Again, it has been helpful to hear the Minister’s comments. We have no difficulty with these clauses.
On clause 9, under the current law, an insurer may add a declaration to a non- consumer insurance proposal form or policy, stating that the insured warrants the accuracy of all the answers given or that such answers form the “basis of the contract”. That has the legal effect of converting representations into warranties. The insurer is discharged from liability for claims if the insured made any misrepresentation, even if it was immaterial and did not induce the insurer to enter into the contract. The Law Commission gave the example of a claim for flooding being refused, as the Minister suggested, because the insured had failed to install the right model of burglar alarm. The clause seeks to put an end to this practice by abolishing “basis of the contract” clauses in non-consumer insurance. Clause 10 replaces the existing remedy for breach of a warranty in an insurance contract.
Clause 11 was initially not included in the Bill. That gave rise to the introduction in the other place of a new clause that replicated a similar clause originally included by the Law Commission pertaining to situations in which an insured had breached a term of contract but could show that
“its breach of the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.”
In the Lords Committee, some expressed the view that this omission was an error. The Minister, Lord Newby, explained that the clause as originally drafted was
“too controversial to go through the special procedure for uncontroversial Law Commission Bills.”
He did, however, admit that it was
“difficult to argue against the policy and to say that insurers should be entitled to refuse liability for a loss that is of a completely different nature from that contemplated by the breached term.”
At the Government’s prompting, the Law Commission submitted a new draft, which became the current clause 11 and which was
“intended to minimise the uncertainty inherent in the first formulation”.
The clause acts to rectify the situation prior to the Bill when the actual nature of a breach of term was irrelevant. This has been a helpful process to ensure that that piece of tidying up was done. On that basis, we have no problem with these clauses.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clauses 10 and 11 ordered to stand part of the Bill.