DAMODARAM SANJIVAYYA NATIONAL LAW

UNIVERSITY

VISAKHAPATNAM, A.P. INDIA.

PROJECT TITLE

BREACH OF WARRANTY, CONDITIONS AND STIPULATIONS

SUBJECT

INSURANCE LAW

NAME OF THE FACULTY ADVISOR

Asst. PROF. BHARAT KUMAR

NAME OF THE STUDENT

M.ASHA PRIYA

ROLL NUMBER

2017-051

SEMESTER – VIII

SECTION – A

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 ACKNOWLEDGEMENT

I am highly indebted to my Insurance Law Professor, Prof. Bharat Kumar, for giving me an
excellent opportunity to work on the topic ‘BREACH OF WARRANTY, CONDITIONS AND
STIPULATIONS,’ and it is because of his excellent knowledge, experience and guidance, that
this project is made with great interest and effort and I would also like to thank sir who guided
my novice knowledge of doing research on such significant topic.

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TABLE OF CONTENTS AND LIST OF CASES

INTRODUCTION………………………………………………………………………….4

1. Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The
Good Luck)………………………………………………………………………………….5

2. State Trading Corporation of India Ltd v M Golodetz Ltd………………………….6

3. Brit Syndicates Ltd and others v Italaudit Spa and others……………………………7

4. L’ Union des Assurances de Paris IARD v HBZ International Exchange Co………. 8

5. Middle High School v. HDFC Ergo General Insurance Company…………………..9

6. National Insurance Company Limited v. Challa Bharathamma and Others………..10

7. New India Assurance Company Limited v. Asha Rani………………………………..11

8. Simons v. Gale…………………………………………………………………………..12

9. New India Assurance Co. Ltd. v. K. Radhakrishanan…………………………………12

10. State Bank of India v. Agents and Manufacturers…………………………………….13

CONCLUSION……………………………………………………………………………….14

BIBLIOGRAPHY…………………………………………………………………………….14

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INTRODUCTION

The Marine Insurance Act 1906, as the inveterate practice in marine insurance of using the
term ‘warranty’ as signifying a condition precedent.’ Lord Goff referred to Thomson v. Weems
and said ‘Once this is appreciated, it becomes readily understandable that, if a promissory
warranty is not complied with, the insurer is discharged from liability as from the date of
breach of warranty, for the simple reason that fulfilment of the warranty is a condition
precedent to the liability of the insurer. A warranty as defined in S.35 (l) must be exactly
complied with whether it is material to the risk or not. If not subject to any express provision in
the policy the insurer is discharged from liability as from the date of the breach of warranty,
but without prejudice to any liability incurred by him before that date.

In the case of Society v. Llewellyn,1 the court held that the common law left the parties free to
make their own terms. If the insured warranted a statement to be true as a condition precedent
to validity of the policy, he was bound by the warranty, and if it failed the policy also failed.
Parties have a right to contract in this wise if they will.

In the case of Harms v. Fidelity Ins. Co2., Missouri has adopted a statute which typifies the
most drastic modification of the common law. In this state, it is provided that the
misrepresentation shall not render the policy void unless it shall have actually contributed to
the contingency on which the policy became payable, and whether it so contributed is always a
question for the jury. Kansas and Arizona' have adopted statutes almost identical with that in
force in Missouri. Under this type of statute, no misstatement is available as a defence unless
the mater misstated has a material bearing on the event that makes the policy payable.
Illustrating this point, it was held in Missouri that a misrepresentation as to habits of sobriety
does not bar a recovery under the policy unless the insured's lack of sobriety causes or
contributes to cause the loss suffered under the policy.

The unfairness of this type of statute is at once apparent. The applicant may intentionally
falsify the answer to every question in the application and yet the beneficiary may recover if
none of the false answers touched upon the actual cause of the loss. If such statutes do not,
indeed, place a premium on falsification, they at least give all the odds to the falsifier.

