Lloyd's Maritime and Commercial Law Quarterly
Wisdom after the event: the duty to mitigate insured loss
Malcolm Clarke *
If a motorist has a motorway accident in which the impact damages his car and he, in state of shock, takes no viable steps to move it off the carriageway and it is hit by a lorry, is that a case of negligence leading to the second impact or failure to mitigate the first? To require an answer may be to require a difficult line to be drawn in the facts of a case and one difficult to justify to policyholders. The received position is that the line must be drawn because the policyholder has a duty to mitigate insured loss. This paper finds that indeed a duty of mitigation exists but, first, that it is applied less strictly in marine insurance than in non-marine insurance. Secondly, the non-marine duty is based not on a rule of law but an inference about the degree or responsibility assumed by each party to the contract of insurance. That being so, the paper argues that it is open to a court to infer that the insurer has agreed to cover not only the negligence of the policyholder in causing the crash but also any negligence by the policyholder after the crash has occurred, with the corollary that for all practical purposes the policyholder has no duty to mitigate at all.
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I. MORAL HAZARD: THE LAW
Most countries refuse to sanction insurance indemnity in respect of loss brought about intentionally by the policyholder. In common law countries the ground for doing so may be judge-made either by reference to public policy or as a presumption of contractual interpretation. A statutory rule to similar effect2
is found in Austria,3
Belgium,4
Denmark,5
* Professor of Commercial Contract Law, University of Cambridge.
1. The following abbreviations are used in this article:
Arnould: Arnould, The Law of Marine Insurance and Average,
vols 1 and 2, 16th edn (London, 1981) and vol. 3 (London, 1997);
Basedow/Fock: J.Basedow and T.Fock (ed.), Europäische Versicherungsvertragsrecht
(Tubingen, 2002);
Chitty: H.Beale (ed.), Chitty on Contracts,
28th edn (1999);
Clarke: M.Clarke, The Law of Insurance Contracts,
4th edn (London, 2003);
Goff and Jones: G.H.Jones, (ed.), Goff and Jones, The Law of Restitution
(6th edn, 2002):
Virgo: Graham Virgo, The Principles of the Law of Restitution
(1999).
2. The rule may refer to the insured event rather that the insured loss.
3. VVG, Art. 61 (non-life insurance), Art. 152 (liability insurance), Art. 169 (life insurance), Art. 168 (health insurance), Art. 181 (accident insurance).
4. LCAT (Loi sur le contrat d’assurance terrestre) 1992, Art. 8. This changed the previous law in a way that has been seen as restrictive of contractual freedom: Fock in Basedow/Fock, 276.
5. Insurance Contracts Act, Art. 45(1).
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