Insurance Contract Law Issues Paper 2 Warranties - Law Commission

(4) The wording of the warranty does not apply to the facts in question.
The leading case is Provincial Insurance Co v Morgan. 10 Here coal
merchants declared that their lorry would be used for coal, which became
the basis of the contract. On the day of the accident, the lorry was also
used to carry Forestry Commission timber. However, at the time, the
timber had been unloaded and only coal was on-board. The House of
Lords held an endorsement on the policy stating that the use was
“transportation of own goods in connection with the insured’s own
business” did not mean that the vehicle was to be used exclusively for
the insured’s own goods. On “a strict but reasonable construction” the
declaration and the clause only meant that transporting coal was to be
the normal use. Transporting other goods would not terminate liability
under the policy. 11
How far can construction be used to remove unfairness? Kler Knitwear
4.6 A difficult question is whether the courts should be prepared to disregard the
clear language of the policy in order to achieve justice between the parties. Kler
Knitwear v Lombard General Insurance Co is an example of a case where the
judge arguably went beyond merely resolving ambiguity in order to protect the
policyholder from an unfair outcome. 12 Here the policyholders had agreed that
their sprinkler system would be inspected 30 days after renewal. In fact, the
inspection was about 60 days late and showed that the system was working. The
factory later suffered storm damage (which was wholly unconnected with the
sprinklers). Mr Justice Morland accepted in principle that if on a proper
construction of the clause, the parties intended it to be a warranty then the Court
“must uphold that intention” however harsh and unfair the consequences.
However, this particular clause was merely “a suspensive condition”, limiting the
risk.
4.7 The surprising thing about Kler Knitwear was that the term was clearly stated to
be a warranty and the policy later went on to spell out the consequences, namely
that non-compliance would bar any claim, “whether it increases the risk or not”.
Birds and Hird comment that
10
It is difficult to see how the insurer could have stipulated this in any
clearer terms. The term itself was called a warranty and was drafted
in clear and intelligible language and the consequences of noncompliance
were spelled out. 13
[1933] AC 240.
11
See also English v Western [1940] 2 KB 156; and Houghton v Trafalgar Insurance Co Ltd
[1954] 1QB 247;
12
[2000] Lloyd’s Rep IR 47.
13 J Birds and NJ Hird, Birds Modern Insurance Law (6 th ed 2004) p 161.
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