1
Society v. Llewellyn 58 Fed. 940
2
Harms v. Fidelity Ins. Co., 57 S. W. 1046

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In the case of Porter v. Ins. Co.,3 It is incumbent that the misstatement relate to a matter
material to the risk; otherwise, it shall not be available as a defence. California is typical of
those jurisdictions in which the statutory enactment provides that the misstatement must be as
to a fact material to the risk. Where this is shown to the satisfaction of the jury, a recovery will
be denied on the policy.

In the case of Collins v. Casualty Co. of Amer,4 the court observed that in Massachusetts the
statute provides that breach of warranty shall not defeat a recovery unless the warranty was
made with actual intent to deceive or unless it increased the risk. Under such circumstances,
the burden of proof that the warranty increases the risk is on the Company.

In Thomson v. Weems,5 the court said that In policies of marine insurance I think it is settled
by authority that any statement of a fact bearing upon the risk introduced into the written policy
is by whatever words and in whatever place, to be construed as a warranty, and prima facie, at
least that the compliance with that warranty is a condition precedent to the attaching of the
risk”. Hence, the Section states that the warranty must be exactly complied with whether it be
material to the risk or not, and that otherwise the insurer is discharged from liability as from the
date of the breach. Fulfilment of the warranty is a condition precedent to the liability or further
liability of the insurer.

1. Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The
Good Luck)

Citation: CA 1990 ([1990] 1 QB 818), [1992] 1 AC 233

Judges: Lord Goff of Chieveley

Facts: In this case the insured had breached the warrantee and the insurance company denied to
pay the insurance amount saying that the contract of insurance would be terminated
automatically at the movement the breach of conditions or warranty had been done by the
insured. The insured claimed that the contract cannot be said to be nullified automatically with
the alleged breach. So the matter is before the court to decide the issue of law on this matter.

Issue: Whether the insurer would be automatically discharged from the liability immediately at
the time when the conditions of the contract of insurance were breached?

3
Porter v. Ins. Co., 157 Pac. 825
4
Collins v. Casualty Co. of Amer., 112 N. E. 634
5
Thomson v. Weems, [1884] 9 AC 671 England and Wales

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Reasoning: The effect of breach of an insurance warranty is automatic, rather than dependant
on any acceptance or election. The court observed that, subject to any express provision in the
policy, the insurer is discharged from liability as from the date of the breach of warranty. They
show that discharge of the insurer from liability is automatic and is not dependent upon any
decision by the insurer to treat the contract or the insurance as at an end; though, under section
34(3), the insurer may waive the breach of warranty.

In the case of conditions precedent in English law under which the coming into existence of an
obligation, or the duty or further duty to perform an obligation, is dependent upon the
fulfilment of the specified condition. Here, where the court is concerned with a promissory
warranty, i.e. a promissory condition precedent, contained in an existing contract of insurance,
non-fulfilment of the condition does not prevent the contract from coming into existence.

What it does is to discharge the insurer from liability as from the date of the breach. Certainly,
it does not have the effect of discharging the contract ab initio. Nor, strictly speaking, does it
have the effect of bringing the contract to an end. It is possible that there may be obligations of
the assured under the contract which will survive the discharge of the insurer from liability, as
for example a continuing liability to pay premium. Even if in the result no further obligations
rest on either party, it is not correct to speak of the contract being avoided; and it is, strictly
speaking, more accurate to keep to the carefully chosen words in section 33(3) of the Act,
rather than to speak of the contract being brought to an end, though that may be the practical
effect.

Conclusion: When, as section 34(3) contemplates, the insurer waives a breach of a promissory
warranty, the effect is that, to the extent of the waiver, the insurer cannot rely upon the breach
as having discharged him from liability. This is a very different thing from saying that
discharge of the insurer from liability is dependent upon a decision by the insurer.

2. State Trading Corporation of India Ltd v M Golodetz Ltd

Citation: [1989] 2 Lloyd’s Rep 277

Facts: In this case, there was a contract between two parties for the sale and purchase of certain
goods which were insured by the insurance company. But the actual parties wanted to
repudiate the contract but the communication of repudiation and acceptance of such
repudiation was not properly done. Now the company wants to claim insurance claiming that
they never actually repudiated the main contract. But the insurance company argued that the

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main parties actually wanted to repudiate the contract and that so once the main contract is
rescinded, the conditions in the contract of indemnity would be violated because it is main
condition to insure, that there must be valid contract in existence.

