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Marine Insurance Warranties

Development in England, in comparison with other countries

Candidate number: 5070

Submission deadline: 01.11.2015

Number of words: 17 974

Table of contents

1 INTRODUCTION ..................................................................................................... 1

1.1 Marine insurance warranties in the English law .......................................................... 1

1.2 Structure of thesis ........................................................................................................ 2

1.3 Legal sources ............................................................................................................... 3

1.4 Method ......................................................................................................................... 3

2 THE WARRANTY REGIME UNDER THE MIA 1906 ....................................... 3

2.1 Alteration of risk and warranty .................................................................................... 3

2.2 Historical perspective .................................................................................................. 6

2.3 Definition of warranty ................................................................................................. 7

2.3.1 Statutory definition......................................................................................... 7
2.3.2 Creation of warranty ...................................................................................... 8
2.3.3 Warranty in hierarchy of contractual terms.................................................. 10

2.4 Characteristics of warranty ........................................................................................ 12

2.4.1 Strict compliance .......................................................................................... 13
2.4.2 No requirement of materiality ...................................................................... 14
2.4.3 No requirement of causation ........................................................................ 15
2.4.4 Absolute character of warranty .................................................................... 16
2.4.5 Automatic discharge from liability .............................................................. 17
2.4.6 Later remedy is irrelevant ............................................................................ 20

2.5 Implied and express warranties ................................................................................. 21

2.5.1 Implied warranties ........................................................................................ 21

I
 2.5.2 Express warranties ....................................................................................... 24

3 NORWEGIAN APPROACH TO ALTERATION OF RISK.............................. 26

3.1 General provisions on alteration of risk .................................................................... 26

3.2 Special provisions on alteration of risk ..................................................................... 28

3.3 Warranty-like provisions ........................................................................................... 29

4 REFORM OF THE WARRANTY REGIME ....................................................... 31

4.1 Critique and support of warranties ............................................................................ 31

4.1.1 Drawbacks of warranties .............................................................................. 31
4.1.2 Benefits of warranties .................................................................................. 33

4.2 Attempts to mitigate the warranty regime in the UK and other common law countries
by judicial interpretation of policy and introduction of special policy provisions .... 34
4.2.1 Construction of policy by courts .................................................................. 34
4.2.2 Self-regulation of the industry ..................................................................... 38

4.3 Legislative reform of the warranty regime in the UK ............................................... 39

4.3.1 Previous proposals for reform in the UK ..................................................... 39
4.3.2 Legislative reforms in other common law countries .................................... 41
4.3.3 2006-2015 reform process in the UK ........................................................... 42

5 CONCLUSION ........................................................................................................ 51

5.1 Summary of the development process. Outlook on future perspectives ................... 51

6 BIBLIOGRAPHY .................................................................................................... 53

6.1 Table of cases ............................................................................................................ 53

6.2 Statutes....................................................................................................................... 56

II
6.3 Standard and other documents ................................................................................... 57

6.4 Secondary literature ................................................................................................... 57

6.5 Table of abbreviations ............................................................................................... 60

III
 1 Introduction

1.1 Marine insurance warranties in the English law

The warranty regime in the English marine insurance law for a long time has been in
the center of attention of courts, academics and practitioners. The reason for that are dis-
tinctive characteristics of insurance warranties, which make them a unique type of term,
sometimes described as “draconian”.1 Namely, attribution of a warranty status to the as-
sured’s undertaking to act in particular way (to fulfill certain condition, etc.) turns a strict
compliance with it into a condition precedent to the insurer’s liability; in case of non-
compliance, the issues of fault, materiality of a breach or presence of a causal connection
between a breach and a loss are disregarded. Furthermore, a specific remedy of “automatic
discharge from liability” makes the warranty regime especially severe for assureds. In the
beginning of the XX century, all these traits were reflected in the English Marine Insurance
Act 1906 (the MIA 1906) and remained unchanged for many years.
However, it has been widely recognized that warranties constitute a source of poten-
tial injustice, as they entitle insurers to rely on minor and non-causative breaches to avoid
liability under the policy. Moreover, as the warranty regime is strikingly different from a
general civil law approach to alteration of risk, its maintenance may hinder a process of
internationalization of the English insurance law and, from the practical perspective, make
London market less attractive for new clients. Therefore, English courts and the insurance
industry endeavored to mitigate harsh effects of warranties. Various measures of ameliora-
tion were adopted, but none of them could be described as a finale solution. The need for
legislative reform was gradually becoming apparent.
In 2006, the UK Law Commission, a statutory body created for purpose of reviewing
and reforming the law, jointly with the Scottish Law Commission started a project “Insur-
ance Contract Law”. The project concluded with an adaptation of the Insurance Act 2015,

1
Hussain v Brown [1996] 1 Lloyd’s Rep 627, per Saville LJ, 630

1
which envisages significant changes of the warranty regime. The recent reform has
raised a number of important issues:
(1) What particular problems, created by the “classical” warranty regime, were legis-
lators trying to solve?
(2) What are the differences between the warranty regime under the MIA 1906 and
the regime established by the Insurance Act 2015?
(3) Has the reform brought the English warranty regime closer to practices of other
common law countries and/or to the civil law approach to alteration of risk?
A purpose of this thesis is to consider these questions in the light of relevant experi-
ence from England and other countries. The answers to them are important for such issues
of theoretical and practical significance, as: how the recent reform has affected the existing
warranty regime; has it created any potential problems; will the English marine insurance
market make a step towards internationalization, and so on. Overall, this thesis aims to
study a process of development of the marine insurance warranty regime in England, in
comparison with its international surrounding.

1.2 Structure of thesis

The main body of this thesis is separated into three parts:
(1) Chapter 2 is devoted to nuances of the warranty regime under the MIA 1906,
with the main accent on characteristics of warranties (the “strict compliance” doctrine, the
“automatic discharge” rule, etc.). The place of warranties among other insurance contract
terms and their inner classification are also discussed;
(2) Chapter 3 refers to the Norwegian approach to general alterations of the risk and
to warranty-resembling clauses, as an example of the civil law solution;
(3) Chapter 4 gives an overview of previous attempts to mitigate the warranty regime
in England and other common law countries and a detailed analysis of the recent legislative
reform.
The final Chapter provides a conclusion on questions of a present development and
future perspectives of marine insurance warranties in England.

2
1.3 Legal sources
Due to the fact that marine insurance warranties are the common law concept, the
majority of sources used for preparation of this thesis are of the English origin. They in-
clude: statutes (the MIA 1906, the Insurance Act 2015), preparatory work (papers of the
Law Commission, draft bills, etc.), standard documents, case law and legal literature. As
the concept of warranties is common to marine and non-marine insurance in England, ex-
amples from non-marine insurance are used when suitable. References to the legislation,
case law, reform projects and legal literature from other common law jurisdictions, such as
Australia, New Zealand, the USA and Canada, are also frequently made. Provisions of the
Nordic Marine Insurance Plan 2013 and the Commentary to it are used to illustrate the civil
law solutions; furthermore, some cases heard before Norwegian courts are also referred to.

1.4 Method
The main method of the research is a comparative analysis of the “classical” warranty
regime in England (Chapter 2), its alterations, introduced by the recent reform (Chapter 4)
and relevant approaches in other common and civil law countries (Chapters 3, 4). As it
would be impossible to embrace all the variety of problems related to marine insurance
warranties, some of them are left beyond the scope of this work: for example, a status of
“navigation” conditions in the MIA 1906.2 Without diminishing a significance of such is-
sues, it should be noted that this thesis is devoted to a more general question of the devel-
opment of the warranty regime in the English marine insurance.

2 The warranty regime under the MIA 1906

2.1 Alteration of risk and warranty

At formation of the insurance contract, the assessment of the risk insured is made on
the basis of presumptions about particular past or present facts, or future events. They con-
stitute a fundament of the policy; if it fails, the principle of fair balance of interests between

2
The MIA 1906, ss 42, 43, 54, 46, 48 and 49.

3
the insurer and the assured may require an amendment, or even a termination of the policy.
In order to help the insurer to regulate the risk insured, the English law adopted, i.a., a no-
tion of “warranty”.
However, the civil law jurisdictions deal with the same problem without introducing
an exhaustive warranty regime. Namely, they provide insurers with an opportunity to con-
trol the risk insured through general provisions on alteration of risk. Trine-Lise Wilhelm-
sen, a Professor at the Scandinavian Institute of Maritime Law, have undertaken a compre-
hensive study of various legal systems and concluded that various definitions of “alteration
of risk” seem to be based on four main approaches. Those are, as follows:
(1) The risk must be increased compared to the written or implied conditions of the
insurance contract (Norway);
(2) The risk must be altered or increased in such a way that the insurer would not
have accepted the insurance at all (Belgium) or would not have accepted the insurance on
the same conditions if he had known about the increase (Italy, Greece);
(3) The risk is “substantially” altered (Japan, Slovenia, Croatia);
(4) The last approach is to connect the sanction to circumstances affecting or altering
the risk after the contract is concluded without any further definition (France).3
Despite the differences in these methods and in the effects of particular provisions,
they are all governed by a basic requirement of “subjective materiality”.4 This means that
in relation to the circumstances, which were in some way relevant to the insurer when the
contract was entered into, a general duty of the assured not to alter the risk could be traced;
otherwise, the insurer is not entitled to react against the alteration.
The English law is also acquainted with a concept of change of risk; however, it dif-
fers in its implications from the continental one. Two types of changes of risk are recog-
nized: (1) alteration of risk; (2) and increase of risk.
Alteration of risk takes place when the subject matter insured is substantially
changed, i.e., the insured risk is substituted by a new one. In this case, a general principle

3
Trine-Lise Wilhelmsen, “Issues of Marine Insurance” (Oslo: MarIus, 2001), 113-115
4
Ibid, 115

4
of the common law is that the insurer is automatically discharged from liability: “There
would be no cover where the circumstances had so changed that it could properly be said
by the insurers that the new situation was something which, on the true construction of the
policy, they had not agreed to cover”.5 Other cases, where the risk remains the same in es-
sence, but a loss is more likely to occur – for example, if the ship insured under the war
policy sails into areas of enhanced military activity, – are referred to as increase of risk.
The civil law concept of alteration of risk embraces both types of situations; hence,
the assured’s duty not to alter risk applies to them equally. The striking feature of the Eng-
lish law is that there is no general duty of the assured to prevent the increase of risk during
the currency of the policy. Such increase is deemed to be in contemplation of insurers,
“since the insurance bargain is one where, in return for the premium, they take upon them-
selves the risk that an insured peril will operate”.6 Therefore, insurers cannot claim that the
increased risk goes beyond what they have agreed to cover. As Pollock CB observed in
Baxendale v Harvey7:
“An insured may light as many candles as he please in his house, though each addi-
tional candle increases the danger of setting the house on fire”.
In absence of an implied duty of the assured not to increase risk, the English marine
insurance law was in need of another way to secure the insurer’s position. Hence, the war-
ranty regime was implemented. Parallel to provisions on alteration of risk in the civil law,
warranties serve as an instrument of administration of the risk insured: they circumscribe it,
oblige the assured to take suitable precautions, etc.8 However, despite the similarity of
goals, a closer look on the warranty regime reveals its substantial differences from the civil
law approach.

5
Kausar v Eagle Star Insurance Co Ltd [2000] Lloyds Rep IR 154
6
Ibid. See also Swiss Reinsurance Company and others v United India Insurance Company Limited
[2005] EWHC 237 (Comm).
7
Baxendale v Harvey (1859) 4 H & N 445, 449
8
On the purpose of warranties, see the Law Commission Consultation paper No182 (2007) ss 2.1-
2.2

5
2.2 Historical perspective
The English and the civil marine insurance law have common roots: continental prac-
tices were brought to England in the XIV century, with establishment of the Hanseatic
League of Lombard trading houses in London.9 However, the unity broke in the XVII cen-
tury, when English courts began to acknowledge that some of the assured’s contractual
undertakings could constitute a condition precedent (i.e., a prerequisite) to the insurer’s
promise of cover.10 A breach of these terms, referred to as “warranties”, gave the insurer
unconditional right to repudiate the policy. By contrast, in civil law jurisdictions a breach
of resembling term entitled the insurer to repudiate only if that breach went to the root of
the contract and was causative of the loss.11
The appointment of Lord Mansfield as Lord Chief Justice in 1756 led to further
breakthrough in the English marine insurance law, i.a., in relation to the warranty regime.
First, Lord Mansfield made a clear distinction between a warranty, “which makes part of a
written police”12, and a mere representation. Next, a revolving conclusion followed: “There
is a material distinction between a warranty and a representation. A representation may be
equitably and substantially answered: but a warranty must be strictly complied with[…]”.13
In quoted case, De Hahn v Hartley, the ship warranted to sail with “50 hands or up-
wards”, sailed with 46 hands, but only in a few hours further six men were taken onboard.
However, Lord Mansfield’s understanding of the “strict compliance” doctrine implied that
any immaterial, non-causative, and even rectified breach of warranty entitled the insurer to
refuse to pay. Thus, the departure of the English marine insurance law from its continental
roots finalized. Since the late XVIII century, a process of codification of the rules, laid
down by Lord Mansfield and subsequent case law, began.

9
Baris Soyer, “Warranties in Marine Insurance”, 2nd edition (London: Cavendish Publishing
Limited, 2006), 5
10
Jefferies v Legandra (1692) 4 Mod. 58; Lethulier’s case (1692), 91 Eng Rep 384; Gordon v Mor-
ley 93 Eng Rep 1171
11
John Hare, “The omnipotent warranty: England v the world”, compendium “Marine insurance
at the turn of millennium”, vol.2 (Antwerpen, Groningen, Oxford: Intersentia, 2000), 43
12
Pawson v Watson (1778) 2 Cowp 785, 787-788
13
De Hahn v Hartley (1786) 1 T.R. 343, 345

6
 As the result, the Marine Insurance Act was adopted in 1906, with Sections 33 - 41
devoted to different aspects of the warranty regime. Analogous statutes were implemented
throughout the common law world, such as: the Australian MIA 1909, the New Zealand
MIA 1908 and the Canadian Federal MIA 1993. Although that resulted in a certain unity of
the warranty regime, the majority of common law countries have eventually amended it by
various legislative and non-legislative measures.14 To understand the aims and the content
of these alterations, the “classical” warranty regime under the MIA 1906 should be ad-
dressed first.

