Insurance Contract Law Issues Paper 2 Warranties - Law Commission

More documents

Recommendations

Info

The implied marine warranties 7.109 The Marine Insurance Act 1906 implies four warranties into marine insurance contracts: seaworthiness, portworthiness, cargoworthiness and legality. These are described briefly in Appendix A. The warranty of seaworthiness is by far the most important, thought it operates differently in voyage and time policies. 7.110 A full review of the implied warranties is outside the scope of our project. In 1980 we commented that the rules were long-established and well-known, and that the professionals in the market could reasonably be expected to be aware of their niceties. 32 The rules are certainly well-established. How far they are well-known is difficult to say; even the short description in Appendix A reveals some complexities and uncertainties surrounding them. However, we have not received demands for their reform, and a full-scale review would take more resources than we have available. 7.111 Here we are concerned with only one limited question, which is whether the requirement for a causal connection set out above should also apply to the implied marine warranties. Our view is that it should. Below we consider the four warranties, to see if they raise any special issues. Seaworthiness 7.112 The main effect would be upon the warranty of seaworthiness in voyage policies. It would effectively reverse the ruling in De Hahn v Hartley, 33 by permitting warranties to be remedied. If, for example, a ship leaves port with insufficient crew, and later takes more crew on board, the insurer would be liable for subsequent losses. It would also mean that a technical breach (such as not carrying the required medicines, or not having the correct certificates on board) would not discharge the insurer from liability for an unconnected loss. 7.113 Our proposals are mild: in a voyage policy, the insured would only be paid if it could show, on the balance of probabilities that the breach did not contribute to the loss. This goes nowhere near as far as the requirement in time policies, where the insurer has to prove that the breach was a real or dominant cause of the loss. It does, however, go some way to lessening the difference between voyage and time policies. Given that the industry has lived with the time policy rule for over 100 years, we do not think that this lesser rule in voyage policies should cause undue difficulties. Portworthiness and cargoworthiness 7.114 These warranties are less likely to be a major cause of dispute, and we do not think that the proposed reform would have any great effect on the market. 7.115 At present, it may be possible for an insurer to argue that, if a problem in port is remedied before the ship is put to sea, the insurer is discharged from liability for an unconnected loss at sea. We do not think this result would be fair. Again, we believe that the insured should be able to put forward a defence that the breach did not contribute to the loss. 32 para 2.8. 33 (1786) 1 TR 343. 84
Legality 7.116 The warranty of legality raises more complex issues. Insurance contracts, like all other contracts are subject to the general doctrine of illegality. This means that if the parties agree to insure an illegal adventure, the contract would not be enforceable in any event. Similarly if, unbeknown to the insurer, the insured intended to engage in an illegal activity the contract would be unenforceable by the insured. 34 These results are independent of the law on warranties, and would not be affected by the proposed reforms. The insured would not be entitled to enforce an illegal contract even if the loss was unconnected to the risks posed by the illegal conduct. 7.117 There is some uncertainty about how far the implied warranty of legality under section 41 of the MIA imposes additional requirements on insurance contracts. Under normal contract law, if one party commits a statutory offence in the course of performance (such as overloading a ship) this does not affect the enforceability of the contract. 