Selden Socie ty Dinner 17 May 1996

THE IDSTORY AND STRUCTURE OF INSURANCE LAW

THE HON. MR JUSTICE DERRINGTON Supreme Court of Queensland

"We live in a society which has been almost revolutionised by a growth of all fonns of insurance"

Lis~r v. Romford Icc & Cold Storage Co Ltd (1957) A.C. 555 at591 per Lord Radcliffe

We all know that the purpose of insurance is to distribute the risk so that the

vicissitudes of life do not bring catastrophic loss upon the individual but are borne by the

many with relatively little discomfort. In the Elizabethan Act of 1601, 43 Eliz. C. 12, it is

explained: "There followeth not the undoing of any man, but the loss Iighteth easily upon

many than upon few." 1

Given this basic raison d'etre of insurance let us consider its history relevant to familiar

civilisations.

As far back as the. Babylonian Code of Hammurabi in 2250 BC there were traces of

mercantile insurance in the .respondentia, a form of bottomry bond. This was a high

interest loan with a premium repayable only when the voyage was safely terminated, and

not repayabi'e at all in the event of certain losses such as shipwreck. This system operated

in association with a "general average" contribution provided by cargo owners whose

property was saved to those whose property was lost in the interest of the whole.

There was also a form of insurance against robbery and murder paid by a city to any

visitor in respect of preventable disorder.2

See Introduction to Insurance: Ester and Parkes 3.

2 Trenerry - Origin and Early History of Insurance 54.

2

Progressively there is evidence of a more highly developed form of bottomry bond in

the Hindu Laws of Manu at least as early as 600 BC and it became perfected in the

Rhodian bond. This was referred to in ancient Greece by Demosthenes when he was

counsel for the defence of Lacrin.is in 341 BC.

It provided for contribution and general average. If either ship, freight or cargo were

sacrificed to save the others, all had to contribute their proportionate share of the loss.

This provisional division of risk was undertaken first among those engaged in the same

enterprise and then among associations of shipowners and merchants. The original P & I

Clubs.3

Benevolent Mutual societies, providing aid from a fund to contributing members, have

existed among the ancient Chinese, Egyptians, Hindus, Hebrews, Teutons and Christians,

and in Greece from as early as about 300 BC.4

In Roman times a system of mutual benefit societies, known as Collegia, was so

important and so extensive as to attract legislative attention with strict regulatory

provisions.5 The by-laws of these societies often provided for forfeiture of benefits upon

suicide, and members were advised to read the small print thoroughly in order to avoid

later litigation.6

The suc.cessors to these were the guilds, which provided a form of life and health

assurance and indemnity against accident, fire, burglary and shipwreck.

3 2 Pardessus - Lois Maritimes 369; 6 ibid 303.

4 Walford - Encyclopaedia - Insurance vol. iv p. 380; Trenerry - Origin and Early History of Insurance 1926 cxiv; Richards on Insurance: W. Friedman ed.

Martin St. Leon: Histoire Des Corporations Des Metiers 24.

6 Y ance on Insurance 8.

3

The best known and most spectacular development of early insurance related to

maritime cover, and because of its usefulness in trade, marine insurance has led the way in

the whole development of the law of insurance. It was well known in early Roman times

because of the intense maritime trade in the Mediterranean. The development was mainly

at the hands of the Romans and the Phoenicians. There are references, though dubbed of

doubtful significance by some, in the writings of Cicero, Livy, Suetonius and other Latin

authors.7

These commercial arrangements included the further development of the bottomry

bond.

There was a period of qmescence during the Dark Ages with the falling off of

commerce, including the maritime trade, but with the advent of the Middle Ages came a

renewal of ocean commerce and a regrowth of insurance. In the Xth century the

provisional division of risk that had operated among the ancient Rhodians became

obligatory in Italy and PortugaV and the resurgence of marine insurance is thought to have

begun at about that time.

Though it had been in somewhat extensive use with the Italian merchants of Venice, . .

Genoa anci Florence in about the XIIth century, marine insurance blossomed among the

German and Italian traders of the XIVth century and was formally regulated by their codes

of maritime law. Among those leading this revival were the Lombards of northern Italy.