2.3 Definition of warranty

2.3.1 Statutory definition

Section 33(1) of the MIA 1906 provides that:
“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 condi-
tion shall be fulfilled, or whereby he affirms or negatives the existence of a particular state
of facts”.
According to this definition, warranty status can be attributed to a huge variety of un-
dertakings: (1) as to past or present facts (affirmative warranties); (2) as to future conduct
of the assured (continuing/promissory warranties); or (3) that some condition shall be ful-
filled, although the inclusion of this middle category was argued to be rather open-ended
and creating a basis for litigation.15 Indeed, the courts occasionally have problems with
deciding whether a particular statement is or is not a warranty.
An affirmation of fact, for instance, can constitute either a warranty or a representa-
tion, an instrument with its own legal regime.16 In the XVIII century, Lord Mansfield en-
deavored to separate these concepts by stating that: warranties make a part of the written
policy, whereas representations are made outside of the written contract; and representa-

14
For further discussion, see Chapter 4, ss 4.2.1.3 and 4.3.2.
15
The Law Commission Consultation paper No 204 (2012), s 12.6. See, for example, Switzerland
Insurance Australia v Movie Fisheries Pty Ltd (1997) 144 ALR 234
16
See the MIA 1906 s 20

7
tions may be equally or substantially answered, while warranties must be strictly complied
with.17 The third criterion of distinction is that the test of materiality is applicable only to
representations. As Lord Eldon LC put it in Newcastle Fire Insurance v Macmorran &
Co18:
“It is a first principle of the law of insurance, on all occasions, that where a represen-
tation is material it must be complied with – if immaterial, that immateriality may be in-
quired into and shown; but that if there is a warranty… the materiality or immateriality
signifies nothing”.
Aside from the broadness of the MIA s 33(1), problems in defining warranties are
numerous. To begin with, the very process of creation of warranties fuels potential uncer-
tainty.

2.3.2 Creation of warranty

According to the MIA s 33(2), a warranty may be either express or implied. Warran-
ties may be implied by statute. The MIA specifies four implied warranties: the warranty of
seaworthiness (s 39(1)), portworthiness (s 39(2)), cargoworthiness (s 40(2)), and legality (s
41). In theory, warranties may be implied into a contract of insurance by courts, as in any
other contract, for example, for reasons of business efficacy. However, in practice this pos-
sibility is of little importance to insurance contracts.19
The majority of warranties are created expressly by parties: i.e., they are either writ-
ten into the policy, or incorporated into it by reference. The MIA s 35(1) states that an ex-
press warranty may be in any form of words from which the intention to warrant is to be
inferred. Consequently, there is no single verbal construction to indicate a warranty. Even
the use of the word “warranty” is not decisive. Here, Arnould provides the following ex-
ample: “The fact that the word “warranted” is used in a policy does not always prove that
the term to which it refers amounts to a warranty. Thus, the clause “warranted free from

17
Pawson v Watson (1778) 2 Cowp 785; De Hahn v Hartley (1786) 1 T.R. 343
18
Newcastle Fire Insurance v Macmorran & Co (1815) 3 Dow 255, 262
19
As noted in Consultation paper No 204 (2012), s 12.13

8
particular average” is not a warranty; it is an exception from the risk undertaken by the
underwriter”.20
Courts in England and other common law countries are sometimes prepared to find a
clause, labeled as a warranty, not to be one, in order to mitigate the harshness of the war-
ranty regime.21 For instance, in Roberts v Anglo-Saxon Insurance Ltd22, a statement “war-
ranted: use only for commercial travelling” was held not to be a “true” warranty, because
“[…]the parties had used that language as words descriptive of the risk”. Therefore, even if
a term apparently seems to be a warranty, it can be construed otherwise by courts.
On the other hand, a warranty may be inferred from any words demonstrating an in-
tention to warrant. The courts have tried not to push this doctrine to extremes23, yet some-
times it is applicable. In HIH Casualty and General Insurance Ltd v New Hampshire In-
surance Co24, the Court of Appeal held that an undertaking to produce six films in the “pe-
cuniary loss indemnity” policy must be construed as a warranty, because the essence of the
risk insured was generation of a certain revenue, and the films could generate it only if
completed. Furthermore, Lord Justice Rix listed several tests for identifying a warranty:
“[para 101] It is a question of construction, and the presence or absence of the word
“warranty” or “warranted” is not conclusive. One test is whether it is a term which goes to
the root of the transaction; a second, whether it is descriptive or bears materially on the risk
of loss; a third, whether damages would be an unsatisfactory or inadequate remedy”.
Overall, the approach to creation of warranties is very flexible. For instance, the Law
Commission in 1980 Report summarized possible ways of creating warranties as follows25:
(1) By the use of the word “warranty”. It is to be recalled that the word “warranty” is
indicative, but not decisive;

20
Arnould, “On the Law of Marine Insurance and Average”, 11th ed. (London: Law Publishers,
1924), 829
21
For further discussion, see Chapter 4, ss 4.2.1.2-4.2.1.3.
22
Roberts v Anglo-Saxon Insurance Ltd (1927) 27 LI L Rep 313, per Bankes LJ 314
23
See Clapham v Cologan (1813) 3 Camp. 382, where the court rejected an argument that a mere
description of the ship by English name constituted a warranty of nationality.
24
HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2Lloyd’s Rep
161
25
“Insurance Law: Non-Disclosure and Breach of Warranty” (1980) Law Com No104, s 6.3

9
 (2) By the use of “basis of the contract” clauses – a legal device, typically a statement
on a proposal form, that converts the assured’s answers and declarations into contractual
warranties;
(3) By an expression of the strict compliance and the right to repudiate for a breach26;
(4) By the use of phrases such as “condition precedent”, from which the court can in-
fer that the parties intended the strict compliance and the right to repudiate for a breach27;
(5) By the use of any other words such that the court concludes that, on true construc-
tion of the whole document containing the term, the parties intended the term to possess the
attributes of a warranty.
Overall, in order to determine if the term is a “true” warranty, one must consider in-
tentions of the parties revealed by the contract as a whole. Warranties are “an elusive tar-
get”, by expression of the Law Commission28; the difficulties in defining them lead to a
significant uncertainty in insurance relationships and provide ground for a vast litigation.
The problem is enhanced by the fact that the same term may be drawn in different ways –
as a definition of risk, an exclusion from liability, or a warranty. Each of options may lead
to different consequences for insurers and assureds. For that reason, it is important to draw
a line between warranties and other provisions of the insurance contract.

2.3.3 Warranty in hierarchy of contractual terms

Lord Greene MR described the term “warranty” as “one of the most ill-used expres-
sions in the legal dictionary”.29 Indeed, it has a number of meanings: for instance, a warran-
ty in the insurance law is a very different thing from a warranty in the general contract law.
In latter, the word “warranty” usually describes a term of minor importance, as opposed to

26
After Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good
Luck) [1991] 2 Lloyd’s Rep 191; [1992] 1 A.C 233, it is more correct to speak of an “automatic
termination” of insurers’ liability.
27
Ibid.
28
Consultation paper No204 (2012), s 11.19
29
Finnegan v Allen (1943) 1 KB 425, 430

10
“condition” – a term that “goes to the root of the contract”.30 If a condition is breached, the
non-breaching party may repudiate the contract for the future in addition to damages. If a
warranty is breached, damages are the only remedy available. For example, Sale of Goods
Act 1979 Section 11(3) states:
“Whether a stipulation in a contract of sale is a condition, the breach of which gives
rise to the right to treat the contract as repudiated, or a warranty, the breach of which may
give rise to a claim for damages but not to a right to reject the goods[...]”
In contrast, in the insurance law warranties have a “dominant” position. According to
hierarchy of contractual terms, presented by the Law Commission in 2006 Issues paper31:
(1) Warranties carry the most severe consequences for the assured, because their
breach leads to the insurer’s automatic discharge from liability (i.e., the insurer does not
need to make a choice to repudiate the policy). This unique feature of warranties was
acknowledged in The Good Luck case.32
(2) Conditions precedent to a claim are mostly procedural requirements: for exam-
ple, to notify of a claim. As in case with warranties, the insurer may refuse to pay a particu-
lar claim even if the breach of such condition is not material or causative to the loss; how-
ever, other claims under the policy will stay unaffected.
(3) Clauses “descriptive of the risk” and “excluding the liability” indicate under
which circumstances the insurer shall or shall not cover the loss. These clauses are also
known as “suspensive” conditions, because in case of breach the insurer’s liability is only
suspended until the breach is remedied.
(4) Innominate terms are qualified by the fact that the remedy for their breach de-
pends on its seriousness: it may be either a right to repudiate the contract and damages, or
only damages.33 Notably, in Alfred McAlpine case34 it was suggested that a breach of such

30
For further discussion, see Jill Poole, “Textbook on Contract Law”, 12th ed. (Oxford University
press, 2014), 301-302
31
Issues paper 2 “Warranties” (2006), ss 2.12-2.13
32
The Good Luck [1991] 2 Lloyd’s Rep 191
33
See Honkong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd (1962) 2 QB 26. Existence of
innominate terms in insurance contracts was acknowledged in Phonenix General Insurance Co v
Greece SA v Halvanon Insurance Co Ltd [1985]2 Lloyd’s Rep.599

11
term might be sufficiently serious to justify a rejection of particular claim, but not the
whole contract. However, the idea of a “partial repudiatory breach” was criticized by Court
of Appeal in Friends Provident Life and Pensions v Sirius International Insurance35 as
creating a completely new doctrine. Thus, the law is inconsistent on this point.
(5) Mere terms are equal to “warranties” in the general contract law; their breach has
no bearing on the insurer’s liability, as it is adequately remedied by damages.
Overall, marine insurance warranties have a unique place among other policy terms,
as they envisage the harshest consequences of non-compliance for assureds. A detailed
examination of main characteristics of warranties, which make them one of the most pow-
erful and criticized instruments in the English insurance law, is provided below.

2.4 Characteristics of warranty

The following characteristics can be attributed to a marine insurance warranty on the
basis of the MIA 1906 provisions and relevant case law:
(1) It must be exactly complied with;
(2) It need not be material to the risk;
(3) Causal link between the breach of warranty and the loss is irrelevant;
(4) Absolute character of warranty: there is no excuse (no defence) for the breach;
(5) Specific consequences of the breach: “automatic discharge” of the insurer from li-
ability;
(6) There is no remedy for the breach.
In complex, these features constitute the traditional warranty regime in the English
insurance law. Clearly, such severe rules can lead to striking injustice towards the assured.
For that reason, the recent legislative reform has reviewed some of them to various extent.
However, to understand modern amendments, the original approach should be analyzed
first.

34
Alfred McAlpine Plc v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437
35
Friends Provident Life and Pensions v Sirius International Insurance [2005] EWCA Civ. 601

12
2.4.1 Strict compliance
Warranties in insurance contracts have been occasionally characterized as “condi-
tions precedent” to attachment of the risk, or to liability of the insurer. In Thomson v
Weems36, Lord Blackburn stated: “In policies of marine insurance[…] the compliance with
that warranty is a condition precedent to the attaching of the risk”. In The Good Luck37,
Lord Goff affirmed: “[…]fulfillment of the warranty is a condition precedent to the liability
of the insurer”. The word “condition” here is used in a contingent sense, as “a stipulation of
a state of affairs that must be achieved before any contractual liability, or possibly any fur-
ther contractual liability, will be incurred”.38 The rationale behind is that warranties are
indicators of the risk, which the insurer was agreed to indemnify originally.
Yet what constitutes “compliance” with a warranty? Since the times of Lord Mans-
field, it was not challenged that warranties require strict (literal) compliance: “[…]nothing
tantamount will do, or answer the purpose; it must be strictly performed, as being part of
the agreement”.39 In De Hahn v Hartley40, Ashhurst J reaffirmed: “The very meaning of
warranty is to preclude all questions whether it has been substantially complied with; it
must be literally so”.
This approach was reflected in the MIA 1906 s 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”.
The strict compliance rule has two sides. On the one hand, the insurer cannot de-
mand anything greater than the warranted undertaking: in Hide v Bruce41, a warranty to
have 20 guns did not imply sufficiency of the crew to man them. On the other hand, noth-
ing less than literal performance will do. The only potential escape may be offered by the
de minimis non curat lex rule, which allows courts to overlook extremely minor deviations

36
Thomson v Weems (1884) 11 R (HL) 48, 51
37
The Good Luck [1991] 2 Lloyd’s Rep 191, 202
38
Jill Poole, “Textbook on Contract Law”, 301
39
Pawson v Watson (1778) 2 Cowp 785, 787
40
De Hahn v Hartley (1786) 1 T.R. 343, 346
41
Hide v Bruce (1783) 3 Doug K B 213

13
(“mere trifles”).42 Applicability of this rule to breach of marine insurance warranties was
discussed in Overseas Commodities Ltd v Style.43 In this case, shipped tins were warranted
to be specifically marked by manufacturers; in fact, some tins lacked the marks. McNair J
mentioned in his reasoning:
“[p 558] Being satisfied that, as regards both policies, a substantial number of tins –
well exceeding any tolerance that could be disregarded under the de minimis rule – were
not marked[…] I have no option but to hold that the breach of the express warranty affords
the underwriters a complete defence in this action”.
Baris Soyer argues that the language adopted makes it clear that had only one tin
out of thousands been defective, McNair J would have sidestepped the strict compliance
doctrine by applying the de minimis rule.44 It is hard not to agree. However, the rule is of
limited help, as the breach must concern only a trivial part of the whole undertaking.

2.4.2 No requirement of materiality

The MIA 1906 s 33(3) prescribes that a warranty must be complied with, whether it
is material to the risk or not. The essence of this principle was formulated by Lord Eldon
LC in Newcastle Fire Insurance45: “[…]when a thing is warranted to be of a particular na-
ture or description, it must be exactly what it is stated to be. It is no matter whether material
or not; the only question is, is this the thing de facto I have signed?”
“Immateriality” of a warranty can take two forms. First, a warranty may concern the
things so random that they could not affect the risk in principle, “however absurd it may
appear”.46 In Thomson v Weems47, Lord Blackburn explained this ambiguous approach by
respect to contractual freedom of the parties:
“It is competent to the contracting parties, if both agree to it and sufficiently express
their intention so to agree, to make the actual existence of anything a condition precedent to

42
See The "Reward" (1818) 165 ER 1482
43
Overseas Commodities Ltd v Style [1958] 1 Lloyds Rep 546
44
Baris Soyer, “Warranties in Marine Insurance”, 134
45
Newcastle Fire Insurance v Macmorran & Co (1815) 3 Dow 255
46
Farr Motor Traders Mutual Insurance Society Ltd [1920] 3 KB 669, 673
47
Thomson v Weems (1884) 9 App Cas 671, 683

14
the inception of any contract[…]. And it is not of any importance whether the existence of
that thing was or was not material; the parties would not have made it a part of the contract
of they had not thought it material, and they have a right to determine for themselves what
they shall deem material”.
Next, even if a warranty concerns something that could theoretically affect the risk,
whether it does so in fact, is irrelevant. This principle could be traced in Abbott v Shawmut
Mutual48, where the warranty that a mortgage on the property constituted £6,600 was held
to be breached because the real figure was £6,684.