35 It is possible that section 41 goes further than normal contract law in these circumstances. If an insured could prevent the ship from being overloaded and fails to do so, this may be a breach of the implied warranty that “the adventure shall be carried out in a lawful manner”. If this is a correct interpretation of the law, we think the rule needs to be tempered. Under our proposed reform, it would be open to the insured to argue that the overloading was not intended at the outset, but was only a subsequent illegality. If the insured could prove that the overloading did not contribute to the loss, the insurer would remain liable. Conclusion 7.118 Overall, we see no reason why our causal connection test should not apply equally to implied and express warranties. 7.119 Is it agreed that the implied marine warranties should be subject to the same causal connection test as express warranties? Implied conditions as to the voyage 7.120 It is has been brought to our attention that there are other provisions within the Marine Insurance Act 1906 that operate in a similar way to warranties. For example, section 43 states that Where the place of departure is specified in the policy, and the ship instead of sailing from that place sails from any other place, the risk does not attach. 34 Archbolds (Freightage) Ltd v Spanglett [1961] 1 QB 374. 35 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267. 85
Page 1 and 2:
Insurance Contract Law Issues Paper
Page 3 and 4:
SPECIFIC UNDERTAKINGS AS TO PAST OR
Page 5 and 6:
Reinsurance 15. Are there any reaso
Page 7 and 8:
Basis of the contract clauses 39 Sp
Page 9 and 10:
PART 1: INTRODUCTION BACKGROUND 1.1
Page 11 and 12:
PART 2: BACKGROUND WHAT IS A WARRAN
Page 13 and 14:
Held covered in case of any breach
Page 15 and 16:
For example, in Farr v Motor Trader
Page 17 and 18:
We recognise that a consequence of
Page 19 and 20:
THE RECOMMENDATIONS 3.3 The 1980 re
Page 21 and 22:
The test in the final report 3.12 F
Page 23 and 24:
3.21 A more recent example is Seddo
Page 25 and 26:
PART 4: ARE WARRANTIES STILL A PROB
Page 27 and 28:
(4) The wording of the warranty doe
Page 29 and 30:
4.12 The “innominate term” clas
Page 31 and 32:
4.23 The 1977 Statement of Long-Ter
Page 33 and 34:
4.34 The Long-Term Statement, howev
Page 35 and 36:
4.42 In Director General of Fair Tr
Page 37 and 38:
Does an exception have to be in pla
Page 39 and 40:
4.60 It is not necessarily sufficie
Page 41 and 42: 4.69 It might be argued that most w
Page 43 and 44: 4.78 However, issues of causal conn
Page 45 and 46: 4.86 Case 14 concerned a critical i
Page 47 and 48: 5.5 In 1980 the Law Commission desc
Page 49 and 50: 5.15 The effect of the Regulations
Page 51 and 52: Business insurance 5.25 The problem
Page 53 and 54: PART 6: WARRANTIES IN OTHER JURISDI
Page 55 and 56: 6.10 In a 1982 case, the judge expl
Page 57 and 58: (b) In the view of the court or arb
Page 59 and 60: (4) Where the insured proves that s
Page 61 and 62: 6.33 An added twist to these diffic
Page 63 and 64: 6.44 The problems appear where the
Page 65 and 66: 6.53 Soyer argues that on the facts
Page 67 and 68: 6.64 An example will illustrate the
Page 69 and 70: PART 7: PROVISIONAL PROPOSALS 7.1 T
Page 71 and 72: All insurance 7.12 For both consume
Page 73 and 74: 7.20 In the seminar we were asked w
Page 75 and 76: 7.28 The last option is the most ra
Page 77 and 78: 7.37 It would be consistent with th
Page 79 and 80: 7.46 There are two reasons why an i
Page 81 and 82: Other types of clause dealing with
Page 83 and 84: 7.68 We tentatively conclude that t
Page 85 and 86: Our provisional view 7.75 In our vi
Page 87 and 88: 7.85 We think it would be unduly fo
Page 89 and 90: 7.97 Should the causal connection t
Page 91: 7.105 It has been put to us that a
Page 95 and 96: 7.127 In 1980 the Law Commission re
Page 97 and 98: Continued liability for premiums FU
Page 99 and 100: 7.148 The question is whether this
Page 101 and 102: 7.157 Often both forms of waiver in
Page 103 and 104: PART 8: AN UNFAIR TERMS APPROACH TO
Page 105 and 106: 8.10 These provisions require the c
Page 107 and 108: (3) In examining whether a term was
Page 109 and 110: APPENDIX A: THE IMPLIED WARRANTIES
Page 111 and 112: A.11 There are some reasons to trea
Page 113 and 114: To nullify a bargain in such circum
Page 115 and 116: Table 1: Type of policy Travel 14 2
Page 117 and 118: B.16 Here a breach of the term does
Page 119 and 120: (4) In Case 20, the policy excluded
Page 121 and 122: significant definitions, terms and
Page 123 and 124: B.46 Although ombudsmen are unsympa
show all

Insurance Contract Law Issues Paper 2 Warranties - Law Commission

Create successful ePaper yourself

Delete template?

Save as template?