Issue: Whether the failure to rescind the contract is fatal in this case and the intention of the
parties to repudiate can be taken as a plea by the insurer to do away with paying the insurance
eon the ground of breach of condition?

Reasoning: What is commonly referred to as an acceptance of repudiation must be

communicated to the party in breach or at least overtly evinced. An unequivocal act which is
inconsistent with the subsistence of the contract may be sufficient, without any concurrent
manifestation of intent directed to the other party. But saying and doing nothing at all, other
than a continuing failure to perform, cannot constitute an acceptance of repudiation even if the
grounds for such an acceptance then exist. Such conduct would be equivocal and equally
consistent with a decision not to exercise the right to treat the contract as repudiated.

Conclusion: Thus, the correct analysis of a breach of warranty in the insurance contract may
be that, upon the true construction of the contract, the consequence of the breach is that the
cover ceases to be applicable unless the insurer subsequently affirms the contract, rather than to
treat the occurrence of a breach of the contract by the insured which the insurer subsequently
accepts as a wrongful repudiation.’

3. Brit Syndicates Ltd and others v Italaudit Spa and others

Citation: HL 12 Mar 2008

Facts: The parties disputed the extent of cover under an insurance policy. The insured firm of
accountants had failed to verify the existence of a substantial balance claimed by the company
it audited. The policy ‘included as an Assured Firm but solely in respect of claims made
against Grant Thornton International arising from claims made against a member firm of Grant
Thornton International insured by the terms and conditions of this policy’. The question was
whether GTI Italy was insured.

Issue: whether the insurance company can take the plea that it had clearly mentioned in its
terms and conditions that it had only agreed to insure those transactions against the first
insuring company?

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Reasoning: The insured’s appeal succeeded. The clause ‘gives to GTI as an Assured Firm’ the
protection of the second insuring clause, without any need to show that the claim against GT
Italy is itself one which is insured under either of the two insuring clauses.

Conclusion: the court means that the phrase ‘insured by the terms and conditions of this
policy’ do not relate to the earlier words ‘claims made’, but rather to the words ‘a member firm
of Grant Thornton International’.

4. L’ Union des Assurances de Paris IARD v HBZ International Exchange Co

Citation: [1993] 1 SLR 822 (HC); [1993] 3 SLR 161 (CA)

Facts: HBZ International Exchange Co Pte Ltd had to regularly withdraw substantial amounts
of cash and gold bars from a nearby bank and so they took out a policy with L’Union to cover
loss of money or gold from any of the six causes in the schedule of the policy. Four of the
causes dealt with losses incurred whilst the items were on transit, whereas the remaining two
causes covered non-transit losses for items kept in the locked safes. A number of terms had
been listed in the policy like

➢ Warranty which warranted that carryings exceeding100,000 dollars be accompanied by

at least two employees of the insured;
➢ Condition which required that the insured shall take all reasonable precautions for the
safety of the property insured
➢ Condition which maintained that the due observance and fulfilment of the terms,
provisions, conditions and endorsements of this policy by the insured

Later, HBZ instructed a general clerk, who was to be accompanied by a clerk-cum-driver, to

cash a 500,000 dollar cheque and purchase 14 gold bars. After completing the transactions,
they drove back from the bank to their regular car park. Whilst walking down the flight of
stairs leading from the car park to their office, they were overpowered by a group of assailants
and robbed of all the cash and gold.

HBZ promptly filed a claim but L’Union denied liability on the grounds that there were
breaches of certain terms in the policy

a) breach of warranty in two respects

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 ➢ Talib was only accompanied by one other person whereas L’Union contended that
Warranty No 1 required at least two other persons;
➢ there were three instances when the two men were not in the immediate vicinity of each
other

(b) breach of condition precedent to liability in that reasonable precautions such as use of
suitable personnel for such an assignment and variation of route from car park to HBZ
premises were not taken.