They established trading companies throughout Europe and carried the practice of marine

7 Emerigon's preface to his Traite Acute Des Assurances; Justice Duer m 1 Duer Marine Insurance, 1845, p.26.

2 Pardessus - Lois Maritimes 369; 6 ibid 303.

: 4

insurance with them. A Chambre d'Assurances was established m Bruges as early as

1310.9

It is perhaps significant that the word 'policy' is said to be derived from the Italian

'pollicitatio', a promise, or 'polypitsum', a folded writing, or perhaps both.10

The contract was written by individuals and regulated by mere custom, and this

became the foundation of the later law.

In the XIVh century in Portugal, by a regulation every shipowner and merchant was

bound to contribute two percent of profits of each voyage to a common fund to cover any

losses. The system of premiums for voluntary insurance came into existence at about the

beginning of the XIVLh century.

Express regulation of the maritime insurance contract appears m Ordinances of

Barcelona in 1435, in those of Venice in 1468, and in those of Antwerp in 1537. Traces

of earlier regulation have been found, but the ordinances themselves are not extant. 11

Insurance regulation is found as an important feature in all the monuments of European

Maritime Law of XVIth ·and XVIILh centuries, e.g. Guidon de la Mere (Rouen) at the close

of the XVI century and the ~arine Ordinances of Louis XIV (1681 ). Indeed except for

that of England it was a part of all European maritime law of the time, including Scotch

law.

Such was the growth of insurance in Italy that in the XIVth century the Societas of the

House of Peruzzi had five or six directors with offices in Naples, Bruges, London, Cyprus,

9

10

II

Richards on Insurance (supra).

Ibid.

5 Pardessus - Lois Maritimes, 493, 65 ; 4 ibid 598, 37.

5

Rhodes and Tunis. However the family that probably founded manne msurance as a

commercial business was the Bardi. 12

In The Merchant of Venice, Shakespeare neglects to explain why Antonio did not have

sufficient insurance cover to pay out Shylock's bond.

Insurance undoubtedly fostered the growth of trade by providing security against mis­

chance which none could control; and trade in its tum contributed heavily to the growth

of civilisation.

The Italians of that time also insured goods in transit by land. 13

The practices of the Italian merchants (including marine insurance) were brought to

England by the establishment by the Hanseatic League of the Lombard trading houses in

London in the XIVIh century. They set up shop in what is now known as Lombard Street.

A mention in England in 1548 shows that the practice of insurance had existed there for

some time. On the opening of the First Parliament of Elizabeth 1, Lord Bacon said:

"Doth not the Wise merchant m every adventure of danger gtve part to have the rest

assured?".

There are few in~urance ~ases in the early reports because the merchants disposed of

them speedily and inexpensively in their own courts. Alternative Dispute Resolution is not

a modem invention. There was one problem however. These merchants' courts could not

enforce their judgments. But they still disposed of most of the litigation. Consequently

the earliest report of an insurance case in England is Emerson v. De Sallanova in 1545 _1 4

About the middle of the XVIIh century, when the judges of the Court of Admiralty tried

to recognise policies of insurance, they were prohibited from doing so by the common law

12

13

14

The Origin and Early History of Insurance - Trenerry.

Vance op cit cited in A History of British Insurance - Raynes.

Referred to in the Selden Society Publications vol. XIP lxvi.

6

courts out of jealousy: Crane v. Bell 38 Henry VIII (1546) 4 Coke's Inst. 13. The

difficulties were magnified because the law of insurance was an exotic unknown to the

common law, springing as it did from the law maritime.

Still, there was some movement. In Dowdale's Case (1589) 6 Coke's Rep. 47b, it was

held that "Where as well the contract as the performance of it is wholly made or to be

done beyond sea, it is not triable by our law, but if the promise be made in England it

shall be tried" . However, between that case and 1756, there were not forty cases on the

subject. 15

With their highly technical rules of procedure the common law and admiralty courts

were clumsy and inadequate to deal with mercantile matters and litigants were abusing this

to gain delay. Because of this and because the judgments of the merchants courts could

not be enforced, the Elizabethan statute of 1601 43 Eliz. C.12 was enacted. It spoke of

insurance as a usage among merchants from "tyme out of mynde . .. both of this realme

and of forraine nacyons". It described the practice "to give some consideracion of money

to other persons (which cotnmonlie are in no small number) to have from them assurance

made for their goods, merchandize, ships and things adventured, or some parts thereof . . . . .

which course of dealinge is commonlie termed a policie of assurance" .

