Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

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The nature of an insurer’s obligation

Neil Campbell *

Recent English cases have treated the insurer’s obligation as being to prevent the insured from suffering loss. This paper argues that such a conception of the insurer’s obligation, although largely accurate in relation to liability insurance, is misconceived in relation to property insurance. A liability insurer commonly promises to prevent the insured from suffering loss, but the English courts have wrongly assumed that what is true for liability insurance is true also for property insurance. A consequence of this misconception is that, according to the English courts, an insured cannot recover damages for consequential losses caused by a property insurer’s failure to pay a claim. The preferable view, it is argued, is that a property insurer promises merely to compensate the insured in the event that the insured suffers loss. On this view, the insured can recover damages for consequential losses.

1. INTRODUCTION

What is it that an insurer promises to do for an insured? The insured’s answer might be “Pay me money, or repair my property, if I suffer a loss”. The courts of most common law jurisdictions provide a similar answer. However, the English courts would have it that an insurer promises to prevent loss or damage from occurring: to prevent car thefts, to prevent house fires, and to prevent ships from sinking. In this paper I examine the nature of an insurer’s obligation, and argue that the English courts are, for the most part, wrong.

The paper is divided into five further parts. In Part 2 I propose a conception of an insurer’s obligation, which I use as a framework for the rest of the paper. The bulk of the paper is in Part 3, where I examine the nature of an insurer’s obligation under a contract of indemnity insurance, and thereby confront the English cases. In Part 4 I examine the position under a contract of contingency insurance. In Part 5 I consider the consequences of my arguments for the remedies available to an insured. Part 6 summarizes my conclusions.

2. A PROPOSED CONCEPTION

In this Part I propose, as a hypothesis, a conception of an insurer’s obligation. In doing so I apply the well-recognized distinction between primary obligations (obligations of

* Faculty of Law, University of Auckland. In preparing this paper I have benefited from discussions with Malcolm Clarke, Charles Rickett, Ross Grantham, and Daniel McLellan.

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