Issue: Whether there is any breach of warranty and whether there is any negligence on the part
of insured?

Reasoning: As regards the latter, the first instance judge the court ruled that there was no
breach of condition precedent to liability, it being accepted that the standard required in
insurance law was generally expected to be lower. In his view, the insured did not deliberately
court danger; neither was there any reckless disregard in the manner the insured gave directions
to their employees nor in the mode in which the moneys and valuables were caused to be
transported.

Conclusion: The argument that HBZ did not take reasonable precautions to ensure the safety
of the insured items was thus dismissed and the insurer chose not to bring this up again when
subsequently filing for appeal.

5. Middle High School v. HDFC Ergo General Insurance Company

Citation: (2017) 2 SCC 278

Facts: The inured did not follow the terms and conditions of the contract of guarantee for
obtaining the said insurance. But the insured relied upon the judgement of the Augustine V.M
v. Ayyappankutty and Ors to contend that it is not necessary to follow all the terms in order to
get the insurances in case of accident. The said case was the precedent at that time and the
lower decided against the insured.

Issue: Whether the insurer can be made liable to pay the insurance amount even in the case of
breach of warrantee against the precedent of that time?

Reasoning: The Supreme Court had held that the High court was correct in holding that once
there is breach of condition of policy the liability cannot be fastened on the insurer. The High

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Court had relied upon decisions of this Court in National Insurance Company Limited v.
Challa Bharathamma and Others, New India Assurance Company Limited v. Asha Rani &
Ors., and National Insurance Company Limited v. Nicolleta Rohtagi & Ors. The contrary view
in Augustine V.M v. Ayyappankutty and Ors cannot thus be held to be valid and is disapproved
to the extent holding that insurer was liable even if there was breach of conditions of policy.

Conclusion: The court had overruled the earlier decision that the insurance could be given
even for the breach of warranty.

6. National Insurance Company Limited v. Challa Bharathamma and Others.

Citation: (2004) 8 SCC 517

Facts:

Three persons were traveling in an auto rickshaw which met with an accident. Two persons lost
their lives while one was seriously injured. Claim petitions were filed by the legal
representatives of the two deceased persons while the injured filed separate petition claiming
compensation in terms of Section 166 of the Motor Vehicles Act, 1988. The insurer resisted the
claim on the ground that the insured had not obtained permit to ply the vehicle and therefore in
terms of the policy of the insurance the insurer had no liability.

Issue:

Whether it is necessary to obtain permit to ply the vehicle as contended by the insurer or
whether it is a breach of condition to not apply?

Reasoning:

The Motor Vehicle Accident Claims Tribunal accepted the plea. It however, held that the
insured was liable to pay compensation which was fixed at one lakh twenty four thousand in
the case of the death while in case claim of the injured, a sum of two thousand was directed to
be paid. The judgment was challenged in appeal before the Division Bench of the High Court
of Andhra Pradesh at Hyderabad questioning the correctness of the view regarding non-liability
of the insurer. The High court by the impugned judgment held that the insurer was liable to
indemnify the award.

In support of the appeal learned counsel for the appellant insurer submitted that the High Court
has lost sight of the fact that plying the vehicle without requisite permit is a breach of a specific

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condition of the policy and, therefore, the insurer had no liability. It was pointed out
that Section 149 of the motor vehicles Act deals with the defences available to the insurer.

Conclusion:

After hearing both the sides, the Supreme Court held that it is necessary to fulfil every
condition if it is mentioned in the list of conditions to be satisfied to get insurance. The court
held that the insurer can sure take that defence under section 149, but it is matter of
adjudication to allow or reject it. The court held that the insurer cannot escape form the liability
owing to the mistake of the respondent and further held that the insurer can further take the
amount form the insured by suing him for indemnity.

7. New India Assurance Company Limited v. Asha Rani

Citation: (2003) 2 SCC 223

Facts: The owner of the vehicle carrying the passengers did not pay the premium amount and
when the accident happened, he claimed insurance. The insurance company took a plea that the
insured did not pay premium and that he had violated the condition of the policy and thus not
entitled to compensation. The insurer further said that the motor vehicles act was amended and
in the year 1988 and that now it is a condition that every passenger carrying carriage should
pay premium under the new amended act.