The Act set up a special court to hear marine insurance cases. It consisted of a judge

of the Admiralty, the recorder of London, two doctors of the civil law, two common

lawyers and eight grave and discreet merchants, or any five of them. However it was not

successful because the King's Bench held that it was a court of equity only and a failed

plaintiff could still seek a common law remedy. 16 Within a century it fell into disuse and

the merchants reverted to the conventional courts.

15 Campbell v. Merchants' & Farmers' Mutual Fire Insurance Co 37 N.H. 35.

16 Came v. Moye (1658) 2 Sid 121; 82 ER 1290.

7

The problems persisted until the appointment m 1756 of Lord Mansfield as Chief

Justice of King's Bench. Thereafter the principles of the law merchant were incorporated

into the common law and the latter became a suitable vehicle for the disposition of

commercial disputes.17 As the result of these changes the business of the courts in the

insurance field increased substantially.

The principal prior materials drawn on to shape the law of insurance were foreign

ordinances such as the Marine Ordinances of Louis XVIme (published in 1681) Title VIm\

Guidon de Ia Mere (Rouen about 1600) (Reprinted in 30 Federal Cases 1211 (US)),

writings of jurists, and the usages of trade as settled in the merchants' courts.

There were four main categories grouped around the principle of good faith. Apart

from the doctrine of uberrimae fidei, they dealt with the rules concerning changing or

enlarging the risk by the insured, deviation from the usual voyage as prescribed by custom,

the seaworthiness of the vessel at the commencement of the voyage, the characterisation of

every statement on the face of a marine policy as a warranty requiring strict compliance,

• and, in the absence of ·a general trade usage to the contrary, the exclusion from the cover

of goods stored on deck. There were also principles relating to the consequences of

indemnification upon loss.

All of this merely reflects the acknowledgment by the legislature and the courts of the

profound importance of insurance as a factor in the support and development of trade. It

has also often been said that insurance is "a hand-maiden of industry". 18

In England in the XVIIth and XVIIIth centuries, the development of insurance,

particularly marine insurance, became closely associated with the development of that other

17

18

See the discussion in New England and Marine Insurance Co. v. Dunham (1870) 11 Wall.l, 20; 78 U.S .I, 31-34; GIO Insce Ltd v. Leighton Contractors Pty Ltd (1996) 8 ANZIC 61-293.

Introduction to Insurance Law Esler and Parkes 1.

8

great social institution, the coffee houses. ' .After their success on the Continent, they were

set up, first in Oxford and Cambridge where they played havoc with the studies of the

students and even of the scholary, and then in the City of London. Among these was a

coffee house owned and operated by a Mr Edward Lloyd, first in Tower Street in 1688,

later at the comer of Lombard Street and Alchurch Lane (1692) and finally, after several

moves, in the Royal Exchange. 19

Here the merchants gathered, first for coffee and then for business. A merchant with a

ship and cargo would pass around a slip on which was written a description of the ship, its

cargo, master and crew, and the voyage. ·. Underneath this heading those who desired to

participate as de facto insurers would write their names or initials and the amount agreed

to be covered. Hence the term "underwriters".

This developed so strongly that it was followed in time by a newspaper, first published

in 1696, giving details of relevant commercial information. It was the precursor of Lloyds

Lists which began in 1726.

This informal arrangement was gradually formalised during the vanous shifts of

location until 1769 when leading merchants and underwriters formed the society with rules . .

and regulations. Finally, Lloyds was incorporated in 1871.

The first form of the Lloyd's policy was adopted in 1779. Its contemporary form was

followed in the Marine Insurance Act of 1906 except for the substitution of the words, "Be

it known that ... ", for the words, "In the name of God, Amen ... ", in the introductory

words as amended in 1850. This form of policy has been characterised as "absurd and

incoherent"20, "a very strange instrument"21, and "drawn with much laxity'122

. But it had a

19 Further details may be found in The London Coffee Houses and the Beginnings of Lloyds Warren R. Dawson FRS 1; The Underwriter's Bedside Book Ed. J.S . lgnarski . See also New England and Marine Insce Co v. Dunham (supra).

