Law of Insurance Warranties, The

Alastair Owen

Document

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CHAPTER 7 The law on insurance warranties in New Zealand

Legislative reform of warranties and other provisions

7.1 The Contractual Remedies Act 1979 abolished the right of a contracting party to avoid a contract for misrepresentation, or to terminate a contract for breach, and replaced those remedies with a single remedy of cancellation. This has now been replaced by ss36–40 of the Contract and Commercial Law Act 2017. Subject to express contractual provisions to the contrary (s34), s36(1) of the Act provides that ‘a party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to –

(a) perform B’s obligations under the contract; or
(b) complete the performance of B’s obligations under the contract.’

S37(1) provides a party to a contract may cancel it if –

(a) the party has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to the contract; or
(b) a term in the contract is breached by another party to the contract; or
(c) it is clear that a term in the contract will be breached by another party to the contract.

7.2 The right to cancel is constrained to circumstances where the parties have expressly or impliedly agreed that the truth of the representation or, the performance of the term is essential to the cancelling party (s37(2)(a)); or where, inter alia, the effect of the breach would be to, in relation to the cancelling party, make the benefit or burden of the contract substantially different from that represented or contracted for (s37(2)(b)(iii)). 7.3 The question arises whether these provisions are applicable to warranties. Merkin argued in relation to s7 of the previous Contractual Remedies Act that, as the statute referred to situations where a contractual party had an option to rescind/treat the contract as discharged, (s7(1) referred to circumstances where a party to a contract ‘may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach’), it could not apply to warranties where a breach automatically discharges the insurer from liability.1 This analysis seems logical and as s40 of the Contract and Commercial Law Act states

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Sections 36 to 39 have effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may2 rescind it, or treat it as discharged, for misrepresentation, repudiation, or breach

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