2.4.3 No requirement of causation

A general approach to causation in the English insurance law is expressed in causa
proxima or “the proximate cause” rule; see, for example, the MIA s 55(1):
“Subject to the provisions of this Act, and unless the policy otherwise provides, the
insurer is liable for any loss proximately caused by a peril insured against[…]”.
Previously, there was a doubt about the content of this doctrine. One view was that
only the immediate cause of the loss must be regarded.49 However, in Reischer v Borwick50,
where the tug sustained damage in a collision, but afterwards was abandoned due to flood,
the collision was held to be causa proxima, despite not being the last in time. The law re-
mained unclear until Leyland Shipping case51, where Lord Shaw said: “causation is not a
chain, but a net[…] the cause which is truly proximate is that which is proximate in effi-
ciency”. Therefore, courts were invited to weight influence of different causes on the par-
ticular loss.
In contrast, a causal link between the breach of warranty and the loss has never been
relevant in insurance cases. In Hibbert v Pigou52, a ship was lost in storm, but the under-

48
Abbott v Shawmut Mutual (1861) 85 Mass 213. See also Yorkshire Insurance Co Ltd v Campbell
[1917] AC 218
49
See Susan Hodges, “Cases and Materials on Marine Insurance Law” (London: Cavendish Pub-
lishing Limited, 1999), 336
50
Reischer v Borwick (1894) 2 QB 548 CA
51
Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350, 369
52
Hibbert v Pigou (1783) 3 Doug KB 213

15
writer avoided liability due to the breach of convoy warranty. In non-marine Dawsons Ltd v
Bonnin53, a lorry was warranted to park at one address, when in fact it parked at another.
Although the misstatement about address did not enhance the risk insured, and arguably
even reduced it, the House of Lords held that the insurer was discharged from liability.
This feature of insurance warranties is a direct consequence of the strict compliance
doctrine and the absence of materiality requirement; indeed, if an undertaking is not mate-
rial to the risk, it could hardly become a causa proxima for the loss. Such disregard to a
causal element can lead to results unjustifiable from the civil law courts’ eyesight. Not sur-
prisingly, in Forsikringsaktielselskapet Vesta v Butcher54 it was called “one of the less at-
tractive features of English insurance law”.

2.4.4 Absolute character of warranty

Although the XVII century courts viewed an absence of fault as an excuse for non-
compliance with warranty55, Lord Mansfield ceased this practice by stating that the ques-
tion of compliance “[…]is a matter of fact; and one that admits of no latitude, no equity of
construction, or excuse”.56 Since then, it is a general rule that “[n]o cause, however suffi-
cient; no motive, however good; no necessity, however irresistible, will excuse non-
compliance” with a warranty.57 Neither fault, nor knowledge, nor even control of the as-
sured matters. This is sometimes described as an “absolute character” of warranty.
However, the MIA s 34(1) provides two exceptions:
(1) The warranty ceases to be applicable to circumstances of the contract: this
provision seems to be quite broad and, at first sight, even resembles materiality require-
ment. The principle here, however, is cessante ratione, cessat lex: the reason for a law
ceasing, the law itself ceases. Hence, to claim this exception, the assured must prove that a
specific state of things, which had exclusively led to introduction of a warranty, has ceased:

53
Dawsons Ltd v Bonnin [1922] 2 AC 413. For more recent case, see Sugar Hut v Great Lakes Re-
insurance (UK) Plc [2010] EWHC 2636, [2011] Lloyd's Rep IR 198
54
Forsikringsaktielselskapet Vesta v Butcher [1989] AC 852, 893
55
Jefferies v Legandra (1692) 4 Mod. 58
56
Bond v Nutt (1777) 2 Cowp 601, 606
57
Arnould,“On the Law of Marine Insurance and Average”, 834

16
an example provided by Sir Chalmers, the drafter of the MIA 1906, is intervention of
peace, which depreciates a wartime warranty to sail with convoy.
(2) The warranty is rendered unlawful by any subsequent law: it is apparent that
a warranty, as any contractual term, should not contradict the public policy. Consequently,
if it is rendered unlawful after the formation of the contract, non-compliance is excused.

2.4.5 Automatic discharge from liability

The strict compliance doctrine, discussed above, is not restricted to warranties. Con-
ditions in the general contractual law also require exact compliance and cannot be substan-
tially performed.58 Hence, for a long time English courts equated insurance warranties to
such conditions.59 However, warranties possess one feature, which distinguishes them from
all other types of contractual terms – a remedy of “automatic discharge”, contained the
MIA 1906 s 33(3):
“[…]the insurer is discharged from liability as from the date of the breach of warran-
ty, but without prejudice to any liability incurred by him before that date”.
This rule has two applications:
(1) If a warranty relates in time to circumstances at inception of the risk, a
breach will result in the contract never coming into existence. Here, a warranty is a condi-
tion precedent to attachment of the risk under the whole policy; if “[t]here was a falsehood,
in respect to the condition of the thing assured; therefore, it was no contract”.60 The premi-
um is, arguably, refundable due to total failure of consideration under the MIA s 84(1).
(2) If a warranty relates to the assured’s future conduct, a consequent breach
has no effect on formation of the contract. The risk under policy has already attached; un-
der s 33(3), the insurer will be discharged from liability only from the date of breach. The
question is, what does the word “discharged” mean?

58
As illustrated by Hoening v Isaacs [1952] 2 All ER 176 and Bolton v Mahadeva [1972] 1 WLR
1009
59
Pawson v Watson (1778) 2 Cowp 785; De Hahn v Hartley (1786) 1 T.R. 343, etc.
60
Woolmer v Muliman (1763) 3 Burr 1419

17
 In 1980, the Law Commission stated that a breach of warranty, similarly to a breach
of condition in the general contract law, entitled the insurer to repudiate the policy: i.e., to
choose whether to continue with the contract or terminate it.61 However, some years later
the House of Lords made a revolving clarification on this point in The Good Luck.62 In this
case, the insurer undertook to advise the mortgagee (bank) promptly if the insurance of the
ship would cease. The ship in breach of a warranty sailed to the Arabian Guff, but the bank
was not notified. Without further investigation, it provided loans to the shipowner and af-
terwards sued the insurer for failure to give prompt notice. In defence, the insurer claimed
that it had not exercised the right to repudiate at the time loans were made – hence, the in-
surance was intact. Lord Goff disapproved this conclusion:
“[p 202] So it is laid down in s 33(3) that, subject to any express provision in the pol-
icy, the insurer is discharged from liability as from the date of breach of warranty. Those
words are clear, they show that discharge of the insurer from liability is automatic and is
not dependent upon any decision by the insurer to treat the contract or the insurance as at
an end[…]
What it does is (as section 33(3) makes plain) is to discharge the insurer from liability
as from the date of breach. Certainly, it does not have the effect of avoiding the contract ab
initio. Nor, strictly speaking, does it have the effect of bringing the contract to an end. It is
possible that there may be obligations of the assured under the contract which will survive
the discharge of the insurer from liability, as for example a continuing liability to pay a
premium”.
The Good Luck acknowledged existence of the exclusive remedy for a breach of
insurance warranty. In contrast with repudiation, which requires the non-breaching party
to make election about the fate of the contract and communicate it, this remedy operates
automatically. Neither party needs to take any steps in relation to it; “the former policy-
holder is suddenly without cover and often quite unaware of it”. 63 The insurer, however,

61
“Insurance Law” (1980) Law Com No104, s 6.3 and others.
62
The Good Luck [1991] 2 Lloyd’s Rep 1
63
M. A. Clarke, “Insurance Warranties: The Absolute End?” (2007) LMCLQ 474.

18
remains liable for losses incurred before the breach, see the MIA 1906 s 34(1); this differs
from the remedy for breach of utmost faith obligations, where the contract is avoided ab
initio.
Lord Goff underlined that in case of automatic termination of the insurer’s liability, it
is not correct “to speak of the contract being brought to an end, though that may be the
practical effect”.64 This conclusion has peculiar consequences in relation to obligation to
pay a premium. In the English insurance law, the premium is deemed to be earned at the
commencement of the policy and, normally, is not returnable, because: “[…]if it [adven-
ture] has commenced, though it be only for twenty four hours or less, the risk is run; the
contract is for the whole entire risk, and no part of the consideration is returned”.65 There-
fore, the assured is not only automatically left without cover in case of a slightest breach of
warranty, but may still be obliged to pay the consequent installments of premium.
It is clear that, even though the onus of proof of non-compliance rests on the insur-
er66, a breach of warranty defence is one of the mightiest weapons in his arsenal. The MIA
1906 envisaged three ways of mitigating the severity of “automatic discharge” doctrine:
(1) S 33(3) provides that the parties can contract out of automatic termination: for in-
stance, by introducing “held covered” clauses into policies;
(2) S 34(1) provides that noncompliance is excused when, by reason of a change of
circumstances, the warranty ceases to be applicable, or when compliance with the warranty
is rendered unlawful by subsequent law;
(3) S 34(3) provides insurers with right to waive a breach of warranty.
This option has been a topic of considerable academic debates.67 In brevi, the English
law recognizes two types of waiver: by election (1) and by estoppel (2). After The Good

Notably, the USA solution is different: the majority view is that breach merely suspends the cover-
age. For further discussion, see Thomas J. Schoenbaum, “Key divergences between English and
American law of marine insurance” (Centreville, Maryland: Cornell Maritime Press, 1999), 148-
150
64
The Good Luck [1991] 2 Lloyd’s Rep 191, 202
65
Tyrie v Fletcher (1777) 2 Cowp666. For recent example, see JA Chapman & Co Ltd v Kadigra
Denizcilik ve Ticaret [1998] Lloyd’s Rep IR 377
66
Barret v Jermy (1849) 3 Exch 535; Bonney v Cotnhill Insurance Co (1931) 40 L1L Rep 39, etc.

19
Luck, the common view is that there is no place for election in the automatic discharge doc-
trine: “It follows that waiver by election can have no application in such a case and the
waiver, therefore, referred to in section 34(3) of the MIA 1906 must encompass waiver by
estoppel”.68
Essentially, a waiver by estoppel is a promise not to rely on breach of warranty as a
defence; the representation to that effect must be unequivocal, and relied upon in circum-
stances “where it would be inequitable for the insurer to go back on his representation”.69
This representation may be either by words or by conduct, but not by silence, as “an auto-
matic discharge which is not required to be perfected by the insurer and inactivity can only
favour preservation of that discharge”.70 From the practical point of view, waiver by estop-
pel puts a heavier burden of proof on the assured. Furthermore, being an equitable remedy,
it introduces an element of discretion in the already complicated warranty regime.

2.4.6 Later remedy is irrelevant

The MIA 1906 s 34(2) states:
“Where a warranty is broken, the assured cannot avail himself of the defence that the
breach has been remedied, and the warranty complied with, before loss”.
Previously, doubts were expressed about general applicability of this rule in marine
insurance. The majority of cases recognized irrelevance of the later remedy71, but in Weir v
Aberdeen72, Abbot CJ stated: “I confess that I was a little surprised at that proposition, be-
cause, if true in point of law, I fear we should find many cases indeed where it would turn
out that the assured could have no claim upon underwrites[…]”. This inconsistency was

67
For extensive analysis of a concept of waiver in the marine insurance warranty regime, see: Baris
Soyer, “Warranties in Marine Insurance”, 155-177.
68
HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2Lloyd’s Rep
161
69
Kosmar Villa Holidays Plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147
70
Sarah Derrington, “The law relating to non-disclosure, misrepresentation and breach of warran-
ty in contracts of marine insurance. A case for reform” (The University of Queensland, 1998), 308
71
DeHahn v Hartley (1786) 1 T.R. 343; Forshaw v Chabert (1821) 3 Br&B 159
72
Weir v Aberdeen (1819) 2 B.& Ald. 320

20
brought to an end by Quebec Marine Insurance Co v Commercial Bank of Canada73, which
criticized the Weir v Aberdeen approach as “a proposition of perilous latitude” and con-
firmed that once a warranty is breached, the later remedy is irrelevant.
From the assured’s perspective, irrelevance of a remedy of breach could lead to a
number of unjustifiable results. First, much depends of a formal construction of a particular
clause: if a provision is construed as a descriptive condition, a remedy of breach reinstates
the insurer’s liability; but if essentially the same provision is construed as a warranty, the
breach results in irreversible discharge. For example, in Farr v Motor Traders Mutual In-
surance74, an obligation to drive a taxi for one shift only was held to be a description of the
risk; hence, when the owner ceased using the cab twice per day, the insurer’s liability re-
sumed – but had it been construed as a warranty, the owner would have been left without
cover. Moreover, if the policy includes a “payment of premium warranty” – an undertaking
that premium installments shall be paid at specified time or rate, and a payment is late, the
assured remains without cover, but still liable to pay each future instalment required by the
policy.
To draw a conclusion, the warranty regime under the MIA 1906 is based on: (1) the
“strict compliance” doctrine, which disregards issues of materiality, causation or fault; and
(2) the “automatic discharge” doctrine, which provides the insurer with an exclusive reme-
dy of automatic termination of liability since the moment of breach. Furthermore, the as-
sured is deprived of possibility to remedy the breach of warranty, once it occurred.

2.5 Implied and express warranties

2.5.1 Implied warranties

Warranties may be classified differently75; the MIA 1906 s 33(2) distinguishes be-
tween implied and express warranties in accordance with their structure. The MIA 1906
names four implied warranties: of seaworthiness (s 39(1)), portworthiness (s 39(2)), car-

73
Quebec Marine Insurance Co v Commercial Bank of Canada (1870) LR 3 PC 234
74
Farr v Motor Traders Mutual Insurance [1920] 3 KB 669
75
For further discussion, see Baris Soyer, “Warranties in Marine Insurance”, 8-10

21
goworthiness (s 40(2)) and legality (s 41), and six “navigation” conditions of similar ef-
fect.76 Due to the limits of this work, only two implied warranties (of seaworthiness and
legality) are briefly discussed below, in order to demonstrate how their regulation deviates
from the general warranty regime.

