Insurance Contract Law Issues Paper 2 Warranties - Law Commission

7.121 This can lead to very technical arguments. For example, in Molinos Nacionales v
Pohjola Insurance Company Ltd, 36 the ship was said to sail from Tallinn, but
instead sailed from Muuga, an adjacent part separated from Tallinn by a
headland only 3 miles across, and managed by the same port authority. The
difference in port had no bearing on the risk. Mr Justice Coleman described the
insurer’s argument that the risk did not attach as having “no merit whatsoever”.
However, the Act and earlier authorities permitted insurers to avoid a voyage
policy for “trivial, entirely immaterial, deviations”. He was therefore forced to
conclude that the insurers should be allowed to defend the claim on these
grounds, and were entitled to proceed to trial.
7.122 Other parts of the MIA raise similar issues. Under section 44, for example, the
policy does not attach if the ship sails to the wrong destination. Under sections 45
and 46, if the destination is changed or there is a deviation, the insurer is
discharged.
7.123 We intend to consult briefly about these sections at a later date.
SHOULD THE REFORMS APPLY TO REINSURANCE?
7.124 Our view is that unless there are very good reasons to the contrary, the law on
reinsurance should follow, as closely as possible, the law that governs the
original insurance contract.
7.125 An example of the problems that can be caused where the laws differ can be
found in Forsikringsaktieselkapet Vesta v Butcher. 37 The plaintiffs were a
Norwegian insurance company who had insured the owners of a Norwegian fish
farm against the loss of their fish. The plaintiffs had then reinsured 90% of the
risk with London underwriters. Both the original policy and the reinsurance policy
stated that a 24-hour watch be kept of the farm, and that “failure to comply” would
render the policy null and void. Although the terms were identical, the applicable
law was not. The original policy was governed by Norwegian law while the
reinsurance policy was governed by English law.
7.126 The fish were lost in a storm. The farm had failed to keep a 24 hour watch, but
this was unconnected to damage caused by the storm. Under Norwegian law, the
breach did not prevent liability from arising, despite the express words of the
policy, because it was not causative of the loss. The Norwegian insurers paid the
claim. However, when they sought to recover 90% of the loss from the London
underwriters, the reinsurers pleaded breach of warranty. The House of Lords
eventually held the reinsurers liable as, on a true construction of this particular
policy, they had agreed to cover all the risks involved in the original policy. It was
unfortunate, however, that the dispute took so long to resolve.
36
(unreported) High Court, 5 May 1998.
37 [1989] AC 852.
86