ABSTRACT
When the Insurance Act 2015 comes into force on 12 August 2016 for contracts concluded after that date, 1 it will affect warranties and similar clauses in insurance policies. In particular, the Act banishes “basis” clauses. 2 Although basis clauses were well established in the courts as being what the parties intended, it was diffi cult to square them with the notion underlying the parol evidence rule, that a document such as an insurance policy which looks like the whole of the contract should be treated as the whole of the contract and as being therefore exclusive of matters not recorded in the policy. It was also diffi cult to square them with the expectations of reasonable insurance applicants; hence, as far back as 1942 basis clauses were described as “traps” for the unwary. 3
Now, by section 9(2) of the 2015 Act, a representation by an applicant even for non-consumer insurance “is not capable of being converted into a warranty by any provision” of the contract. 4 Moreover, the effect of section 10 of the Act is that for certain periods of time (and for both consumer and non-consumer contracts) breach of warranty will suspend rather than discharge the insurer’s liability. 5
Although insurers defended them with determination, 6 few outside the industry will lament the demise of the common law warranty; warranties have been a
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troublesome feature of English insurance law. 7 When assessing the scope of cover it has been often diffi cult to distinguish them from exceptions or exclusions. 8 Moreover, the absolute nature of common law warranties 9 was such that if, for example, a warranty of temperance had been broken in January, the life insurer could refuse to pay if the insured died in March completely sober. 10 Unsurprisingly, insurance lawyers in other parts of Europe were determined to eschew anything like the English warranty. 11
The absolute character of the common law has already been eroded by the Insurance: New Conduct of Business Sourcebook (ICOBS). Rule 8.1.1 states that insurers must not “unreasonably reject a claim (including by terminating or avoiding a policy)”; and that “rejection of a consumer policy-holder’s claim is unreasonable, except where there is evidence of fraud, if it is for . . . breach of warranty or condition” unless the breach and claim are factually connected.