2.5.1.1 Seaworthiness

The MIA 1906 s 39(1) provides that:

“In a voyage policy there is an implied warranty that at the commencement of the
voyage the ship shall be seaworthy for the purpose of the particular adventure insured”.
According to the MIA s 39(4), a ship is deemed seaworthy “when she is reasonably
fit in all respects to encounter the ordinary perils of the seas of the adventure insured”. Re-
quirement to be fit in “all respects” is far reaching, but does not stand for perfection; the
degree of seaworthiness: “[…]varies with the place, the voyage, the class of ship, or even
the nature of the cargo”77, as well as other factors. Moreover, a warranty of seaworthiness
does not impose a continuing duty on the assured. As Arnould puts it, “it is enough to satis-
fy this warranty that the ship be originally seaworthy for the voyage insured when she sails
on it”.78
The noteworthy restriction is that this warranty does not apply to time policies. As
explained by Gibson v Small79, it would be too problematic to identify a fair moment for
attachment of the warranty; under time policies, the shipowner on many occasions may
have no knowledge or control over a state of the vessel. However, the MIA s 39(5) contains
the special provision for time policies:
“[…]where, with the privity of the assured, the ship is sent to sea in an unseaworthy
state, the insurer is not liable for any loss attributable to unseaworthiness”.

76
See the MIA ss 42, 43, 54, 46, 48 and 49 respectively.
77
Foley v Tabor (1861) 2 F&F 663
78
Arnould, “On the Law of Marine Insurance and Average”, 901
79
Gibson v Small (1853) 4 HLC 353

22
 Notably, the quoted rule is closer to the civil law approach to issue of seaworthiness,
as it has regard both to culpability of the assured80 and causation; the questions is, could
these principles be further extrapolated? For instance, the so-called “American rule” ap-
plies both to voyage and time policies, and consists of two parts: one absolute warranty of
seaworthiness at the commencement of the voyage and one continuing “negative warran-
ty”, similar in operation to the MIA 39(5).81

2.5.1.2 Legality

The MIA 1906 s 41 provides that:

“There is an implied warranty that the adventure insured is a lawful one, and that, so
far as the assured can control the matter, the adventure shall be carried out in a lawful man-
ner”.
Hence, the warranty of legality may be separated in two parts:
(1) Illegality of adventure insured relates to the inception of contract. Adventures
may be rendered illegal, for example, by public policy82; yet more often they are rendered
illegal by statute – either by an express prohibition of a certain type of adventure83, or im-
pliedly. In order to find an implied prohibition, courts must decide: does the statute have an
objective to prohibit a particular action? As explained in Redmond v. Smith84, noncompli-
ance with the statute “passed for a collateral purpose only” does not lead to illegality of the
whole adventure.
(2) Illegality during the performance of the adventure insured refers to subse-
quent misconducts of the assured. Not any illegal action constitutes a breach of warranty: if
it is completely accidental to the marine adventure itself, the breach of warranty cannot be

80
Privity here includes actual knowledge and “turning a blind eye” on truth; see Compania Mariti-
ma San Basilio S.A. v Oceanus Mutual Underwriting Association (Bermuda), Eurysthenes [1976] 2
Lloyd's Rep 171
81
See Trine-Lise Wilhelmsen, “Issues of Marine Insurance”, 149;
Thomas J. Schoenbaum, “Key divergences[…]”, 167
82
Masefield AG v. Amlin Corporate Member Ltd. [2010] EWHC (Comm) 280
83
Darby v. Newton (1816) 128 Eng. Rep. 1146; Wainhouse v. Cowie, (1811) 128 Eng. Rep. 297,
etc.
84
Redmond v. Smith (1844) 135 Eng. Rep. 183. See also St. John Shipping Corp. v. Joseph Rank
Ltd. [1957] 1 Q.B. 267.

23
claimed.85 However, there are hundreds of relevant maritime safety regulations; does viola-
tion of each of them constitute a breach of warranty? It seems that the Australian law gives
an affirmative answer86, in contrast with the English law, which applies here the same test
of “implied prohibition” as for establishing initial illegality. 87 Arguably, the English ap-
proach is preferable, as it limits expansion of the warranty regime.
It is worth noting that, in relation to the continuous warranty of legality, the MIA
1906 s 41 envisages a deviation from the general warranty regime. Namely, it denies the
absolute character of this warranty: if the adventure was out of control of the assured, a
breach is excused. In Cunard v. Hyde88, the assured in such position was granted recovery
even despite the knowledge of illegal actions of the carrier.
Overall, the special rules on seaworthiness and legality modify the general warranty
regime to a certain extent, via referring to issues of causation, privity or control of the as-
sured. Presumably, this demonstrates that English courts and drafters of the MIA under-
stood that, at least in some circumstances, the general warranty regime was capable of pro-
ducing unfair outcomes and should be avoided.

2.5.2 Express warranties

The MIA 1906 s 35(2) provides that in marine insurance, an express warranty must
be included in, or written upon, the policy, or must be contained in some document incor-
porated by reference into the policy. There is plethora of various types of express warran-
ties: the MIA 1906 mentions warranties of neutrality (s 36) and good safety (s 38); the In-
stitute Warranties 1/7/76 establish geographical warranties; Institute Time Clauses - Hulls
(ITCH) 1/11/95 identify:
˗ the towage and salvage warranty (ITCH(95) cl.1.);

85
Bird v. Appleton (1800) 8 TR 562; Royal Boskalis Westminster N. V. v. Mountain [1999] Q.B.
674
86
Doak v. Weekes (1986) 82 FLR 334; Switzerland Insurance Australia v Movie Fisheries Pty Ltd
(1997) 144 ALR 234
87
St. John Shippimg Corp v Joseph Rank Ltd [1957] 1 QB 267. For further discussion, see Baris
Soyer, “Warranties in Marine Insurance”, 127
88
Cunard v. Hyde [1860] 121 Eng. Rep. 1

24
 ˗ the disbursements warranty (ITCH(95) cl.22);
˗ the classification clause (ITCH(95) cl.4.1), which imposes on the assured a duty to
ensure that the ship possesses and maintains her class.
Although the Classification Clause is not expressly referred to as “warranty”, the
ITCH(95) cl.4.2 implies that conclusion by providing a remedy of automatic termination of
liability in case of breach, in full accordance with the MIA s 33(3) and The Good Luck89
doctrine; though “if the Vessel is at sea at such date the Underwriters' discharge from lia-
bility is deferred until arrival at her next port”. In addition, cl.5.1 refers to automatic termi-
nation of contract in case of breach of duties under cl.4.1; cl.5.2 envisages the same effect
for any change of ownership, flag, management, charter on a bareboat basis, or requisition
of the Vessel. Notably, the issues of classification and materiality are so fundamental for
insurance contracts, that even some civil law countries introduced the warranty-like regime
for them.90

Overall, after considering the main characteristics of the warranty regime under the
MIA 1906, it is safe to conclude that warranties are the powerful instrument of the risk ad-
ministration for the insurer. The severity of the warranty regime can even be superfluous,
as it does not allow considerations of materiality, causation or culpability to improve a po-
sition of the assured. Although there are exemptions and deviations from the general rules
(for example, the MIA s 39(5) and s 41), as well as mitigation instruments (waiver, “held
covered” clauses, etc.), outcomes of individual cases may still be unjustifiable. However, is
it possible to avoid use of warranties completely? Here, experience from the civil law coun-
tries could be relevant; a perfect example is Norway, where a comprehensive set of marine
insurance rules is embodied in the agreed document, with a balanced approach to interests
of assureds and insurers – the Nordic Marine Insurance Plan.

89
The Good Luck [1991] 2 Lloyd’s Rep 191
90
For further discussion, see Chapter 3, s 3.

25
 3 Norwegian approach to alteration of risk
Insurance relationships in Norway are primarily regulated by the general Insurance
Contracts Act (ICA) 1989. However, under Section 1-3(c) and (e), the ICA is not mandato-
ry for insurance that relates to ships, which are subject to registration according to the
Norwegian Maritime Code 1994, or goods in international transit. Hence, the most signifi-
cant role in marine insurance is left to marine insurance plans: standardized conditions
drafted jointly by insurers, assureds and other interested parties. The latest version of these
conditions is the Nordic Marine Insurance Plan (NMIP) 2013, based on the Norwegian
Marine Insurance Plan 1996. Although the NMIP is not binding for parties until incorpo-
rated into contract, it explicitly illustrates the common practices of the Norwegian insur-
ance market.

3.1 General provisions on alteration of risk

Norway, as the majority of civil law countries, has adopted the doctrine of alteration
of risk to regulate a continuing duty of the assured not to undermine fundamental estima-
tions behind the insurance contract. Provisions on alteration of risk in the NMIP are divided
into two groups: general regulations, § 3-8 to 3-13, and special rules, § 3-14 to § 3-21.
Conceptual definition of alteration of the risk is provided by the NMIP, § 3-8, 1st para-
graph:
“An alteration of the risk occurs when there is a change in the circumstances which,
according to the contract, are to form the basis of the insurance, and the risk is thereby al-
tered contrary to the implied conditions of the contract”.
Therefore, a “true” alteration of risk is distinguished from irrelevant changes of cir-
cumstances by two criteria91:
(1) There must have been a change of a fortuitous nature. Such “change” may in-
clude both the alteration of subject matter insured, and the pure increase of risk; yet, simi-
larly to the English approach, a mere increase of intensity of a peril insured will not consti-
tute an alteration of risk;

91
See Commentary to the NMIP § 3-8

26
 (2) The change must amount to frustration of the fundamental expectations up-
on which the contract was based. Here, a construction of the policy in accordance with
general principles of the insurance and contract law is needed to decide, whether it would
be reasonable to give the insurer opportunity to apply the sanctions provided in the NMIP.
Speaking of sanctions for alteration of risk, professor Trine-Lise Wilhelmsen argues
that the civil law jurisdictions normally connect them with the following issues92:
(1) Culpability of the assured;
(2) How the insurer would have reacted had he known about the alteration of risk
when the contract was entered into;
(3) How the alteration of risk has influenced the casualty or the extent of the loss.
Hence, the questions of culpability, materiality and causation are taken into account
in different proportions, in contrast with the English warranty regime. The civil law ap-
proach is reflected in the NMIP § 3-9, which provides that if the assured intentionally
caused or agreed to an alteration of the risk, further sanctions will depend on the degree of
subjective materiality of the alteration to the insurer:
(1) If the insurer would not have accepted the insurance, had he known of alteration
in advance, the contract is not binding for him. The Commentary to the NMIP § 3-9, with
reference to § 3-3, further clarifies that there is no need for the insurer to additionally can-
cel the contract to avoid future liability93;
(2) If the insurer would have accepted the risk, but on different terms, then it is possi-
ble for him to avoid liability only if there is a causal link between the loss and the altera-
tion.
Furthermore, the NMIP § 3-10 provides that if an alteration of the risk occurs, the in-
surer has a right to cancel the insurance for future by giving a fourteen days’ notice, when-
ever the alteration was caused by the assured or by circumstances outside of his control.94
Nevertheless, the NMIP 3-12 1st paragraph precludes the insurer from invoking both § 3-9

92
Trine-Lise Wilhelmsen, “Issues of Marine Insurance”, 117
93
The NMIP § 3-13, however, requires the insurer to give notice of his intentions to invoke § 3-9
94
Trine-Lise Wilhelmsen, Hans J. Bull, “Handbook in Hull Insurance” (Gyldendal Akademisk,
2007), 156

27
and § 3-10 if the alteration of the risk has ceased to be material to him. Consequently, the
Norwegian approach, as opposed to English one, generally does not allow reliance on im-
material changes of risk.

3.2 Special provisions on alteration of risk

As mentioned above, the NMIP contains special provisions for certain types of altera-
tions of risk in § 3-14 to § 3-21. Previously, § 3-22 of the Norwegian Plan 1996 regulated
the duty of the assured to ensure the ship’s seaworthiness “at such a time that it would have
been possible for him to intervene”.95 In 2007, in accordance with the newly adopted Ship
Safety and Security Act, this rule was avoided. Those defects that previously would have
rendered the ship unseaworthy, nowadays will normally represent a breach of safety regula-
tions.96 This amendment, however, was not detrimental to the assured’s position, as pres-
ence of both causation and fault is necessary to invoke the breach of safety regulation.97
Arguably, there is also an implied requirement of materiality, because a minor or irrelevant
breach is not likely to cause the loss.
The NMIP § 3-16, which addresses illegal activities, also requires culpability of the
assured and causal connection between breach and loss to free the insurer from liability.
However, the NMIP knows exceptions from these general requirements. First, there are
three provisions with a suspensive effect, which resemble “conditions descriptive of the
risk” in the English insurance law:
(1) Sailing in excluded trading areas (§ 3-15, 3rd par.);
(2) Suspension of the insurance in the event of requisition (§ 3-17);
(3) Removal of the ship to a repair yard (§ 3-20, 2nd par.)
Furthermore, there are two provisions on loss of main class (§ 3-14) and change of
ownership (§ 3-21), which provide a remedy of automatic termination of the insurance
without regard to elements of causation or fault. Although they are not expressly called

95
Cf. the MIA 39(5)
96
The NMIP § 3-22 – 3-28
97
See the NMIP § 3-25, 1st sentence

28
“warranties”, there is little doubt that these provisions were designed under the influence of
the warranty regime.