Issue: whether the person who had violated the condition laid down in the act which was
amended, fails to pay premium and thereby violating the condition, liable to get insurance?

Reasoning: Under New Act, it would be a breach of condition in case vehicle is used for a
purpose other than for which permit has been issued. Thus in a case a permit is issued for a
goods carriage it would not include any passengers and in case they travel it would be contrary
to the mandate of the statute and thus in view of Section 149(2) no liability could be passed on
to the insurance company.

An owner of a passenger carrying vehicle must pay premium for covering the risks of the
passengers. If a liability other than the limited liability provided for under the Act is to be
enhanced under an insurance policy, additional premium is required to be paid.

Conclusion: By reason of the change in the definitions of the terminology, the Legislature
intended that a goods vehicle could not carry any passenger, as the words in addition to

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passengers occurring in the definition of goods vehicle in 1939 Act were omitted. Furthermore,
it categorically states that goods carriage would mean a motor vehicle constructed or adapted
for use solely for the carriage of goods. Carrying of passengers in a goods carriage, thus, is not
contemplated under 1988 Act.

8. Simons v. Gale

Citation: (1958) 2 All ER 504 (PC)

Facts: A vessel had to be converted into a cattle-transport ship. A policy was taken on
December 13 on the ship containing a warranty ‘all arrangements for conversion of vessel
made at the inception of this insurance’. The vessel had to arrive at Townsville by about
January 14 and after loading sail for Manilla by January 18. The vessel did not arrive at
Townsville by about January 14 nor was it so converted. On December 14 only a tentative
undertaking was given by the ship repairers for the conversion work but not a firm contract to
repair. The Insurers repudiated liability on the ground that the warranty had not been exactly
complied with.

Issue: whether the term ‘all arrangements’ means something more than mere under taking and
thus relieving the duty of insurer on the ground of breach of condition and warranty?

Reasoning: The court upheld the repudiation as all arrangements meant something more
definite than a tentative undertaking. The repairers had failed to perform the conditional part of
the contract and thus the insurers are not wrong in repudiating the contract and refusing to pay
insurance.

Conclusion: The contract of guaranty and insurance is also a two way process and
consideration is an essential part that is to be flowed from both the sides for the contract to be
valid. Here the fulfilment of the condition that the repairers would complete all arrangements is
in itself a consideration towards the insurance company. The non-fulfilment is no doubt a
breach of condition and it is reasonable for the court to decide in favour of the insurer.

9. New India Assurance Co. Ltd. v. K. Radhakrishanan

Citation: (1993) 76 Comp Cas 439, 442.

Facts: Fishing boat belonging to the plaintiff was insured with the appellant under a marine
insurance policy valid from January 12, 1978, to January 11, 1979. The policy included a

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special condition by way of warranty monsoon cover prohibiting fishing operations during the
monsoon season outside the limits of certain said port. While engaged in fishing operations by
due to engine failure and weather conditions, the boat was washed off and lost in the sea. The
crew was saved by fishermen. In the suit claiming over 93,000 under the policy, the main
defence was violation of the special condition which exonerated and discharged the insurer.

Issue: whether the insurer is exonerated and discharged from his liability due to breach of
special condition?

Reasoning: A warranty in a marine insurance policy involving risk is a special condition. If it

is not complied with, the insurer is discharged from his liability as from the date of the breach
of warranty, but without prejudice to any liability incurred before that date. The contract does
not exist unless the warranty is literally complied with. The court had considered the
statements of the witness and it was clear that the boat had gone out of limits before the engine
failure and that it is clearly failure to comply with special condition and that this breach of
condition has exonerated the insurer from liability.

Conclusion: Where there was prohibition against conducting fishing operations during the
monsoon season and permitted only within the part limits, the fact that the boat was lost
outside the port limits because of failure of engine, the insurer could not be held liable because
a breach of condition of policy by the insured.