20 Brough v. Whitmore 4TR 206 per Buller J.

9

certain practicality in the context of trade usage, and its value is further enhanced because

almost every word of it has been judicially construed23.

In the meantime other forms of insurance had developed m England. In XVillth

century not only could cover be obtained against the loss of a horse from natural death or

theft or disability but there was available "Assurance of Female Chastity".24

Earlier than that, fire insurance had developed in the xvrrth century25. There is some

evidence that in small Saxon communities there had been mutual aid agreements in case of

fire. However the first organisation of commercial fire insurance, and a loose one at that,

led to the opening of the first office in 1681 at the rear of the Royal Exchange. The oldest

fire insurance company, The Sun Fire Office, opened in 1710, but there was no large

volume of business before the early XIXth .century.

Happily for the insurers, there was no widespread fire insurance at the time of the

Great Fire of London, but that event naturally aroused a greater public interest in this form

of cover.

After it became commercially established in the XIXth century, statistics reveal that

there was a marked increase .in the incidence of suspicious fires. For a while this led to

the imposition of heavy taxation on ·such policies until the true social benefits of the

system saw fts repeal in 1869.

21

22

23

24

25

Le Cheminant v. Pearson 4 Taunt 3 80 per Mansfield CJ.

Marsden v. Reid 3 East 579 per Lawrence J.

Simond v. Boydell Doug 268.

Clayton Tarr 2nd ed. 2.

Richards on Insurance (supra).

10

Life insurance has a different history. There is a record of life insurance in Italian

cities as early as the XIVth century.26 It was certainly extant in England at the time of the

first publication of Malynes' Lex Mercatoria in 1622, though there was no organised

system until the Amicable Society for a Perpetual Assurance Office was founded in 1706.

It was a rudimentary mutual society and th.e first office to do business on modem lines was

the Equitable Assurance Society of London, established in 1762.

Lloyds' image first became somewhat tarnished by the intrusion of the profligate rich,

attracted by the high profits of inflated premiums of the Seven Years War. At its end they

sought an alternative outlet for their gambling instincts. Although gambling policies on

ships had been forbidden in 1746, the jobbers at Jonathon's Coffee House and the

merchants at Lloyds turned their talents to providing gambling policies on "the lives of

such unfortunate gentlemen as may stand accountable to their country for misconduct"27

and then on the lives of prominent people who happen to be ill or charged with capital

offences. 28

Such was the discomfort of ill Kings and Prime Ministers with the profound desire of

many policy holders that they should die within their respective policy period that the . .

practice was prohibited as a gaming exercise unless the policy holder had an insurable

interest in the subject m·atter. That is the origin of this principle.

The insurance contract belongs to a class known as "aleatory contracts". An aleatory

contract is one in which at least one promise imposes a duty of performance which is

conditional upon the happening of a contingent event, that is, one which may or may not

occur, or have occurred. The word "aleatory" is derived from a Latin word meaning

26 Goldschmidt- Handbuch Des Handelsrechts (1891) 382.

27 Thomas Mortimer in a scathing attack at the time.

28 Further details are in the Underwriter's Bedside Book.

11

"dice".29 Presumably the kings and prime ministers did not relish the thought of the

gamblers dicing with death - their death - and perhaps taking some steps to fix the game.

On the Continent there had been an earlier perception of immorality in wagers on

human life, and in many Italian states, Holland and other places they were prohibited.

They were not permitted at all in France until 1820. However this did not apply to the

lives of slaves or to ransom money for the life insured as a captive while on a journey.

Thus insurance adapted itself to the social well-being of the civilisation it served.

Its value has now been fully recognised. In the United States Mr Justice Murphy

stated in Helvering v. Le Geerse (1941) 312 U.S. 531 at 539:

"That life insurance is desirable from an economic and social standpoint as a device to shift and distribute risk of loss from premature death is unquestionable."

See also the remarks of Hugo Black J in U.S. V. South Eastern Underwriters' Assn 322

U.S. 533 at 539-540.

Because most fire and life policies contained arbitration clauses, there are few law

reports on those subjects.

The first company granting cover against accidental injury appeared in 1849 but its

clientele was at first limited ·t'o railway passengers and only later extended to a wider class.