3.3 Warranty-like provisions

The reason for introduction of the warranty-like provisions on loss of the main class
and change of ownership in the NMIP § 3-14 and § 3-21 rests in a fundamental character of
these issues to marine policies. Presumably, loss of class and change of ownership of the
vessel affect the essence of insurance so significantly that, even if the assured were not
blameworthy for such alteration98, it would be unfair to keep the insurer up to his original
promise.
(1) The NMIP § 3-14 provision on loss of the main class, analogous to the
ITCH (95) cl.4.1.1, envisages both:
˗ The affirmative warranty that the vessel has class at the inception of insurance (§ 3-
14 1st paragraph). In case of breach, the insurer never comes at risk under the policy;
˗ The continuous duty of the assured to maintain the main class (§ 3-14 2nd paragraph).
In case of breach, the policy automatically terminates, cf. the ITCH (95) cl.5.1.
(2) The NMIP § 3-21 provides that “the insurance terminates if the ownership of the
ship changes by sale or in any other manner”. The assured’s continuous undertaking to
maintain ownership is significantly narrower than the ITCH (95) cl.5.2, and does not em-
brace situations of requisition (the NMIP § 3-18), change of flag or management (the
NMIP § 3-8 2nd paragraph), and so on.
It should be underlined that neither the NMIP § 3-14, nor the NMIP § 3-21 make a
difference between “termination of the insurance [contract]” and “discharge from liability”,
which is the true remedy for a breach of warranty in the English insurance law.99 The dif-
ference may be relevant in relation to surviving duties of the assured: for example, to pay
the premium. Nevertheless, such aspects of these provisions, as disregard to causation and

98
Cf. the general rule in the NMIP § 3-9
99
The Good Luck [1991] 2 Lloyd’s Rep 191; cf. the ITCH (95) cl.4.2 and 5.1

29
culpability of the assured, resemble the English warranty regime and represent a huge de-
parture from the general system of the NMIP.
In traveaux preparatoires for the ICA, legislators expressed considerable skepticism
about the place of warranties in the Norwegian insurance; it was noted that in individual
cases courts might apply Section 36 of the Contracts Act (Avtaleloven), regarding unrea-
sonable contracts, to set aside warranty clauses.100 However, such outcome seems rather
unlikely: first, courts are reluctant to apply Section 36 to contracts between professional
parties, which are the majority of marine insurance policies. Next, the NMIP § 3-14 and §
3-21 in particular are provisions of the agreed document, and courts may not want to dis-
turb its inner balance. The fact that analogous warranties exist in other jurisdictions may
also be relevant.
A breach of warranty provision has not been frequently claimed before Norwegian
courts. In ND 1981.347 Vall Sun, the P&I insurer argued that it was an implied condition
for membership in the insurance group – hence, a condition precedent to the insurance cov-
er (warranty) – that the ship had class. As Vall Sun was deprived of her class at the time of
the casualty, the insurer was free from liability, regardless of causation between the loss of
class and the casualty. The court disagreed, on following grounds:
(1) In this particular case, the cancelation of class occurred from a pure misunder-
standing between the assured and the classification society, so that the court found it more
just to disregard it completely.101 Arguably, the position of English courts would be stricter
in this respect102;
(2) Even if class was lost, the Norwegian Plan 1964, § 31 2nd subparagraph, expressly
stated that such loss was a general alteration of risk, which only entitled the insurer to can-
cel insurance after notice (§ 33). As the NMIP 2013 § 3-21 provides another solution, now-
adays the insurer presumably might have been more successful. For instance, in Tor Hol-

100
“The use of warranties in Norwegian marine insurance”, Wikborg Rein’s Shipping Offshore
Update 1/2009, 6-7
101
ND 1981.347, 361
102
See Chapter 2, s 2.4.4

30
landia103, the court not only construed a contractual provision as a warranty, but also con-
firmed that to trigger legal effects of its breach, causal link between the breach and the loss
was not required. That could be a step towards recognition of the utility of warranties in the
Norwegian insurance.

Overall, apart from few exceptions, the Norwegian approach to alteration of risk is
based on notions of materiality, causation and, to some extent, culpability of the assured.
This demonstrates that insurers can be provided with a sufficient legal protection without
the shelter of the extensive warranty regime. Hence, many minds have searched in the
Norwegian experience an impulse for reform of marine insurance in the common law coun-
tries.104

4 Reform of the warranty regime

4.1 Critique and support of warranties

4.1.1 Drawbacks of warranties

The superfluous severity of the warranty regime in the insurance law could not have
passed unnoticed. For a long time, it draw critique of academics, market players, and even
judicial authorities. In Hussain v Brown105, Saville LJ described warranties as “draconian
terms”, because “[t]he breach of such a warranty produces an automatic cancellation of
cover, and the fact that a loss may have no connection with that breach is irrelevant”.
In 1980 Report, the Law Commission concluded that the law relating to non-
disclosure and breach of warranty was “undoubtedly in need of reform”; in particular, it
appeared unjust that106:

103
Tor Hollandia (2008) Oslo City Court (Tingrett) 07-139941TVI-OTIR/06
104
See: Baris Soyer, “Warranties in Marine Insurance”, Chapter 7.V; Sarah Derrington, “The law
relating to non-disclosure[…]”, Chapter 9.3; Consultation paper No182 (2007) s 7.62, etc.
105
Hussain v Brown [1996] 1 Lloyd’s Rep 627, 630
106
“Insurance Law” (1980) Law Com No104, ss 6.9(a), 6.9(b) and 7.2 respectively

31
 (1) An insurer could demand strict compliance with a warranty which was immaterial
to the risk (no materiality requirement);
(2) An insurer could reject a claim for any breach, no matter how irrelevant that
breach to the loss (no causation requirement);
(3) In respect of “basis of the contract” clauses, an insurer could avoid the liability
upon purely technical grounds.
In 2006 Issues paper, the Law Commission has referred mostly to the same flaws of
the warranty regime, adding that it seems unjust that107:
(1) An insurer may refuse to pay a claim, though the breach has been remedied (ir-
relevance of later remedy);
(2) An insurer is entitled for the whole amount of premium despite the termination of
cover, which appears especially unfair in case of breach of so-called “premium warran-
ties”.108
Therefore, the typical characteristics of insurance warranties may turn them into a
source of striking injustice to the assured, “technical traps for the benefit of the insurer
written into the fine print of policies which are not worth the paper upon which they are
written”.109 The problem is not merely theoretical: Mactavish, the British research group
on insurance governance, in 2014 reported that warranties were the third most common
ground for insurance disputes.110
Another reason for concern rests in the process of internationalization of the insur-
ance law. It is viewed mostly as a distant perspective, but the Law Commission agrees that
there are European initiatives, which may eventually influence framework of the insurance
law. However, many English practices are perceived in the civil law countries as both “un-
fair and unusual”.111 The warranty regime is especially problematic, as the prospect of leav-
ing the assured without cover for a minor and/or non-causative breach is rather peculiar for

107
Issues paper 2 “Warranties” (2006), ss 5.3 and 7.77 respectively
108
See discussion in Chapter 2, s 2.4.5
109
John Hare, “The Omnipotent Warranty: England v The World”, 53, with reference to Zurich
Insurance Company v Morrison [1942] 1 ER 529 and Anderson v Fitzgerald (1853) 10 ER 551
110
The Law Commission Report No 353 (2014), s 14.5
111
Consultation paper No182 (2007) ss 1.84-1.85

32
continental systems. Even the common law countries have revised the traditional approach
to certain extent.112 Hence, the warranty regime, as codified by the MIA 1906, creates a
hindrance for harmonization of the insurance law.
A perfect illustration of collision between the English and the civil law approaches is
Vesta v Butcher113, where a Norwegian fish farm was insured against the loss of fish under
the Norwegian law, but the risk was reinsured in London. The policy contained a condition
of keeping a constant watch, which was never complied with; however, there was no causa-
tion between non-compliance and the subsequent loss of fish in a storm. The Norwegian
insurer paid, while the English underwriters claimed a breach of warranty. Remarkably, the
House of Lords was able to sidestep this defence only by stating that, in this particular case,
the reinsurers had agreed to cover all risks embraced by the original policy.
Finally, English insurance companies should also be interested in keeping the London
market in accord with international standards, in order to preserve its attractiveness for new
clients. For instance, the Association of British Insurers (ABI) confirmed that a reform re-
lating to the consequences of a breach of warranty was necessary, though “in business in-
surance the guiding principle should be freedom of contract”.114

4.1.2 Benefits of warranties

Nevertheless, some respondents advocated before the Law Commissions in the UK
and in Australia that warranties are a necessary feature of insurance contracts. In sum, the
arguments presented on this point are115:
(1) Safety: warranties serve as a measure to promote high standards of the assured’s
performance in respect of seaworthiness, legality, compliance with class recommendations,
and so on. Hence, an abolition of warranties could lead to unwanted relaxation in these

112
See, for example, New Zealand’s Insurance Law Reform Act 1977, s 11; Australian ICA 1984, s
54
113
Forsikringsaktieselkapet Vesta v Butcher [1989] AC 852
114
Report No 353 (2014), s 14.13
115
Ibid, ss 14.17-14.22; “Review of the Marine Insurance Act 1909”, ALRC Report 91 (2001), ss
9.23-9.37

33
areas. As counterargument, it may be said that such public policy issues should not be
dealt with through the regulation of private contractual relationships.
(2) Simplicity: warranties help to avoid a burdensome process of proving the pres-
ence of elements of causation and culpability. However, this advantage has one-sided char-
acter, as it primarily benefits the insurer.
(3) Contractual freedom: the MIA s 33(3) allows the parties to contract out of con-
sequences of breach envisaged by statute. Yet it should be remembered that shipowners
and even brokers have different levels of expertise: they may simply miss a true meaning of
the policy clause, especially if it is drafted without the use of the word “warranty”.
(4) Industry self-regulation: insurers frequently claim that interference into the war-
ranty regime is not needed, because they already tend to avoid reliance on minor or non-
causative breaches. Although such practice exists116, its non-obligatory character exposes
the assured to the insurer’s discretion.
However, there is a number of other methods adopted by courts and by actors of the
insurance industry in England and other common law countries in order to ameliorate the
warranty regime. It is worth examining them prior to a discussion of legislative reforms.

4.2 Attempts to mitigate the warranty regime in the UK and other common
law countries by judicial interpretation of policy and introduction of
special policy provisions

4.2.1 Construction of policy by courts

There are two main methods of mitigating the harsh consequences of a breach of war-
ranty: the policy itself may contain special provisions to this effect, or it could be done
through judicial interpretation of contractual clauses. For that purpose, the common law
courts have adopted two approaches:
(1) Restrictive construction of warranty;
(2) Construction of warranty as other contractual term.

116
For further discussion, see Chapter 4, s 4.2.2.3.

34
4.2.1.1 Restrictive construction of warranty

For a long time the common law courts have recognized that, due to the severity of
the warranty regime, its applicability must be restricted by judicial interpretation: i.e., any
ambiguity in a warranty should be construed in accordance with the contra proferentum
rule. The essence of this rule in marine insurance context was explicitly formulated in Win-
ter v Employers Fire Insurance Co117: “[…]marine contracts are strictly construed against
the insurer and favorably to the insured, and where two interpretations are possible, that
which will indemnify the insured will be adopted”.
Supportive principles of restrictive construction may be summarized as follows118:
(1) If insurers wish a warranty to have draconian consequences, “then it is up to them
to stipulate for it in clear terms”119;
(2) If the literal wording of a warranty is inconsistent with a reasonable and business-
like interpretation, it is likely that the parties have not intended such result;
(3) A literal interpretation of a warranty must not be inconsistent with other policy
terms;
(4) Furthermore, a warranty may be construed as being relevant to only some risks
covered in the policy. For example, in Printpak v AGF Insurance Ltd120, the policy was
divided into different sections; the court found that the warranty to install a burglar alarm
referred only to the theft section, but not to fire risks. However, this principle has limited
application: in Sugar Hut121, the policy covered four nightclubs. The court stated, obiter,
that as four places were the subject matter of one insurance, the breach of warranty in one
club would leave all of them uncovered. Therefore, even restrictive construction of warran-
ty clauses could not always help the assured.

117
Winter v Employers Fire Insurance Co [1962] 2 Lloyd’s Rep 320, 323
118
Based on Consultation paper No204 (2012), s 12.46
119
Hussain v Brown [1996] 1 Lloyd’s Rep 627, 630
120
Printpak v AGF Insurance Ltd [1999] Lloyd’s Rep IR 542
121
Sugar Hut v Great Lakes Reinsurance (UK) Plc [2010] EWHC 2636, [2011] Lloyd's Rep IR
198

35
4.2.1.2 Construction of warranty as suspensive condition

The second method of mitigation adopted by courts is that a clause may be construed
not as a warranty, but as other contractual term – namely, a condition descriptive of the
risk. Non-compliance with such condition only suspends the insurance cover, which pro-
vides the assured with an opportunity to remedy the breach. English courts have applied
this reasoning in a number of non-marine insurance cases.122 In the recent Kler Knitwear v
Lombard General Insurance Co Ltd123, the contract expressly stated that an undertaking to
have sprinklers inspected in 30 days was a warranty; non-compliance was described as
terminating the cover “whether it increases the risk or not”. Despite the fact that the word-
ing of the policy was so precise, Mr Justice Morland held that the term was a suspensive
condition, because it would “be utterly absurd and make no rational business sense” to con-
strue it as a warranty.
Kler Knitwear decision raised considerable criticism.124 If the clearest language of the
policy may be viewed as not indicative of the parties’ intentions, an uncertainty about legal
effects of contractual provisions is created. Moreover, limits of application of this method
of judicial interpretation are blurred, as demonstrated by two cases: The Newfoundland
Explorer125 and The Resolute126. In both cases, the vessels were warranted crewed “at all
times”; the loss occurred while they were either berthed or safely tied up. In The New-
foundland Explorer, the court construed the clause literally, including time at berth; in The
Resolute, the warranty was held to refer only to navigation time. Hence, although the courts
have benevolent intentions and try to reach fair outcomes in individual cases, they intro-
duce inconsistency into the insurance law.

122
See Farr v Motor Traders’ Mutual Insurance Society Ltd [1920] 3 KB 669; Provincial Insur-
ance Company Ltd v Morgan & Foxton Coal [1933] AC 240
123
Kler Knitwear v Lombard General Insurance Co Ltd [2000] Lloyd’s Rep IR 47
124
See, for example, Consultation paper No204 (2012), s 12.50
125
GE Frankona Reinsurance Ltd v CMM Trust No 1400 (The Newfoundland Explorer) [2006]
EWHC 429
126
Pratt v Aigion Insurance (The Resolute) [2008] EWCA Civ 1314

36
4.2.1.3 Role of courts in other common law jurisdictions

The majority of common law countries share a tendency of “[…]increasingly discard-

ing the more extreme features of English law which allow an insurer to avoid liability on
grounds which do not relate to the occurrence of the loss”.127 Partially, it is due to attempts
of local courts to ameliorate the “classical” warranty regime.
In Canada, courts are inclined to find a term to be a “true warranty” only in “situa-
tions where the warranty is material to the risk and the breach has a bearing on the loss”.128
This is illustrated by The Bamcell II case129, where the policy contained a clause “warrant-
ed that a watchman is stationed on board the Bamcell II each night”. The court construed it
as a suspensive condition, applicable only at night; so, despite the breach, the insurer was
liable for the loss, which occurred during daytime. This practice, however, is criticized on
the same footing as Kler Knitwear: as harming a fine line between warranties and other
types of policy terms.130
In the USA, a break with the English approach began with Wilburn Boat case131,
where The Supreme Court held that marine insurance contracts were governed by state law.
As the result, nowadays a status of warranties differs from state to state. For instance, in
Texas a causal connection test is adopted, while in New York it is required that warranties
must materially affect the risk.132
Overall, judicial authorities throughout the common law world have supported the
idea of taking into considerations an immaterial and non-causative character of the breach.
It allows to provide justice in individual cases, but on a greater scale, the law becomes
more uncertain and unpredictable. Therefore, other ways of amelioration of the warranty
regime are required.

