide the basis for reform in common law jurisdictions that have yet to implement initiatives in this sphere of the law. It is submitted that any jurisdiction implementing such reforms would benefit from a regime that offered advantages over any of its counterparts.