P R E PA R E D BY: M S . N O RA Z I M A H M A Z L A N

WARRANTIES

INTRODUCTION

• Since parties in marine insurance are free to contract on terms and conditions, the interpretation on the terms of the contract is essential.

• In a contract of marine insurance, a warranty has a significant effect. A warranty is promissory in nature.

• The non-fulfillment of warranty will automatically discharge the insurer from liability, from the date of breach.

WHAT IS WARRANTY?

• Condition on which the contract is founded.

• With a warranty, the assured undertakes that certain obligations need to be complied with, within a certain period of time.

• The liability of the insurer, under the insurance contract depends on the assured’s compliance with these obligations.

• Thus, warranties are used by the insurer as a shield against liability.

The warranties incorporated into the contract play an essential role in assessing the risk.

E.g. a warranty to the effect that the insured vessel will not navigate in a certain areas gives an idea to the insurer about the extent of risk he has agreed to provide cover for.

• S. 33(1) MIA 1906:A warranty means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.

DEFINITION UNDER S. 33(3) MIA

The assured :

i) either undertakes that some particular thing shall or shall not be done

e.g:“Warranted that Captain Nash shall be the

captain of the voyage”“Warranted that the vessel shall not carry mining timber as cargo”

ii) or undertakes that some condition shall be fulfilled

e.g.“Warranted that the vessel shall be surveyed

by 1st July 2015”

iii) or affirms or negatives the existence of a particular state of facts

e.g.“Warranted that the yacht is registered in

Norway.”“warrants that the flag of the insured vessel

has always been British”

NATURE OF WARRANTY

1. It must be exactly complied with

2. It need not be material to the risk

3. There is no remedy for breach

4. There is no defence for breach

1. It must be exactly complied with (s. 33(3) MIA

De Hahn v Hartley• There was a warranty in the policy requiring the insured vessel to sail with at least 50 crew members.

• The vessel sailed with 46 and 6 more joined shortly afterwards.

HELD : the warranty was breached.

2. It need not be material /have connection to the risk. s. 33(3) MIA

It is distinguished /different from non-disclosure and misrepresentation.

It must be exactly complied with whether it be material to the risk or not.

Duty of disclosure Only material circumstance need to be disclosed

Duty of abstaining from misrepresentation

Material circumstance need to be represented correctly.

Warranty The promise need to be complied with whether it is material to the risk or not.

• The insurance policy was on a horse, which was going to be carried in a vessel. • The assured when describing the horse warranted

that the horse was 5 years and had a certain pedigree. • During the voyage, the horse died for natural

reasons. It was later found out that the horse had a different pedigree than the one expressed by the assured.

• Held : the warranty was breached and the insurer was entitled to deny liability.

Yorkshire Insurance Co. Ltd. v. Campbell [1917] AC 218

3. There is no remedy for breach

Once a warranty has been breached, it is irrelevant whether the warranty is later complied with.

Quebec Marine Insurance Co v Commercial Bank of Canada.• There was an implied warranty of seawothiness.• The boilers of the vessel was defective from the

beginning of the voyage. • The repair was later done, soon after resuming her

voyage.• The vessel encountered severe weather and was

lost.

HELD: The implied warranty has been breached. The insurers were not liable even though the defect was remedied before the loss occurred.

4. There is no defence for breach

Any non-compliance for whatever cause or reason, would constitute a breach.

There are only 2 grounds that will excuse the breach:By reason of change of circumstancesWhen compliance with the warranty is

rendered unlawful by any subsequent law.

The innocent of the assured is immaterial.

Douglas v Scougal

Lord Eldon: It is not necessary to inquire whether the owners acted honestly and fairly in the transactions.

Even though the assured was mistaken in the fact that the vessel is in fact, unseaworthy, the underwriter is not liable.

LEGAL EFFECT OF A BREACH OF WARRANTY

• Section 33(3)-A warranty, as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.

s. 33(3)- the insurer is discharged from liability as from the date of the breach of warranty.

The Good Luck: Lord Goff- the insurer is automatically discharged from liability. It is not dependent upon any decision by the insurer.

No damages for breach of warranty. For example, insurer is unable to sue assured for damages to reimburse expenses incurred in investigating a claim which insurer is not liable.

FORMS OF WARRANTY

Express warranty

Implied warranty

EXPRESS WARRANTYS. 35(1) MIA 1906:

An express warranty must be incorporated into the contract of insurance by means of written words.

S. 35(2)An express warranty must be included into the policy or in any documents that are incorporated into the policy.

Thus, oral statements during negotiations are not warranties unless the statements are then incorporated in writing into the policy.

Example of Express Warranty

Clause 1.1 Institute Time Clauses Hulls

……..it is warranted that the vessel shall not be towed, except as is customary or to the first safe port or place when in need of assistance, or undertake towage or salvage services under a contract previously arranged by the Assured and/or Owners and/or Charterers.

This clause denies cover in the event of the insured vessel being towed except customary towage.

IMPLIED WARRANTY Implied warranties are incorporated into certain

marine policies by the MIA 1906, and their scope and number is determined by the Act.

It is presumed to apply without having to express it in the contract.

In the MIA, there are 4 implied warranty: The implied warranty of portworthiness (s.

39(2) MIA) The implied warranty of seaworthiness (s.39

(1), (3), (4) MIA) The implies warranty of cargoworthiness s.

40(2) The implied warranty of legality (s.41 MIA)

Implied Warranty of Portworthiness

It means the ship is reasonably fit to encounter ordinary perils of the port.

The degree of fitness to encounter ordinary perils of the port may vary according to different factors.

The class of the vessel in question can be quite crucial in determining degree of fitness.e.g. A cargoship can be considered as portworthy for a specific port but a pleasure port may not.

Implied Warranty of Seaworthiness

In a voyage policy, there is an implied warranty that at the commencement of the voyage, the ship shall be seaworthy.

Seaworthiness means the vesssel is reasonably fit in all aspects to encounter the ‘ordinary perils’ of the intended voyage.

This includes : the physical condition of the ship, adequacy of the crew, and having documents required to be carried

on board ships.

If the vessel is unseaworthy, the insurer is not liable for any loss or damage, eventhough the loss was not caused by unseaworthiness of the ship.

Implied Warranty of Cargoworthiness

Cargoworthiness means the vessel is reasonably fit to carry goods or other moveables to their destination.

In order to be considered cargoworthy, a ship must also be equipped to carry the particular kind of cargo that she has contracted to carry.

e.g. If the cargo is frozen meat, the refrigerating machinery, holds, etc must be in proper order and efficient to carry that particular cargo.

If the cargo is grain in bulk, the vessel must be supplied with sufficient separation cloths and adequate shifting boards.

Sleigh v Tyser

A vessel carying livestock must have sufficient ventilation and stockmen to care for the cargo.

Implied Warranty of Legality

The subject matter insured (e.g. ship, freight, cargo) and the adventure insured must be lawful.