127
Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd and others (The Star Sea) [2001]1 All
ER 743, para 79
128
Christopher Giaschi, “Warranties in Marine Insurance”, Association of Marine Underwriters of
British Columbia, Vancouver, 10.04.1997
129
Century Insurance Company of Canada v Case Existological Laboratories Ltd (The Bamcell II)
(1980) 133 DLR (3d) 727
130
Baris Soyer, “Warranties in Marine Insurance”, 205
131
Wilburn Boat Co v Fireman’s Fund Ins [1955] AMC 467
132
For further discussion, see Thomas J. Schoenbaum, “Key divergences[…]”, Chapters 2, 6

37
4.2.2 Self-regulation of the industry

4.2.2.1 “Held covered” clauses

The harsh outcomes of the warranty regime may be avoided at the stage of formation
of the policy. One option for those who wish to contract out of the statutory envisaged con-
sequences of a breach is to use “held covered” clauses.133 The typical effect of such provi-
sion is that, in case of a breach of a specified warranty, the insurance cover will continue
under two conditions: (1) a notice must be given to the insurer; (2) essential variations to
the contract (i.a., concerning premium) must be renegotiated. If there is disagreement be-
tween the parties on the last point, the assured may end up uncovered.134 Hence, the mitiga-
tion offered by “held covered” clauses has certain limits.

4.2.2.2 The International Hull Clauses 2003

In the attempt to ameliorate marine insurance practices, the London market has pro-
duced the International Hull Clauses (IHC) 2003. One of the objectives of these Clauses is
a more balanced approach to the warranty regime. Primarily, the navigation provisions are
not construed as warranties, in contrast with the ITCH(95) cl.1 and the Institute Warranties
1/7/76. Under the IHC 2003 (cl.10-11), navigating outside permitted areas leads only to
suspension of cover. Moreover, restriction of cover is envisaged for a failure to comply
with the specified statutory or Class requirements (cl.14.4.1 –14.4.2): i.e., insurers shall not
be liable for any loss “attributable to such breach”.
Reduction of a number of warranties and limited introduction of a causation element
were welcomed among academics.135 Nevertheless, it should be remembered that the
Clauses are not obligatory; their incorporation into insurance policies depends on free will
of the parties.

133
For example, Clause 3 of the ITCH (95)
134
For further discussion, see Baris Soyer, “Warranties in Marine Insurance”, 165-166
135
Andrew Longmore, “Good faith and breach of warranty: are we moving forwards or back-
wards?”, LMCLQ (2004), 162

38
4.2.2.3 Non-marine insurance: the Statement of General Insurance Practice 1986

Notably, the Association of British Insurers (ABI) in Section 2(b)(iii) of the State-
ment of General Insurance Practice (SGIP) 1986 indicated that the insurer should not ap-
peal to a breach of warranty “where the circumstances of the loss are unconnected with the
breach unless fraud is involved”. Therefore, insurers were recommended not to rely on
technical (non-causative) breaches, except for situations when “they suspect fraud but are
unable to prove it”.136
Non-compliance with the SGIP 1986 could be detrimental to the insurer’s reputation;
however, this document is not supported by legal enforcement. Furthermore, the SGIP
1986 does not concern marine insurance: here, the assured depends on the insurer’s deci-
sion to adopt a similar practice independently and adhere to it.137

In sum, the fact that marine insurance warranties allow the insurer to rely on any
breach, regardless of its relation to the loss, is a widely acknowledged problem. Both judi-
cial authorities and actors of the insurance industry have developed various instruments for
amelioration of the warranty regime codified in the MIA 1906. Among them are: mitigat-
ing interpretation of policies by courts, adaptation of special provisions by contracting par-
ties, and even insurers’ self-implied restrictions. However, neither of these solutions seem
final, as they leave too much to the discretion of courts, or insurers. Therefore, a need for a
legislative reform has been recognized in the UK.

4.3 Legislative reform of the warranty regime in the UK

4.3.1 Previous proposals for reform in the UK

In 1980, the Law Commission introduced an ambitious project of revision of the Eng-
lish insurance law. One of its main concerns was unjustified use of warranties to deny cov-
er: (1) when a warranty was not material to the risk; (2) or when a breach of even material

136
“Insurance Law” (1980) Law Com No104, s 6.10
137
Switzerland Insurance Australia v Movie Fisheries Pty Ltd (1997) 144 ALR 234

39
warranty was irrelevant (non-causative) to the loss.138 For that reason, the Law Commis-
sion recommended that the assured should be able to raise the following defences against a
claim that a warranty was breached:139
(1) The warranty in question was not material to the risk: i.e., it would not have in-
fluenced a prudent underwriter’s assessment of the risk;
(2) The warranty had another commercial purpose: i.e., it was introduced against
the risk “which does not include the event which gave rise to the claim”;
(3) The breach of warranty could not have increased the risk that the event, which
gave rise to the claim, would occur in the way in which it did in fact occur. Although this
proposal is sometimes referred to as a “causation test”, it may be more correct to describe it
as an extended materiality requirement. There may be a number of situations where a
breach increases the risk in general without causing or contributing to the particular loss.140
These proposals were not implemented in practice due to resistance of the industry;
but even if they were, neither of them related to marine, aviation and transport (MAT) in-
surance. The Law Commission was of a view that long-established rules worked satisfacto-
ry for MAT and created “a context of certainty of law and practice”. 141 However, the situa-
tion has changed since 1980. The share of the London insurance market on the international
scale has decreased, while other markets, such as Norwegian one, have gained attractive-
ness, partially due to more balanced solutions for issues of alteration of risk.142 Hence, the
need for a thorough reform of the warranty regime was acknowledged, at least in order to
bring the English law “closer in line with international standards”.143

138
“Insurance Law” (1980) Law Com No104, ss 6.9(a), 6.9(b)
139
Ibid. The Draft Bill, clauses 8(1), 10(5)(a) and 10(5)(b) respectively
140
See, for example, Issues paper 2 “Warranties” (2006), ss. 7.72 – 7.73; cf. Report No 353 (2014),
s 14.23
141
“Insurance Law” (1980) Law Com No104, s 2.8
142
Baris Soyer, “Warranties in Marine Insurance”, 205
143
Consultation paper No204 (2012), s 16.3

40
4.3.2 Legislative reforms in other common law countries
Although the common law world inherited the English approach to insurance warran-
ties, in New Zealand and Australia it was revised with the help of legislative reforms. The
experience of these counties, as well as various attitudes to issues of materiality and causa-
tion, were taken into account by the UK legislators during the recent reform.

4.3.2.1 New Zealand

In New Zealand, the warranty regime has been reformed by Section 11 of the Insur-
ance Law Reform Act 1977. It is a complicated provision, which relates not only to warran-
ties, but also to conditions descriptive of the risk or excluding liability. In sum, if there was
an event or a change in circumstances of subjective materiality to the insurer, he remains
liable, “if the insured proves on the balance of probability that the loss in respect of which
the insured seeks to be indemnified was not caused or contributed to by the happening of
such events or the existence of such circumstances”.
This formula is broader than mere causation requirement, especially in light of the
causa proxima doctrine, and more lenient towards insurers. However, Section 11 has drawn
criticism as too insured-friendly: in 1998, the New Zealand Law Reform Commission
(NZLRC) proposed that a causal connection test should not apply to a provision which:
(1) defines the age, identity, qualifications or experience of a driver, a pilot, or an op-
erator of a chattel;
(2) defines the permitted geographical area;
(3) excludes loss for use of a vehicle, aircraft or other chattel for commercial purpos-
es.144
The possible rationale behind this proposal is that the listed circumstances actually
mark the scope of the risk indemnified under the policy, so that every change of them
equals going outside of this scope. Even the civil law countries know examples of special
provisions, comparable in effect: see, for instance, the NMIP 3-15, 3rd paragraph, on sus-
pension of cover during the sail in excluded trading areas. The question is, however, what

144
“Some problems of insurance law” (1998) NZLRC No 46, Ch1

41
exceptions from the causation test are justified? Some of the proposals of the NZLRC
might seem rather arbitrary; this problem was taken into account during the recent reform
in the UK.145

4.3.2.2 Australia

In contrast with the NZ Act 1977, the Australian Insurance Contract Act (ICA) 1984
does not govern marine insurance. Nevertheless, it is worth mentioning that Section 54 of
the ICA 1984 introduces both materiality and causation requirements for non-compliance
with terms that exclude or restrict cover. The insurer may not refuse to pay if:
(1) The insured’s act could not reasonably be regarded as being capable of causing
or contributing to the loss (Section 54(2)); or
(2) The insured proves that the loss (isolated part of it) was not caused by its act
(Sections 54(3) and 54(4)).
The Australian Law Reform Commission (ALRC) found Section 54 generally unsuit-
able for marine insurance, but acknowledged that “[i]t is not equitable to allow an insurer
the right to avoid liability where there is only a minor or immaterial breach”; hence, a caus-
al link between the loss and the breach of warranty should be required in form of the causa
proxima, “a well understood insurance law concept”.146 Although this proposal was not
applied in practice, it demonstrates willingness of the Australian market to introduce an
element of causation into the warranty regime.

4.3.3 2006-2015 reform process in the UK

Despite extensive non-legislative and legislative attempts to mitigate the warranty re-
gime, for a long time the relevant MIA 1906 provisions have remained a source of potential
injustice.147 Therefore, in January 2006, the UK Law Commission and the Scottish Law
Commission started a joint project devoted to reformation of the English insurance law.
Their aim was to review its most unfair and outdated traits, including the legal effects of

145
See Chapter 4, s 4.3.3.1.
146
“Review of the Marine Insurance Act 1909”, ALRC Report 91 (2001), ss 9.120-9.127
147
See discussion in Chapter 4, s 4.1.1.

42
warranties. According to a content of the Commissions’ proposals, they can be separated
into two groups:

4.3.3.1 2006-2007 proposals

At the first stage of work, the UK Law Commission prepared Issues Paper 2 “War-
ranties” (November 2006) and Consultation Paper No182 “Misrepresentation, Non-
disclosure and Breach of Warranty by the Insured” (July 2007). Their distinguishing fea-
ture was the proposal to introduce a causation element into the warranty regime. That,
according to the Law Commission, was the necessary step to defeat “the greatest and most
obvious problem with the law on warranties” – i.e., a termination of cover “for technical
breaches that have nothing to do with the loss in question”.148
Originally, the Law Commission was prepared to adopt the New Zealand “purposive
approach” and introduce the causation test not only for warranties, but also for other terms
“that enable the insurer to refuse to pay a claim for events or circumstances that add to the
risk of loss” (descriptive conditions).149 However, in 2007 the proposal was limited to war-
ranties “in the narrow sense”.150 This decision was partly inspired by New Zealand theory
that the causation element is unfit for terms defining age, experience, etc. Therefore, it was
feared that the causation test, common to both types of terms, would require a blurry list of
exclusions.
The other question was, what degree of causation must be sufficient to discharge the
insurer from liability? Again, the Law Commission considered experience from the UK and
other common law countries. The 1980 Report’s proposal that the relevant breach of war-
ranty should “increase the risk”, was considered to be too unfavorable to the assured. In
contrast, the Australian approach that required the loss to be “caused” by the breach was
considered too generous, because it implied that the breach must be “a dominant or major
cause of the loss”.151

148
Issues paper 2 “Warranties” (2006), ss 7.66-7.67
149
Issues paper 2 “Warranties” (2006), s 7.88
150
Consultation paper No182 (2007) ss 8.4, 8.39
151
Ibid, ss 7.71-7.75

43
 The Law Commission stated that to discharge the insurer from liability, it should be
enough that the breach contributed “in any way to the accident”; hence, it adopted the for-
mula, which was closer to New Zealand approach:
“[T]he policyholder should be entitled to be paid a claim if it can prove on the bal-
ance of probability that the event or circumstances constituting the breach of warranty did
not contribute to the loss”.152
By comparison, the NMIP, in cases of combination of perils, distinguishes between
relevant and non-relevant causes; as Commentary to § 2-13 1st par. indicates, the lower
limit required for an effect of a cause to be “relevant” is circa 10-15%. Apparently, the rule
envisaged by the Law Commission sets a lower limit: from the literal wording of the Pa-
pers, it follows that even a breach of warranty with 1% contribution to the loss terminates
insurance cover. However, those are only theoretical speculations, as English courts did not
have a chance to apply the rule in practice.
The 2006-2007 proposal to introduce the causation test into the warranty regime trig-
gered a mixed reaction. In academic circles, this idea received an extensive support; as Sir
Longmore (Lord Justice of Appeal) noted, “most commentators appear to think that it
would be sufficient if the law were reformed to allow insurers only to rely on breach of
warranty if the breach is a cause of the loss”.153 Several consultees related to the industry
were also supportive: for instance, AIRMIC (the UK association for risk and insurance
management professionals) called such reform an “essential change to insurance contract
law”.154
On the other hand, many respondents presented arguments against the proposal,
namely155:

152
Consultation paper No182 (2007) s 8.45
153
Andrew Longmore, “Good faith and breach of warranty”, 163. See also Baris Soyer, “Warran-
ties in Marine Insurance”, 215; Sarah Derrington, “The law relating to non-disclosure[…]”, 346
154
Consultation paper No204 (2012), ss 14.20-14.58, s 14.37
155
Ibid, 14.39-14.50

44
 (1) Causation is a difficult principle to apply in practice, because it requires a
closer assessment of a chain of events. What is more, insurers might try to compensate in-
creased investigation costs through higher premiums;
(2) The causation test is not appropriate for all terms, because some warranties
may be relevant to the risk without being causative to the loss (for example, those that con-
cern past claims to the assured, relevant to assessment of possibility of future claims);
(3) Undue formalism. As mentioned above, the Law Commission proposed the
causal connection test only for warranties, but in practice, a similar term may be formulated
as a descriptive condition. Hence, effect of a particular provision would depend only on
formalistic approach to its construction.
These arguments do not seem fully persuasive. First, the experience of civil law
countries evidences that it is possible to apply the causation test in practice, without dispro-
portionate escalation of costs or premiums. Second, in situations where an undertaking
generally affects the risk, but the particular breach is purely irrelevant, the causation test
could allow achieving fairer results.156 Third, it is certainly preferable to treat warranties
the same way as suspensive conditions; yet it does not necessarily mean a complete aban-
donment of the causation test. In 2006, the Law Commission was prepared to introduce it
for both types of terms; although the industry and courts would have required a longer time
to adapt to that solution, it seemed as a huge step towards modernization of the English
insurance law.
However, heavy critique of the causation requirement demonstrated that the indus-
try was not prepared for such a striking reform. Concerns about complexity of investigation
and proof, as well as uncertainty and potential formalism of outcomes en masse persuaded
the Law Commission to abandon the causal connection test. Hence, other instruments were
needed to ameliorate the warranty regime.

