Tag Archives: non-causative breach

UK insurance law reform in Britain will interest NZ insurance industry

The British government has introduced a business insurance law reform bill, following an almost decade long period of consultation.

The prosaically named “Insurance Bill” is beginning its journey through the Westminster parliamentary systems which on 17 July started with its first reading in the House of Lords.

Among other topics, the bill deals with warranties, and the consequences of a business policyholder breaching one. The historical position in England has been that a breach of warranty may deprive a policyholder of cover even where the breach has not caused or contributed to the loss in question. This is sometimes given the short-hand of a “non-causative breach”.

The preponderant view is that the deprivation of cover following a non-causative breach is unfair, and it does not make good sense as a matter of economics. In New Zealand, this topic is dealt with by s. 11 of the Insurance Law Reform Act 1977, the effect of which is to disentitle the insurer from relying on the relevant provision if the policyholder shows on the balance of probabilities that the loss in respect of which the policyholder seeks to be indemnified was not caused or contributed to by the happening of the event or circumstances in question. The Insurance Bill provides that the insurer’s liability should be suspended, rather than discharged, in the event of a breach of warranty. Cover is restored after the policyholder has remedied the breach.

The Insurance Bill needs to be read alongside the UK Consumer Insurance (Disclosure and Representations) Act 2012, which took effect in April 2013 and which, as the name suggests, applies only to consumer insurance. The Insurance Bill applies to business, non-consumer insurance. The NZ Insurance Law Reform Act 1977 does not make any distinction.