Insurance Contract Law Issues Paper 2 Warranties - Law Commission

To nullify a bargain in such circumstances frequently means that in a
case - perhaps of such triviality that no authority would have felt it
worth while to prosecute - a seller, because he cannot enforce his
civil rights, may forfeit a sum vastly in excess of any penalty that a
criminal court would impose; and the sum forfeited will not go into the
public purse but into the pockets of someone who is lucky enough to
pick up the windfall or astute enough to have contrived to get it. 13
A.22 The question is what effect section 41 would have if, for example, in the course of
a voyage a ship is overloaded in a way that the ship owners could have
prevented. Would this automatically discharge an insurer from liability for a loss
that had no connection with the overloading?
A.23 Baris Soyer argues that the principles in St John Shipping also apply to section
41. This means that a violation of shipping safety legislation does not render the
performance of the adventure illegal. 14 On a policy level, the arguments Devlin J
used in St John Shipping would appear to apply equally to an insurance contract.
The breach may be trivial; it may bear no relationship to the loss; the insured may
forfeit a sum vastly in excess of the criminal penalty; and the insurer may receive
a windfall. The difficulty is exacerbated by the fact that the parties may not be
able to contract out of the effect of section 41 if it does not suit their needs. 15
However, we have found no authority directly on the point.
13 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267, at p 288.
14 Warranties in Marine Insurance, 2 nd ed, 2006, p 126.
15 Gedge v Royal Exchange Assurance Corp [1900] 2 QB 214.
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