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
In marine insurance, the term warranty is used in two senses: first, as a condition the insured must comply with (a promissory warranty), and second, as a limitation or exception that relieves the insurer from liability in specified circumstances (an excluding warranty).
A promissory warranty consists of undertakings the insured must comply with, such as proper packing of goods or the lawful commercial nature of insured items. If such undertakings are breached, the insurer may refuse to pay compensation under the policy.
An excluding warranty is a condition under which the insurer is relieved from liability to compensate losses where the circumstances described in the contract occur.
An express warranty is a condition stated in writing in the policy or in a related document, provided the intention to warrant can be inferred. For example, if a shipowner fails to follow the customary and contractual route, the insurer may have no liability from that date onward.
Two key implied warranties are seaworthiness of the vessel at the commencement of the voyage and the legality and lawfulness of the subject matter insured. These obligations apply even if they are not expressly stated in the contract.
If, with the insured’s knowledge, a vessel lacking seaworthiness departs on a sea voyage, the insurer will not be liable for losses arising from that lack of seaworthiness.
Yes. In every marine insurance policy, the insured subject matter must be lawful. If it is unlawful, the insurer may refuse to pay compensation or may adjust the premium based on the level of risk where relevant foreign law affects the insured risk. What does warranty mean in marine insurance?
What is a promissory warranty in marine insurance?
What is the function of an excluding warranty in marine insurance?
How is an express warranty stated in a marine insurance policy?
What are the most important implied warranties in marine insurance?
What happens if a vessel is not seaworthy?
Is legality of the insured subject matter considered a marine insurance warranty?
If a ship owner has insurance, does that always protect them from every type of damage at sea?
Marine insurance coverage depends on the terms, exclusions, and conditions of the policy. Different risks, such as vessel damage, cargo loss, or liability issues, may be treated differently. The policy documents usually determine what risks are covered and what procedures must be followed when making a claim.
I work in import business. If my cargo is damaged during shipping, can I directly claim from the insurance company?
The process for making a marine insurance claim depends on the insurance agreement and the parties involved. Factors such as the type of coverage, cause of damage, and required documentation can affect the claim process. Reviewing the policy terms is important before taking action.
What is the difference between a marine insurance guarantee and normal insurance for a business?
Marine insurance usually focuses on risks connected with shipping activities, vessels, cargo, and related maritime liabilities. A guarantee may serve a different purpose depending on the transaction, such as providing security for a specific obligation. The exact legal effect depends on the wording of the agreement.
If a vessel is damaged because of a mistake by the crew, can the insurance still cover the loss?
Coverage in these situations depends on the insurance contract, the nature of the mistake, and any exclusions included in the policy. Marine insurance agreements often contain detailed conditions regarding risks, responsibilities, and claims procedures. A review of the specific policy would be necessary to understand the position.
Can a shipping company be required to provide a guarantee before releasing a ship that is involved in a dispute?
In some maritime disputes, guarantees can become relevant, especially when parties seek to secure claims or prevent certain legal actions. The requirements depend on the circumstances, the applicable law, and the authorities involved.
Who is responsible if the insurance company refuses to pay a marine insurance claim?
If an insurer denies a claim, the first step is usually to review the policy terms and the reason for the denial. Whether the refusal is legally valid depends on factors such as the contract wording, evidence available, and applicable insurance law.
Are marine insurance guarantees only used by large shipping companies, or can smaller businesses use them too?
Marine insurance arrangements can be relevant for different participants in maritime trade, including vessel owners, operators, cargo owners, and businesses involved in transportation. The type of protection needed usually depends on the nature and scale of the activity.
If a cargo arrives late but is not damaged, can marine insurance cover that kind of loss?
It depends on the specific coverage included in the insurance policy. Some marine insurance products address certain types of delays or related losses, while others may only cover physical damage or specific risks. The policy language is the key factor in determining coverage.
Can two companies have a dispute over a marine insurance guarantee even if both signed the agreement?
Yes, disputes can arise even when parties have signed an agreement, often because they interpret the terms, obligations, or conditions differently. The resolution usually depends on the contract wording, evidence, and any dispute resolution provisions included in the agreement.
I have a company that ships goods internationally. What should I check before accepting a marine insurance guarantee?
Before relying on a marine insurance guarantee, it is important to understand the scope of coverage, obligations of each party, claim procedures, and any limitations or exclusions. Since each transaction can have different risks, reviewing the relevant documents carefully is recommended.