156
Cf. Abbott v Shawmut Mutual (1861) 85 Mass 213, discussed in Chapter 2 s 2.4.2

45
4.3.3.2 2012-2014 proposals

On the next stage of work, the Law Commission prepared Consultation paper “Insur-
ance Contract Law: The Business Insured’s Duty of Disclosure and the Law of Warranties”
(June 2012) and Report “Insurance Contract Law: Business Disclosure; Warranties; Insur-
ers’ Remedies for Fraudulent Claims; and Late Payment” (July 2014). In sum, both docu-
ments named three main proposals in relation to the warranty regime157:
(1) To treat warranties as suspensive conditions. This proposal goes to the root of
the warranty regime, as it abolishes the “automatic discharge” doctrine, established by the
MIA 1906 s 33(3);
(2) To introduce the rule that terms designed to reduce the risk of loss of a par-
ticular type (or at a particular time or place) should not affect losses of a different
kind. Notably, this proposal was designed as an alternative for the causal connection test;
(3) To abolish “basis of the contract” clauses. This measure was envisaged pri-
marily for non-marine commercial policies, where such clauses allowed the insurer to rely
on minor mistakes in proposal forms. Due to the fact that the MIA s 35(2) sets out strict
requirements for introduction of an express warranty into the marine policy, such clauses
are of minor relevance for the marine insurance.158
In July 2014, the Insurance Bill, based on the work of the Law Commission, was in-
troduced into Parliament; it received Royal Assent on 12 February 2015 and became the
Insurance Act 2015.159 The Act reflects all abovementioned proposals (Sections 9 – 11);
therefore, it embodies a cardinal reform of the “classical” warranty regime.

4.3.3.3 The Insurance Act 2015

A few points about application of the Insurance Act 2015 should be mentioned. First,
the majority of provisions of the Act, including those relevant to warranties, enter into ef-

157
Consultation paper No204 (2012), s 11.22; Report No 353 (2014), s 12.6
158
See, for example, Arnould, “On the Law of Marine Insurance and Average”, 827.
For that reason, Section 9 of the Insurance Act 2015, abolishing “basis of the contract” clauses, is
not discussed further.
159
See the official site of the UK Parliament (as of 23.10.2015):
http://services.parliament.uk/bills/2014-15/insurance/documents.html

46
fect from August 2016.160 Until that time, the MIA 1906 continues to apply. Next, the In-
surance Act 2015 provides that in non-consumer insurance the parties may contract out
of statutory provisions and introduce a term “which would put the insured in a worse posi-
tion” (for instance, a warranty clause with a remedy of automatic termination of liability),
if the requirement of transparency is satisfied. Namely:
(1) The insurer must take sufficient steps to draw the disadvantageous term to the as-
sured’s attention before its incorporation into the contract. Alternatively, the insured must
have actual knowledge of the term;
(2) The disadvantageous term must be clear and unambiguous as to its effect.161
Thus, the use of warranties in their present form will not be completely abolished, but
restricted to situations where the parties have implemented express and unequivocal provi-
sions to that effect into the policy. For instance, standard clauses frequently include terms
with the effect of automatic termination of liability and/or contract.162 Nevertheless, the
“default” warranty regime is significantly amended.

4.3.3.3.1 Suspensive character of warranties

Section 10 of the Insurance Act 2015163 provides that insurance warranties will no
longer possess the specific remedy of “automatic discharge from liability”.164 Henceforth, a
breach of warranty will have the effect of suspension of liability, which means that the
insurer shall not cover two types of losses:
(1) Occurring in the period between the breach and its rectification;
(2) Attributable to something happening during that period, even if the loss occurred
later.
At the moment of rectification of a breach, the insurer’s liability will reattach. Ra-
tionale behind this rule is clear: if warranties are instruments of circumscribing the risk the

160
The Insurance Act 2015, s 22(3)
161
The Insurance Act 2015, ss 16, 17(2), (3) and (5)
162
For example, ITCH (95) cl.4.1-4.2 and cl.5.1
163
For the full text of Section 10, see Appendix I
164
The MIA 1906, s 33(3); The Good Luck [1991] 2 Lloyd’s Rep 191

47
insurer agreed to indemnify, and this risk remains/becomes the same, the insurer cannot
deny cover. In particular, Section 10 envisages following situations:
(1) Subsection 10(5)(b) refers to breaches of “general warranties”, which are
deemed remedied “if the insured ceases to be in breach”;
(2) Subsection 10(5)(a) refers to breaches of “time-specific warranties”: undertak-
ings to do something or to fulfill specified conditions “by an ascertainable time”. Such
breaches cannot “cease” if a deadline is already missed, but they can be “functionally”
remedied165, which means that the risk insured must “become essentially the same as that
originally contemplated by the parties”;
(3) Subsection 10(4)(b) recognizes a third situation, when a breach of warranty is
incapable of remedy (for example, when a statement under a warranty of past or present
facts was inaccurate). In such case, the insurance cover either never commences, or re-
mains indefinitely suspended after a breach.166
Notably, the practice of construing warranties as suspensive conditions is already fa-
miliar to English courts167: despite being helpful in individual cases, it has also led to un-
certainty about a status and an effect of particular contractual terms. The recent reform will
not only make it easier for courts to reach fairer outcomes, but also to reduce a number of
disputes concerning construction of policies. Furthermore, assureds will get a new stimulus
to keep the marine adventure under control and rectify any discrepancies as prompt as pos-
sible.

4.3.3.3.2 Terms designed to reduce a particular risk

Section 11 of the Insurance Act 2015168 provides that, if a term tends to reduce a
particular risk (loss of particular kind, or at particular time or place), a breach of that term
should not release the insurer from liability for loss caused by other type of risk. To deter-
mine whether a policy provision fits this description, objective construction is required:

165
Report No 353 (2014), s 17.43. For further discussion, see ss 17.30-17.50
166
Ibid, s 17.50
167
See discussion in Chapter 4, s 4.2.1.2.
168
For the full text of Section 11, see Appendix I

48
i.e., a normal effect of compliance with the term should be assessed, not what the parties
subjectively intended it to be.169
On the one hand, Section 11 embraces not only warranties, but also other types of
terms: conditions precedent, definitions of risk and exclusion clauses. On the other hand,
not all warranties relate to particular risks. They may: (1) address more general issues, as
warranties concerned with the assured’s criminal record; (2) have no bearing on the risk at
all, as premium warranties; or (3) define the whole risk insured under the policy, as warran-
ties of (non)commercial use of a vehicle.170 Hence, an objective of each warranty should be
analyzed individually.
It should be underlined that Section 11 does not introduce a causation test: for the
insurer to rely on a breach of warranty, it is not required that it actually caused or contrib-
uted to the loss. It is sufficient that the warranty in principle relates to the risk, which re-
sulted in the loss. Consequently, the causation test prevents reliance on irrelevant breach-
es, while rule in Section 11 prevents reliance on irrelevant warranties, “where the type of
loss which occurred is not one which compliance with the warranty or condition could have
had any chance of preventing”.171 Undoubtedly, this approach is more favorable for the
insurer than the causation test.
According to Section 11(4), if the term in question is a warranty, Section 10 of the
Insurance Act 2015 applies jointly. It means that in case of breach of a warranty that tends
to reduce a particular risk, liability of the insurer will be suspended only in relation to loss-
es caused by that risk. It is a major improvement of the assured’s position in comparison
with the situation under the MIA 1906.
Nevertheless, a number of possible problems with a practical application of Section
11 have already been noted172:

169
Report No 353 (2014) ss 18.12-18.17
170
Ibid, s 18.6
171
Ibid, ss 18.7, 18.38-18.40
172
Baris Soyer, “Beginning of a new era for insurance warranties?”, Lloyds Maritime and Commer-
cial Law Quarterly, Issue 3 (August, 2013), 392-394

49
 (1) It might be challenging to identify whether a warranty tends to reduce a particu-
lar risk. As mentioned above, some warranties have a more general implication;
(2) Even when it is evident that a warranty is not of a general character, identifying
its precise objective may be problematic.
Therefore, Section 11 may become a source of extensive litigation concerning ob-
jectives of warranties. The Law Commission recognized this problem, stating that: “There
is undoubtedly a degree of uncertainty relating to how the courts will interpret a “type of
loss”, a “loss at a particular place” and “a loss at a particular time”[…]”.173 It is argued that
“in determining what particular risk the warranty aims at, it will be inevitable to be drawn
into an inquiry involving causation”; hence, “the proposed change to a certain extent intro-
duces causation by the back door”.174 This is especially striking, as the legislators intended
to avoid the causation test. Moreover, the reform may lead to a costly review of standard
clauses in order to contract out of the default statutory regime, or to specify aims of warran-
ties.

Overall, the Insurance Act 2015 introduces a significant reform of the “classical”
warranty regime, embodied in the MIA 1906. First, Section 10 abolishes the remedy of
“automatic termination of liability”, which was a unique feature of warranties. From 2016,
warranties will be equaled in effect with suspensive conditions. Hereof, the second
amendment follows: the assured will normally have an opportunity to remedy a breach of
warranty, so that the insurer’s liability will reattach. Furthermore, Section 11 has intro-
duced a new requirement for the insurer’s reliance on a breach, which could be character-
ized as the test of “objective materiality of a term to a particular risk”. Together, Sections
10 and 11 of the Insurance Act 2015 provide the assured with significant protection from
the insurer’s discretion. However, the Insurance Act 2015 still leaves a room for situations
where the non-causative breach of warranty will allow the insurer to avoid the liability.

173
Report No 353 (2014) ss 18.49-18.67
174
Baris Soyer, “Beginning of a new era for insurance warranties?”, 394

50
What is more, concerns were expressed about potential difficulties of interpretation of Sec-
tion 11 by courts.

5 Conclusion

5.1 Summary of the development process. Outlook on future perspectives

In conclusion, it must be said that the development of the status of marine insurance
warranties in the English law has been a lengthy process. Since the XVIII century, the war-
ranty regime was governed by such rigid rules, as: the “strict compliance” doctrine, the
absolute character of warranties, disregard to materiality or causative character of a breach
and irrelevance of a future rectification. The unique remedy of “automatic discharge from
liability”, introduced by the MIA 1906 s 33(3), made the warranty regime even more bene-
ficial to insurers and detrimental to assureds. In practice, this disproportion resulted in the
following problems:
(1) The insurer could refuse to pay a claim for any breach of warranty, no matter how
irrelevant (minor or non-causative) that breach was to the loss;
(2) The insurer could refuse to pay a claim, though the breach of warranty has already
been remedied;
(3) In case of breach of warranty, the insurer generally was entitled for the whole
amount of premium.
Another reason for concern with the warranty regime under the MIA 1906 was that
international practices were inclined towards more balanced solutions. The civil law ap-
proach to alteration of risk normally implies requirements of subjective materiality and
causative character of an alteration, as well as some degree of culpability of the assured.
What is more, even the common law countries have departed from the traditional warranty
regime to various extents.
Although there were attempts to mitigate the harshness of the warranty regime either
through judicial interpretation of warranties, or through drafting of insurance contracts,
these solutions were not sufficient. In order to keep in line with international standards, and
to provide fairer outcomes for assureds, the English marine insurance law was in need for a
legislative reform. As the result, the new Insurance Act 2015 was adopted. The main dif-

51
ferences between the marine insurance warranty regime under the MIA 1906 and the Act
2015 are that:
(1) The remedy of “automatic termination of liability” is abolished. Under Section 10
of the Act 2015, warranties are given a suspensive character: i.e., if a breach of war-
ranty is remedied, the insurer’s liability will reattach;
(2) Section 11 of the Act 2015 introduces a new rule that if a term (i.a., warranty) tends
to reduce a particular risk, the insurer is not entitled to rely on a breach of that term
to deny liability for the loss caused by another risk.
The recent reform has significantly mitigated the default warranty regime in the Eng-
lish marine insurance law. However, there is still one major difference from approaches
adopted in the civil law countries, New Zealand, Canada and, to some extent, Australia and
the USA: namely, this reform has not introduced a causation test. Although the rule in
Section 11 of the Insurance Act 2015 may sometimes provide similar results, it still allows
the insurer to rely on non-causative breaches. Moreover, the complexity of the rule in Sec-
tion 11 is likely to lead to numerous disputes about objectives of a particular warranty.
Hence, a significant element of uncertainty is introduced into the English marine insurance
law.
Therefore, a question arises – was it really a justified step to avoid the causation test?
Not only is it familiar to English courts; introduction of a causation element would have
been a huge step towards internationalization of the English marine insurance market. It is
possible that the upcoming development of the marine insurance warranty regime in the
English law will be focused on a further recognition of a causation element, in order to
avoid the limits set out by the Insurance Act 2105. Overall, a reaction of courts and the
industry on the recent reform remains to be seen.