It was relate.d to, and often included in, life cover.

Apart from its inclusion in marine insurance, liability insurance is of still more recent

origin, i.e. about the end of the XIXlh century30, which, as well as the effect of arbitration

clauses, accounts for the paucity of older cases.

At first this cover had been forbidden on the grounds of public policy as an

encouragement of negligent conduct and attempts by railway companies to obtain cover

29 Patterson & Young: Insurance Cases & Materials 2-3.

30 Richards on Insurance (supra).

12

had originally been rejected. It first became popular in respect of horse-drawn vehicles

and usually formed part of a comprehensive policy.

Product liability cover appeared at about the same time, but not seriously until the late

1930's. Presumably its popularity was enhanced by the suggested suicidal proclivity of

snails in stone bottles of gingerbeer. 31 The date of Lord Atkins' discussion on the point

was most significant in this history.

Workers' compensation cover developed independently as a social development but

general insurance cover against an employer's liability in damages to his employees

became very popular with the abolition of the rule of common employment.

In the course of time compulsory m9tor vehicle cover against liability for personal

injury and compulsory cover of employers against liability to their employees for common

law damages for personal injury were introduced in the first half of the XXth century.

This represents a notable change in the philosophy of insurance. Whereas prior to this

time its purpose was to protect the insured against loss, the purpose of the compulsory

schemes was to provide protection to the public or employees in order to ensure that

victims would have a secure fund against which they could recover their damages. . .

This development has also had a marked impact on the law of negligence and the law

of damages, particularly but not only in th~ area where such insurance applies.

The law of trespass to the person had originally imposed liability upon one who caused

injury to another by such trespass "except it may be judged utterly without his fault". 32

31 Donoghue v. Stevenson (1932) A.C.562.

32 w eaver v. Ward 14 Jac 1, Hob 134. This standard is preserved in some areas of bailment: Coggs v. Bernard (1703) 2 Ld Raym 909 at 913; Houghland v. R.R. Low (Luxury Coaches) Ltd (1 962) 1 Q.B. 694.

13

This was gradually softened to the extent that a defendant could escape by proving the

absence of negligence, that is, that he used reasonable care. 33

No doubt this movement was due to the contemporary mcrease m activity, social,

industrial and commercial, which. would ~ave laboured heavily under the old standard of \

care and many defendants found to be wrongdoers would have faced ruinous loss, even

though they may have shown reasonable care.

With the appearance of compulsory insurance, this spectre of private rumous loss to

the tortfeasor and its resulting inhibitions disappeared and, in keeping with the spirit of the

legislation, the courts could look with greater sympathy on the position of the victim.

Now in many jurisdictions although acknowledgment is paid to the standard of reasonable

care, the view of what is reasonable is more strict.

As with early trespass, the victim i_~ awarded compensation where the defendant, '

having brought his vehicle onto the streets where it can cause enormous harm, is guilty of

some fault. The development is expressed in the principle that the standard of care should

match the dangerous nature· of the instrument and the degree of harm which it can cause.

So too with the law of damages. Following on the introduction of compulsory

insurance, there have been marked · developments which have benefited the victim.

Although in principle an award of damages had long been supposed to place the victim, so

far as money reasonably can, in the same position as before the injury, however, before

compulsory insurance bloomed, there were all sorts of qualifications to this, based usually ,,

on the concept of fairness to the defendant.

33 Cf. Stanley v. Powell [1891], Q.B. 86.

14

When the bloom appeared, this factor was no longer valid, and the rules relating the

assessment of damages designed to fulfil the principle of full compensation have

proliferated. 34

This fundamental shift in principle has spilled over into other areas where compulsory

insurance does not exist; but where insurance is not expected as a general likelihood, the

"generosity" of the judges may seem to be attenuated. The existence of insurance is

relevant only when it is a feature of general application, that is, where it is expected that

the defendant should be insured, and it is not relevant when it depends upon the accidental

facts of the particular case.

In summary, insurance has had a significant influence on the formulation of legal

principle outside its own territory, and, it might be added, in a way that would be strongly

approved by most people.

May I add a short historical anecdote which makes a relevant point as to some

incidental social value of insurance.