10. State Bank of India v. Agents and Manufacturers

Citation: (1999) 97 Comp Cas 539 (Del)

Facts: Plaintiff is a partnership firm and is carrying on business of manufacturing sewing

machines bases, covers, tables, cabinets of wood etc. and for this purpose it purchases and
maintains stocks of timber, plywood, fittings, materials and block boards and other raw
materials etc. For the purpose of its business it has been availing cash credit facilities against
hypothecation of its stocks from the State Bank of India, and the limits of these facilities have
been increased from time to time. The claimant in order to secure the bank loan taken against
hypothecation of its stocks of material in both the facilities had obtained five Insurance Policies
from the Insurance Company.

A fire took place in the premises thereby causing loss of its stock lying there due to burning in
that fire. Claim was submitted by the claimant company to the Insurance Company. Loss was

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surveyed by the Surveyors who submitted their report and on the basis of the material available
with it, the Insurance Company rejected the claim of the claimant for the reasons given therein
i.e., for alleged breaches of warranties and conditions of the policies. The claim having been
repudiated and thus the claimant filed the suit being claiming a sum of Rs. l,90,000.00 against
4 policies.

Issue: whether the insured have said to be breached the conditions and warrantee and thus
became non eligible to claim the insurance amount?

Reasoning: In a case where the insured goods were under lien of the borrowing bank, which
were destroyed in fire, but due to breach of warranties of loan by the borrower, such as fire
broke out in premises other than the one mentioned in the policy, the insurer was held not
liable to either the borrower or the bank for the loss of goods.

Conclusion: Here the Court was clear that the claimants had warranted that there will be no
cooking in the building to which this insurance applies except in a place separately provided
for the purpose being of brick-work, stone-work or concrete protected. Warranted that fire-
place is securely set in masonry or brick with a hearth of stone or concrete protected by a metal
fender, and that the chimney is pucca built. Warranted that sweeping is done daily and the
court had sufficient evidence to show the breach of such warranty.

CONCLUSION

The insurance companies in most of the cases try to prove that the insured company had
breached certain warranties that they had earlier undertaken, and try to avoid liabilities. Earlier
the point of law in this regard used to differ from what it is now. Earlier the courts never agreed
the contention of the insurer that there has been breach of warrantee and thus they are not liable
to pay insurance amount to the insured. A lot of discussions and debates happened regarding
whether the insurance amount can be discharged automatically once the breach of contract is
proved. But the courts later on made it clear and settled the issue that once the breach of
warrantee or condition is proved, then the insurer can take up that claim, and it is upon the
adjudicatory body to decide the matter.

BIBLIOGRAPHY

Legislations

➢ The Marine Insurance Act 1906

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 ➢ Insurance Act 1938
➢ Insurance Regulatory and Development Authority Act 1999

Articles

➢ OF WARRANTIES AND TERMS DELIMITING RISKS IN INSURANCE

CONTRACTS Yeo Hwee Ying, Singapore Journal of Legal Studies, December 1994,
(December 1994), pp. 369- 386 Published by: National University of Singapore
(Faculty of Law)
➢ Schalk Van Der Merwe & M. F. B. Reinecke, When Can an Insurer Cancel a Contract
on the Ground of Misrepresentation or Breach of Warranty, 1991 J. S. AFR. L. 681
(1991).
➢ W. L. Brady, Breach of Warranty as Affecting Contracts of Insurance, 10 St. Louis L.
REV. 112 (1925)
➢ M. F. B. Reinecke, An Insurer's Remedies for Misrepresentation and Breach of
Warranty, 13 S. AFR. MERCANTILE L.J. 70 (2001)
➢ Peter Havenga, An Insurer's Remedies for Misrepresentation and Breach of Warranty:
A Comparison with English and Australian Law, 13 S. AFR. MERCANTILE L.J. 281
(2001).
➢ D. Michael Case, Breach of Warranty - Rights and Obligations, 47 J. AIR L. & COM.
729 (1982).
➢ William C. Baldwin & C. Barrett Rice, Breach of Warranty and Misrepresentation -
USA, 87 TUL. L. REV. 1049 (2013)

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