The Law Commission Working Paper No. 73: Non‐Disclosure and Breach of Warranty in Insurance Law
| Date | 01 September 1979 |
| DOI | http://doi.org/10.1111/j.1468-2230.1979.tb01552.x |
| Author | Robert Merkin |
| Published date | 01 September 1979 |
REPORTS
OF
COMMITTEES
THE
LAW
COMMISSION
WORKING
PAPER
No.
73
:
NON-DISCLOSURE
AND
BREACH
OF
WARRANTY
IN
INSURANCE
LAW
ON
May 17, 1978, the Lord Chancellor, in response largely to an
E.E.C. Council Draft Directive of June 1977, referred five aspects
of insurance law
to
the Law Commission. These were:
(a) non-disclosure by the insured;
(b) misrepresentation by the insured;
(c)
breach
of
warranty by the insured;
(d) terms and exclusions in policies;
(e) increase and decrease of risk.
The result is Working Paper
No.
73,
which is confined to (a) and
(c) above as these were considered by the Government to be the
most pressing matters. This is regrettable, for it is illogical to discuss
the duty to disclose without misrepresentation and, to
a
lesser
extent, breach of warranty without alteration of risk.
As
a result
it will be seen that while the treatment of warranties is satisfactory,
that of the duty to disclose misses the fundamental issues involved.
Warranties
The initial decision here was whether to modify the existing law
so
as to render its operation more acceptable,
or
completely to
replace the existing system of warranties with a new duty involving
continuing notification by the insured of material changes in
circumstances, allowing regular reassessment of the premium.a Here
it is difficult to disagree with the conclusion of the Working Paper
in paragraph
157
that such a system “would be unduly onerous
on the insured
.
.
.
it would deprive him of much of the security
and peace of mind he
is
entitled to expect from a contract of
insurance.” Given the preferability of a once and for all warranty,
how should the law be reformed? There are four basic defects in
the law as it operates at present.
The first concerns formation. Warranties are most commonly
formed by use of the
‘‘
basis
”
clause to be found at the bottom of
virtually every proposal form, whereby the insured
is
deemed to
have warranted the truth of every statement on the proposal. This
device has had grotesque results, and, as has been demonstrated,8
is legally and morally beyond justification. The recommendation in
paragraphs
78-86
for its abolition
is
long overdue and is to be
1
Paras, 98-125. All further references
to
paragraphs are
to
the Working Paper
2
Advocated
in
the
Draft Directive, discussed in the Working Paper at paras.
8
Hasson (1971)
34
M.L.R.
29.
unless otherwise stated.
147.. 157.
544
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