In 1902 with the development of the cholera epidemic, one Cuthbert Heath began to

provide insurance against the. policy-holder's contraction of the disease at the basic rate of

2s.6d per cent, provided that the insured had been vaccinated. The response was a flood of

orders with brokers' juniors queuing at Heath's box at Lloyds. He drafted into service

every available clerk from his office, with power to write cover without limit. The

premium was increased where the applicant was not vaccinated or where he came from an

area where a case of the disease had been reported.35

He made a very substantial profit from this venture and many of his customers

benefited from the sense of protection which their cover provided. More significant

34 See my own essay in Essays on Damages, Ed P.Finn.

3S Cuthbert Heath - A. Brown 88-90 referred to in the Underwriter's Bedside Book, 134.

15

however was the social benefit which the scheme provided by way of alerting the public to

vaccination and encouraging it.

This concept of risk prevention as a benefit to the community as well as to the insurer

and the insured is thus not new. Its further development, particularly in environmental

liability cover can lead only to community benefit even if its effect cannot be observed or

measured by reason of its own success.

Sadly, in the 1980's and 1990's Lloyds' image became further tarnished by a series of

alleged scandals, some of which have been compromised by the payment of large sums of

money while others remain to be litigated.36 Following on a series of catastrophic events

that alone was enough to cause substantial financial harm to the members of that

institution, it was also found that the conduct of certain representative of the Names was

such as to give rise to allegations of serious misconduct. Together these factors have led

to speculation as to whether Lloyds can survive.

In the United States the first marine insurance office opened in Philadelphia in 1721

and the first fire insurance· office in 173 5 in South Carolina. The English Act of 1719 ( 6

Geo. 1 C.l8. Reaff in rela~~on to the American colonies in 1741 by 14 Geo. II C.37)

incorporated two English companies with a mo.nopoly of insurance business and prohibited

any other stock insurance company from conducting such business in His Majesty's

dominions. Consequently the only domestic incorporated insurance company prior to the

revolution was a mutual fire insurance company, The Philadelphis Contributorship for

Insuring Houses from Loss by Fire, which was born in 1752, the child of legislation of the

Pennsylvania legislature.

36 See for example Henderson v. Merreth Syndicates Ltd (1995) 2 A.C. 145 (H.L.); Aiken v. Stewart Wrightson Members Agency Ltd (1995) 1 W.L.R. 1281.

16

After the revolution, domestic insurance houses proliferated. Imitating their English

archetype, many unincorporated Lloyds associations were formed and were known

generally as American Lloyds.

By the 1950's the largest accumulation of private capital in the history of the world,

$80 odd billion, was to be found in the history of one insurance company, the Metropolitan

Life Insurance Company. Its policyholders numbered one fifth of the population of the

United States and Canada. By 1990 the Prudential Life Insurance Company held $103 odd

billion in assets, and insurance companies generally were the source of more than $1

trillion in funds in the US money and capital markets.

The growth of insurance-funded litigation has developed a service industry of

enormous proportions; and in tum this had led to the testing of the principles of insurance

law in the most intensive and creative way. The huge amorphous mass of this American

jurisprudence not surprisingly contains much that is valuable, and much that is not - even

to the point of being bizarre. But its sheer size and strength can only be described as

impressive, and the sums ·associated with litigation such as the agent orange, asbestos,

tobacco and pollution cases border on the surreal.

17

Modem Developments

All of this was the beginning of a change in the trend of insurance law as a whole. In

Lord Mansfield's time, the birth and growth of most common law principles took place in

the ambience of laissez-faire. Common law principles were based on a culture of

untrammelled free trade, where the freedom of the parties to contract and the sanctity of

their solemn agreement were paramount. This philosophy, as with the rest of the law,

continued through the Victorian period.

The concept of freedom to contract together with strict enforcement of agreed terms

produced some anomalous and unfair results, particularly against the interests of insured

parties and claimants. With some exceptions, the courts were disinclined to change the

law to meet this. Consequently there have been some legislative reforms earlier this

century that ameliorated some of these conditions, not so much in the spirit of consumer

protection but as a response to the grosser injustices produced by the strict common law.

