Warranties

The Law Commission has now published its second position paper in its review of insurance law. The paper, on warranties, makes far-reaching proposals for reform, although it is to be emphasised that everything is at this stage qualified by the term ‘tentative’, and no final decisions have been reached. If the proposals are adopted, in consumer policies the long familiar ‘basis of the contract’ clause will disappear so that all proposal form answers can no longer be deemed to be warranties, and in commercial contracts it will cease to function as a device to create warranties unless it appears on the face of the policy itself. As far as statements of fact are concerned, in the consumer context any representation of fact is to be treated as a representation and not a warranty, although in the business context the Law Commission is unsure whether to retain warranties or to adopt the same new rule as for consumer contracts. Statements of future conduct should take effect as policy terms, and there is to be a requirement of some causal link between the breach and the loss before the ‘warranty’ can be relied upon, thereby abolishing the automatic termination rule, although there is no decision on what the remedy might be.