What is the difference beteen Warranties And Conditions in Contarct
The warranty is the most fundamental term of the policy and MUST be incorporated into the policy. It is essentially the promise made by the insured and upon its breach; the insurer is discharged from all liability as from the date of the breach.
The breadth of the discharge of the insurer’s obligations was discussed in the case of Bank of Nora Scotia Vs. Hellenic Mutual War Risk Association (bermuda) ltd, the good luck, [1991] 2 wlr 1279, where the court observed that:
A breach of warranty in a marine policy automatically discharged the insurer from liability. In this case, an insured ship owner had clearly acted in breach of warranty by taking the ship to a prohibited area. The benefit of the insurance had been assigned to a bank which had lent money to the insured and was a mortgagee of the ship; the insurers had been notified of the assignment, gave an undertaking to advise the bank promptly ‘if the ship ceases to be insured.” Notwithstanding this, the insurers failed to advise the bank until some weeks after it had discovered the breach of warranty and the loss of the ship. At this time the bank decided to make a further advance to the insured which it was held would not have been done had the insurer’s complied with the undertaking to advise it promptly.
The court in its holding distinguished warranties from conditions and it stated that, a warranty is a condition precedent and that if a promissory warranty is not complied with, the insurer is discharged from liability as from the date of the breach of warranty, for the simple reason that fulfillment of the condition precedent to the liability or further liability of the insurer.
ALSO in the case of Beauchamp Vs.Nnational Mutual Indemnity Insurance Company (1937) 3 ALLER 19 , a builder who had not previously undertaken any demolition work took out a policy of insurance to cover the demolition of a mill. He was asked in the proposal form “are there any explosives used?” and answered “no”: and agreed that his answer should form the basis of the contract between himself and the assurer. The policy of insurance contained a condition “the insured shall take reasonable precautions to prevent accidents.” The plaintiff proceeded to demolish the mill, and in the course of such demolition used explosives.
Three persons were killed by falling masonry and upon a claim being made under the policy, the insurance company repudiated liability. The court observed that the denial of the use of explosives amounted to a warranty that they would not be used and even if it amounted to a mere description of the risk to be insured, the cause or contributing cause of the accident was the use of explosive and that there had been a change in the risk, for the company insured a non-explosive demolition.
From the above case, it could be seen that the court shall be strict in discharging the insurer from liability where there is breach of a warranty. However, it should be noted that the courts are very cautious when handling the interpretation of warranties in the contract. In this respect, warranties should be clear and unambiguous and where a term in the contract is ambiguous, the court shall interpret the contract “contra proferentum” (hence, against the party that drafts the contract).
The leading example is the decision of the House of lords in the case of: Provincial Insurance Company V. Morgan (1933) A.C 240, A 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 .
Transporting other goods would not terminate liability under the policy .
Tags : Insurance Law