For example, the statutory requirement of an insurable interest was, as we have seen,

the answer to a specific problem and as the problem has disappeared the rule has been

relaxed. Special provisions . relating to the application of insurance moneys due to an

insolvent insured's estate to the successful claimant against him rather than to the general

funds of the. estate for division among all creditors are of a like nature.

The compulsory insurance schemes that have been noticed already also took the

opportunity, within their own field, to make some radical changes in pursuance of the end

which they intended, the protection of the victim. For example they have enabled a

claimant to recover an award from the insurer despite a breach of a condition by the

insured which would have permitted the insurer to repudiate liability under the policy.

The courts have not been altogether inactive. Generally they recognised the superior

and advantaged position of the insurer and they used legal devices such as the contra

.. 18

proferentem rule to restrain the insurers' harsher assertions of their strict legal rights. But

there were still many cases, even after statutory reforms, where they had the benefit of

most unmeritorious but successful defences against claims for indemnity, such as a trivial

and totally irrelevant innocent misrepresentation in the proposal of a basis policy.

Generally, the courts could or would do nothing about this. There are of course some

exceptions, but mostly in very recent times. For example in Trident Insce Co Ltd v.

McNiece Bros Pty Ltd (1988) 165 CLR 107, it has been held that the doctrine of privity of

contract no longer applies to contracts of liability insurance; and this has been extended to

other types of insurance contract. This defeats any insurer's discretion whether to honour

its promise to indemnify a person covered by the policy on the ground that the person had

not been a party to the contract.

This recent shift of approach by the courts has corresponded with the widespread

change in community attitude in favour of consumer protection. It is contemporaneous

with radical statutory change of the law in Australia in the same direction. The Insurance

Contracts Act, 1984, has exceeded all of those statutory reforms in the insurance field

preceding it and has introduced a comprehensive rearrangement of relationships. As the

preamble explains, it does this in order to produce fairness to all parties by these changes.

In some respects it replicates earlier statutory reforms introduced at a State level, but it

also introduces some radical innovations. In some areas, such as material non-disclosure

and misrepresentation, the statute has provided a new regime by means of a code on the

subject37, so that the fo rmer common law is substantially irrelevant.38

37

38

Advance (N.S.W.) Insce Agencies Pty Ltd v. Matthews (1989) 16b CLR 606.

See e.g. Gamer's Motor Centre (Newcastle) v. Natwest Wholesale Aust Pty Ltd (1987) 164 CLR 236 at 243-244.

19

So too the provisions of s.54 restricts the insurer's rights to refuse indemnity because

of an act or omission of the insured which would otherwise have entitled it under the

contract so to refuse. This has wide implications for change of a major degree. For

example, it has negated an insured's right to refuse indemnity where the insured failed to

notify the insurer of a claim under a claims made and notified policy39. However this has

limited effect for it has also been held that the insured's failure to notify the insurer of a

possible claim, which would have extended the cover to the claim when it was eventually

made after the period of the policy, entitled the insurer to refuse indemnity.40 However the

former result was somewhat unforeseen and it is but one example of the profound changes

wrought by the Act as a whole.

In England, there have been strong moves by responsible people within the profession

and the industry to introduce far-reaching legislative reforms, generally along the lines

followed in Australia, and Committee reports of high quality have been compiled.

Unfortunately, to this time these have met the stronger resistance of parliamentary apathy

and inertia. The only . movement of note in insurance laws has centred on the issue of

whether a misrepresentation o.r non-disclosure must have decisive, as distinct from relevant

consequences for a prudent insurer in order to be material.

In the United States, because insurance is within the power of the states, there is no

established direction of reform within the multiplicity of enactments, but the models

created by some of the more advanced states may lead to some gradual change.

From all of this it will be seen that one way or the other the law of insurance has

changed with variable speed in accordance with changing times. The legislation must be

39

40

East End Real Estate Pty Ltd v. C.E. Heath Casualty & General Insce Ltd (1993) 7 ANZ Ins Cas 61.151.

FAI General Insce Co Ltd v. Perry (1993) 7 ANZ Ins Cas 61.164.

20

read in accordance with its purpose, and that purpose is not always in accord with the

fundamental thrust of former times. Even in common law, while some of the old

authorities are still valid up to a point, it must be expected that as in Trident they are

vulnerable to being read down or. overruled where the principle behind them conflicts with

established modem thinking.