Warranties in Marine Insurance Policies

Warranties in Marine Insurance Policies

Although an insurer is protected in an insurance contract by the principle of utmost good faith, proving a lack of good faith or non-disclosure of material facts is exceptionally difficult. For that reason, the most practical way to ensure the soundness of an insurance contract is to rely on warranties.

In marine insurance, the term ‘warranty’ is used inconsistently and can be confusing. At first, it refers to a condition that the insured must perform. At a second level, it indicates a limitation or exception to the policy’s general wording. The first category is commonly referred to as a promissory warranty.

These warranties are undertakings by which the insured represents that certain facts exist. Examples include:

It is warranted that the goods have been packed with proper skill, or that the cargo is not iron ore, or that the insured hazardous items are lawful commercial goods.

The second category, known as an excluding warranty, is different in nature. Under it, the insurer is relieved from liability in the circumstances specified in the contract.

In marine insurance law, the term warranty corresponds to the concept of a condition as used in other contracts. Marine warranties may be express or implied.

General and Specific Conditions of Marine Insurance Warranties

Express Warranty

An express warranty may take any form or wording, provided that an intention to warrant and undertake can be inferred. Such a warranty may be stated in writing in the policy itself or in another related document.

As a general principle, an express warranty does not exclude an implied warranty unless it is inconsistent with it. For example, if the shipowner fails, without a justified reason, to follow the customary and contractual route, the shipowner will be in breach of the route requirement, and from that date onward, the insurer will have no liability under the policy.

Implied Warranties

The most significant implied warranties include:

• In every voyage policy, seaworthiness of the vessel at the commencement of the voyage is an implied condition of the insurance contract.
• In every policy, whether voyage, time, or mixed, the legality and lawfulness of the subject matter insured is another implied condition.

With respect to the implied warranty of seaworthiness, where the insured risks relate to port risks, the vessel’s capacity to face the probable risks of the port is treated as an implied condition of the insurance contract.

Where a sea voyage is undertaken, the seaworthiness of the vessel for the commencement of each stage of the voyage is also treated as an implied condition.

However, under a time policy, seaworthiness at each stage of the voyage is not treated as an implied condition. Accordingly, if, with the insured’s knowledge, a vessel lacking seaworthiness departs on a sea voyage, the insurer will be liable for losses arising from the lack of seaworthiness.

In a marine insurance contract, the seaworthiness of the cargo is not treated as a condition that depends on time. Such a warranty is unnecessary because insurance covers the marine perils specified in the contract. Therefore, where no special condition is stated, the insurer will not be liable for loss or damage arising from inherent vice.

With respect to the implied warranty of legality and lawfulness, reference is made to domestic laws of states and to international obligations. Where a foreign law materially affects the insured risk, and it is not customary to assume that the insurer shares that risk, the existence of the foreign law and its adverse effect should be disclosed to the insurer so that the premium can be adjusted based on an informed assessment.

The insured subject matter may be lawful at the time the policy is issued, but a change of circumstances may later render it unlawful. For example, a vessel may depart from Port A under the nationality of the port state and travel toward Port B. While the vessel is at sea, war may break out between States A and B, and the authorities of State A may issue a declaration making trade between nationals of States A and B unlawful. As a result, the vessel carrying cargo may be directed, under the declaration of the flag state, to one of the ports of State A, and the voyage does not proceed. In such a case, because the policy covers war risk, the insurer is liable to compensate the insured for losses and damage.

Frequently Asked Questions About Warranties in Marine Insurance Policies