52
 6 Bibliography

6.1 Table of cases

Abbott v Shawmut Mutual (1861) 85 Mass 213
Alfred McAlpine Plc v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437

Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good
Luck) [1991] 2 Lloyd’s Rep 191; [1992] 1 A.C 233
Barret v Jermy (1849) 3 Exch 535
Baxendale v Harvey (1859) 4 H & N 445
Bird v. Appleton (1800) 8 TR 562
Bolton v Mahadeva [1972] 1 WLR 1009
Bond v Nutt (1777) 2 Cowp 601, 606
Bonney v Cotnhill Insurance Co (1931) 40 L1L Rep 39

Century Insurance Company of Canada v Case Existological Laboratories Ltd (The Bam-
cell II) (1980) 133 DLR (3d) 727
Clapham v Cologan (1813) 3 Camp. 382
Compania Maritima San Basilio S.A. v Oceanus Mutual Underwriting Association (Ber-
muda), Eurysthenes [1976] 2 Lloyd's Rep 171
Cunard v. Hyde [1860] 121 Eng. Rep. 1

Darby v. Newton (1816) 128 Eng. Rep. 1146;

Dawsons Ltd v Bonnin [1922] 2 AC 413.
De Hahn v Hartley (1786) 1 T.R. 343
Doak v. Weekes (1986) 82 FLR 334

Farr Motor Traders Mutual Insurance Society Ltd [1920] 3 KB 669, CA

Finnegan v Allen (1943) 1 KB 425
Foley v Tabor (1861) 2 F&F 663

53
Forshaw v Chabert (1821) 3 Br&B 159;
Forsikringsaktielselskapet Vesta v Butcher [1989] AC 852
Friends Provident Life and Pensions v Sirius International Insurance [2005] EWCA Civ.
601

GE Frankona Reinsurance Ltd v CMM Trust No 1400 (The Newfoundland Explorer)

[2006] EWHC 429
Gibson v Small (1853) 4 HLC 353
Gordon v Morley 93 Eng Rep 1171

Hibbert v Pigou (1783) 3 Doug KB 213

Hide v Bruce (1783) 3 Doug K B 213
HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2Lloyd’s
Rep 161
Hoening v Isaacs [1952] 2 All ER 176
Honkong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd (1962) 2 QB 26
Hussain v Brown [1996] 1 Lloyd’s Rep 627

JA Chapman & Co Ltd v Kadigra Denizcilik ve Ticaret [1998] Lloyd’s Rep IR 377
Jefferies v Legandra (Jeffry v Legendra) (1692) 4 Mod. 58;

Kausar v Eagle Star Insurance Co Ltd [2000] Lloyds Rep IR 154

Kler Knitwear v Lombard General Insurance Co Ltd [2000] Lloyd’s Rep IR 47
Kosmar Villa Holidays Plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147

Lethulier’s case (1692), 91 Eng Rep 384;

Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350

Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd and others (The Star Sea)
[2001]1 All ER 743

54
Masefield AG v. Amlin Corporate Member Ltd. [2010] EWHC (Comm) 280

Newcastle Fire Insurance v Macmorran & Co (1815) 3 Dow 255

Overseas Commodities Ltd v Style [1958] 1 Lloyds Rep 546

Pawson v Watson (1778) 2 Cowp 785

Phonenix General Insurance Co v Greece SA v Halvanon Insurance Co Ltd [1985]2
Lloyd’s Rep.599
Pratt v Aigion Insurance (The Resolute) [2008] EWCA Civ 1314
Printpak v AGF Insurance Ltd [1999] Lloyd’s Rep IR 542
Provincial Insurance Company Ltd v Morgan & Foxton Coal [1933] AC 240

Quebec Marine Insurance Co v Commercial Bank of Canada (1870) LR 3 PC 234

Redmond v. Smith (1844) 135 Eng. Rep. 183.

Reischer v Borwick (1894) 2 QB 548 CA
"Reward" (the) (1818) 165 ER 1482
Roberts v Anglo-Saxon Insurance Ltd (1927) 27 LI L Rep 313
Royal Boskalis Westminster N. V. v. Mountain [1999] QB 674

St. John Shippimg Corp v Joseph Rank Ltd [1957] 1 QB 267

Sugar Hut v Great Lakes Reinsurance (UK) Plc [2010] EWHC 2636, [2011] Lloyd's Rep
IR 198
Swiss Reinsurance Company and others v United India Insurance Company Limited [2005]
EWHC 237 (Comm)
Switzerland Insurance Australia v Movie Fisheries Pty Ltd (1997) 144 ALR 234

Thomson v Weems (1884) 11 R (HL) 48; 9 App Cas 671

Tyrie v Fletcher (1777) 2 Cowp666

55
Wainhouse v. Cowie, (1811) 128 Eng. Rep. 297,
Weir v Aberdeen (1819) 2 B.& Ald. 320
Wilburn Boat Co v Fireman’s Fund Ins [1955] AMC 467
Winter v Employers Fire Insurance Co [1962] 2 Lloyd’s Rep 320
Woolmer v Muliman (1763) 3 Burr 1419

Yorkshire Insurance Co Ltd v Campbell [1917] AC 218

Norwegian cases:
Tor Hollandia (2008) Oslo City Court (Tingrett) 07-139941TVI-OTIR/06
Vall Sun ND 1981.347

6.2 Statutes
Australia:
Marine Insurance Act 1909.
Insurance Contract Act 1984.

England:
Marine Insurance Act 1906.
Insurance Act 2015.

New Zealand:
Marine Insurance Act 1908.
Insurance Law Reform Act 1977.

Norway:
Contracts Act (Avtaleloven) 1918.
Insurance Contracts Act 1989.
Norwegian Maritime Code 1994.

56
6.3 Standard and other documents
Institute Time Clauses Hulls (1 November 1995).
International Hull Clauses (1 November 2003).
Institute Warranties (1 July 1976).
Nordic Marine Insurance Plan, 2013 (Version 2016).
Commentary to the Nordic Marine Insurance Plan, 2013.

6.4 Secondary literature

Arnould, Joseph “On the Law of Marine Insurance and Average”, 11th ed. London: Law
Publishers, 1924.

Australian Law Reform Commission (the). Report “Review of the Marine Insurance Act
1909” No91 (2001).

Bull, Hans J., Trine-Lise Wilhelmsen “Handbook in Hull Insurance”. Gyldendal Akad-
emisk, 2007.

Clarke, Malcolm A. “Insurance Warranties: The Absolute End?”. Lloyds Maritime and
Commercial Law Quarterly, Issue 4 (November, 2007), 474-493.

Derrington, Sarah “The law relating to non-disclosure, misrepresentation and breach of

warranty in contracts of marine insurance. A case for reform”. Doctoral thesis, the Univer-
sity of Queensland, 1998.

Giaschi, Christopher “Warranties in Marine Insurance”. Association of Marine Under-

writers of British Columbia, Vancouver (10th April 1997).

Hare, John “The omnipotent warranty: England v the world”. Compendium “Marine in-
surance at the turn of millennium”, vol.2. (Antwerpen, Groningen, Oxford: Intersentia,
2000), 37-55.

57
Hodges, Susan “Cases and Materials on Marine Insurance Law”. London, Sydney: Cav-
endish Publishing Limited, 1999.

Hodges, Susan “Express warranties of seaworthiness in time policies: a comparative analy-

sis of American and English law”. Journal of Maritime Law and Commerce, Vol.32(1)
(January 2001), 95-133.

Law Commission of the UK (the). Report “Insurance Law: Non-Disclosure and Breach of
Warranty” (1980) Law Com No104.

Law Commission of the UK (the). Documents published on the official site of the UK Law
Commission as part of the project “Insurance Contract Law” (2006-2014):
˗ Issues paper 2 “Warranties” (November, 2006);
˗ Consultation paper “Insurance Contract Law: Misrepresentation, Non-disclosure
and Breach of Warranty by the Insured” No182 (July 2007);
˗ Consultation paper “Insurance Contract Law: The Business Insured's Duty of Disclo-
sure and the Law of Warranties” No204 (June 2012);
˗ Report “Insurance Contract Law: Business Disclosure, Warranties, Insurers' Reme-
dies for Fraudulent Claims and Late Payment” No 353 (July 2014), including the
Draft Bill, 351-363.
http://www.lawcom.gov.uk/project/insurance-contract-law/

Lindley, Richards Hogg “A Commentary on the International Hull Clauses (01/11/03)”

(18th November 2003). Published online by Charles Taylor:
https://www.ctplc.com/media/72223/A-Commentary-on-the-International-Hull-Causes.pdf

Longmore, Andrew “Good faith and breach of warranty: are we moving forwards or back-
wards? (United Kingdom)”. Lloyds Maritime and Commercial Law Quarterly, Issue 2
(May, 2004), 158-171

58
Manchuk, Guy “Armed guards, marine insurance, and the implied warranty of legality”.
University of San Francisco Maritime Law Journal, Vol.24(2) (Spring, 2012), 309-373

Merkin, Robert “Australia: still a nation of Chalmers? (UK Marine Insurance Act 1906
draftsman Sir Mackenzie Chalmers)”. University of Queensland Law Journal, Vol.30(2)
(December, 2011), 189(36).

Merkin, Robert “Reforming insurance law: is there a case for reverse transportation? Re-
port for the English and Scottish Law Commissions on the Australian experience of insur-
ance law reform”. Published online by the UK Law Commission:
http://www.lawcom.gov.uk/wp-content/uploads/2015/03/ICL_Merkin_report.pdf

New Zealand Law Reform Commission (the). Report “Some problems of insurance law”
No 46 (1998).

Poole, Jill “Textbook on Contract Law”, 12th ed. Oxford University press, 2014

Schoenbaum, Thomas J. “Key divergences between English and American law of marine
insurance”. Centreville, Maryland: Cornell Maritime Press, 1999.

Schoenbaum, Thomas J. “Warranties in the law of marine insurance: some suggestions for
reform of English and American law”. Tulane Maritime Law Journal, Vol.23(2) (Spring,
1999), 267-315.

Soyer, Baris “Warranties in Marine Insurance”, 2nd edition. London, Sydney, Portland,
Oregon: Cavendish Publishing Limited, 2006.

Soyer, Baris “Beginning of a new era for insurance warranties?”. Lloyds Maritime and
Commercial Law Quarterly, Issue 3 (August, 2013), 384-400.

59
“The use of warranties in Norwegian marine insurance”. Wikborg Rein’s Shipping Off-
shore Update 1/2009, 6-7.

Wenhao, Han “Thesis on Warranties in Marine Insurance”. Published online by Associa-

tion Internationale de Droit des Assurances (15th July 2013):
http://www.aida.org.uk/docs/warrantiesmarineins.pdf

Wilhelmsen, Trine-Lise “Issues of Marine Insurance”. MarIus 281, (2001), 41- 170

Wilhelmsen, Trine-Lise “Issues of marine insurance. Duty of disclosure, duty of good faith,
alteration of risk and warranties in the civil law countries”. MarIus 258, (2000) 239- 292

6.5 Table of abbreviations

ABI Association of British Insurers
AC Appeal Cases
AIRMIC Association of Insurance and Risk Managers
All ER All England Law Reports
ALR Australian Law Reports (1983 –)
ALRC Australian Law Reform Commission
AMC American Maritime Cases
App Cas Appeal Cases
B & Ald Barnewall & Alderson’s King’s Bench Reports (1817-22)
Br & B Broderip & Bingman’s Common Pleas (1819-22)
B & S Best & Smith’s Queens Bench Report (1861-65)
Bur Burrows’ King’s Bench Reports (1757-71)
Camp Campbell's Reports
Cowp Cowper’s King’s Bench Reports (1774-78)
DLR Dominion Law Reports (Canada)
Dougl KB Douglas’ King’s Bench Reports (1778-85)
Dow Dow's House of Lords Cases
Eng Rep English Reports Full Print (1210-1865)

60
EWCA Civ Court of Appeal Civil (England & Wales)
EWHC (Comm) High Court of England and Wales Decisions (Commercial Court)
Exch Exchequer Law Reports (1865-1875)
F&F Foster & Finlanson’s Nisi Prius Reports (1858-67)
FLR Federal Law Reports (Australia)
HLC House of Lords Cases (Clarke’s) (1847-66)
H & N Hurlstone and Norman's Exchequer Reports
IHC International Hull Clauses (2003)
ICA Insurance Contract Act
ITCH Institute Time Clauses - Hulls (1995)
KB King’s Bench Law Reports (1866-78)
LR PC Law Reports, Privy Council Appeal Cases
Lloyd’s Rep Lloyd’s List Law Reports (1951-)
LMCLQ Lloyds Maritime and Commercial Law Quarterly
MAT Marine, Aviation & Transport
MIA Marine Insurance Act
Mod Modern Reports
ND Nordiske Domme I Sjøfartsanliggender (law report containing maritime law decisions
from the Scandinavian countries). (Oslo 1900 –)
NMIP Nordic Marine Insurance Plan (2013)
NZLRC New Zealand Law Reform Commission
P&I Protection & Indemnity
QB Queen’s Bench Law Reports
R (HL) Rettie, Crawford and Melville Session Cases (Scotland)
SGIP Statement of General Insurance Practice (1986)
TR Durnford & East’s Term Reports (1775-1800)
WLR Weekly Law Reports

61
 APPENDIX I

Insurance Act 2015

2015 CHAPTER 4
An Act to make new provision about insurance contracts; to amend the Third Parties
(Rights against Insurers) Act 2010 in relation to the insured persons to whom that Act ap-
plies; and for connected purposes. [12th February 2015]

(EXTRACTS)

PART 3
Warranties and other terms

9 Warranties and representations

(1)This section applies to representations made by the insured in connection with—
(a) a proposed non-consumer insurance contract, or
(b) a proposed variation to a non-consumer insurance contract.
(2) Such a representation is not capable of being converted into a warranty by means of any
provision of the non-consumer insurance contract (or of the terms of the variation), or of
any other contract (and whether by declaring the representation to form the basis of the
contract or otherwise).

10 Breach of warranty
(1) Any rule of law that breach of a warranty (express or implied) in a contract of insurance
results in the discharge of the insurer's liability under the contract is abolished.
(2) An insurer has no liability under a contract of insurance in respect of any loss occurring,
or attributable to something happening, after a warranty (express or implied) in the contract
has been breached but before the breach has been remedied.
(3) But subsection (2) does not apply if—
(a) because of a change of circumstances, the warranty ceases to be applicable to the cir-
cumstances of the contract,
(b) compliance with the warranty is rendered unlawful by any subsequent law, or
(c) the insurer waives the breach of warranty.
(4) Subsection (2) does not affect the liability of the insurer in respect of losses occurring,
or attributable to something happening—
(a) before the breach of warranty, or
(b) if the breach can be remedied, after it has been remedied.
(5) For the purposes of this section, a breach of warranty is to be taken as remedied—
(a) in a case falling within subsection (6), if the risk to which the warranty relates later be-
comes essentially the same as that originally contemplated by the parties,
(b) in any other case, if the insured ceases to be in breach of the warranty.
(6) A case falls within this subsection if—
(a) the warranty in question requires that by an ascertainable time something is to be done
(or not done), or a condition is to be fulfilled, or something is (or is not) to be the case, and
(b) that requirement is not complied with.
(7) In the Marine Insurance Act 1906—
(a) in section 33 (nature of warranty), in subsection (3), the second sentence is omitted,
(b) section 34 (when breach of warranty excused) is omitted.

11 Terms not relevant to the actual loss

(1) This section applies to a term (express or implied) of a contract of insurance, other than
a term defining the risk as a whole, if compliance with it would tend to reduce the risk of
one or more of the following—
(a) loss of a particular kind,
(b) loss at a particular location,
(c) loss at a particular time.
(2) If a loss occurs, and the term has not been complied with, the insurer may not rely on
the non-compliance to exclude, limit or discharge its liability under the contract for the loss
if the insured satisfies subsection (3).
(3) The insured satisfies this subsection if it shows that the non-compliance with the term
could not have increased the risk of the loss which actually occurred in the circumstances
in which it occurred.
(4) This section may apply in addition to section 10.