REVIEW ON MARINE WARRANTY

From the Book ‘Marine insurance law’

by Özlem Gürses
 Prepared by:- Biruk Petros
Merawi Melaku

 Presented by:-Amdework zemedu

Getnet Almasen
What is warranty?

 A warranty in Marine Insurance is an agreement between the insurance

company and the insured.
 It implies an assurance by the insured party that the statements or facts that
he presents as warranties are true.
 The policyholder affirms or negates the existence of particular facts.
 a warranty is a trivial term in contract law and its breach entitles the
innocent party to claim damages only.
 According to the Marine Insurance Act 1906 section 33(1) regulation the
assured undertakes that
1. some particular thing shall be done
2 .some particular thing shall not be done
3 .some condition shall be fulfilled or
4. the assured affirms or negatives the existence of a particular state of
facts.
Cont..
 The assured may warrant that:-
-the yacht will be fully crewed at all times
-If a vessel will be towed from one port to another the assured may warrant that
the Salvage Association’s Approval will be obtained before the towage begins
-not to sail the ferry if there is a typhoon warning in the area
 Assured:- is the person who, having an insurable interest in the property at risk

 warranted free:- the insurers are not to be liable for the things to which the
warranty applies.
 Insurer :- also called 'insurance company' is the entity that accepts the risk and

promises to pay for the losses that arise within the policy term. The insurer
commits to pay for loss in exchange of the premiums, paid regularly.
 a promissory warranty:- is a promise by the assured that a warranty will be

fulfilled.
In marine insurance warranties may be express or implied.
Expressed warranty
 An express warranty may be in any form of words from which the intention to warrant is to

be inferred.(conclude from evidence)

 An express warranty must be included in, or written upon the policy, or must

be contained in some document incorporated by reference into the policy.

 According to MIA 1906 S.35 (2) Not withstanding anything contained in this

policy or clauses attached hereto, it is expressly warranted that the carrying

vessel shall not sail or put out of Sheltered Port when there is a typhoon or
storm warning.
Construction of warranties.
 Subject to the rules of contractual construction. Followed by the Courts

consistently.
 Subject to the rules of contractual construction. Followed by the Courts

consistently.
Present and continuing warranty
Present warranties relate to the factual state of affairs existing at the date of the policy, while
continuing warranties impose continuing obligations on the assured during the
currency(accepted) of the policy.
Implied warranty

 An implied warranty is a guarantee that is not written down or explicitly spoken.
 The MIA 1906 section 36(1) provides ‘Where insurable property, whether ship or

goods, is expressly warranted neutral, there is an implied condition that the

property shall have a neutral character at the commencement of the risk, and that,
so far as the assured can control the matter, its neutral character shall be preserved
during the risk.’
Warranty of sea worthiness (Voyage policy)
 1906 Act implies a warranty into voyage policies that at the beginning of the

voyage the vessel shall be seaworthy for the purpose of the particular adventure
insured.
Seaworthiness:- whether a vessel is seaworthy or not depends essentially on whether
she is fit to meet the perils of the voyage upon which she embarks.
 A vessel is not seaworthy if she has insufficient fuel to enable her to proceed on
her voyage, or if the voyage requires a certain number of crew and if the ship
owner employs less than that number.
 Defectively designed and therefore not capable of withstanding the ordinary
conditions of the voyage
 The vessel must carry necessary documents, required by the
law of the vessel’s flag or by the laws, regulations or lawful
administrative practices of governmental or local authorities at
the vessel’s port of call.
 the effect of the warranty is that if the vessel is not seaworthy
the insurer is not liable for any loss or damage
 Once there is a breach of a seaworthiness warranty the insurer
can seek a remedy irrespective of whether the breach came
about through fault or want of diligence on the part of the
assured, or whether un seaworthiness is capable of being
avoided
 To establish unseaworthiness, it is not necessary to identify
the precise defect.Eridania SpA (formerly Cereol Italia Srl) v
Oetker (The Fjord Wind)  established that where a vessel
suffers a serious casualty without any outside intervention,
the natural inference is that there was something wrong with
her which a prudent(showing care) owner would have
rectified if he had known about it.
 This principle applies irrespective of the defect being one
which can subsequently be specifically identified or is one
which cannot be specifically identified but whose existence
can be inferred from a propensity for failures to occur for
unknown reasons and at unpredictable intervals.
 So as long as such a defect actually exists, the risks involved
in leaving it unrepaired are sufficiently serious to require
remedial action to be taken before the ship proceeds farther
 The test of seaworthiness is to ask whether a reasonably
prudent owner would have required that a particular defect, if
he had known of it, be made good before sending the ship to
sea.
 Seaworthiness is concerned with the state of the vessel rather
than with whether the owners acted prudently or with due
diligence
 Section 39(3) provides that ‘Where the policy relates to a voyage which is performed in different stages,
during which the ship requires different kinds of or further preparation or equipment, there is an implied
warranty that at the commencement of each stage the ship is seaworthy in respect of such preparation or
equipment for the purposes of that stage.
E.g having insufficient fuel to enable the vessel to proceed on her voyage will render
the vessel unseaworthy.
Time policies
 Under a time policy, there is no implied warranty of seaworthiness, either at the

inception(beginning) of the risk or on sailing.

 if the ship is sent to sea in an unseaworthy state with the privities of the assured, the

insurer is not liable for any loss attributable to unseaworthiness.

 The reason for non-existence of a seaworthiness warranty in time policies is

historical. In Fawcus v Sarsfield it was argued by the insurers that on a time policy, if
on the day on which the risk is to commence the ship be in a port in any region of the
Globe in which there are the means of repairing her and rendering her seaworthy,
there is an implied warranty or condition that she shall be repaired and rendered
seaworthy before she sails from this port.
 It was held in Fawcus that in time policies such a doctrine would be exceedingly

inconvenient and would prevent shipowners from having that indemnity and security which
time policies have hitherto afforded them
 It is inconvenient when the risk begins while the ship is on the high seas
Conti..
 Thus, when the MIA 1906 was enacted, section 39(5) did not impose a
seaworthiness warranty in time policies, however, it provided a remedy for a case
in which a shipowner consciously sends his vessel to a voyage in an unseaworthy
state. There are three elements that the insurer is required to establish in this
defence under section 39(5).
i) there must have been unseaworthiness at the time the vessel was
sent to sea.
ii) the unseaworthiness must have been causative of the relevant
loss.
iii) the assured must have been privy to sending the ship to sea in
that condition.
 If one of these three requirements is missing the insurer is liable
for the loss.
 In any case the causation, fortuity and perils of the sea will have to
be considered.
Privity

 a relation between two parties that is recognized by law.

 with knowledge and consent’. The assured loses his cover
if he has consented to or concurred in the ship going to
sea when he knew that it was in an unseaworthy condition.
 sending a ship to sea knowing it is unseaworthy will
amount to wilful misconduct.
 ‘privity’ does not mean that the assured himself personally
did the act, but only that someone else did it and that he
knowingly concurred in it.
 If it was a wrongful act done by his servant, then he was
liable for it if it was done ‘by his command or privity’, that
is, with his express authority or with his knowledge and
concurrence.
Cont..
 The MIA 1906 section 40(1) provides that ‘in a policy on goods
or other moveables there is no implied warranty that the goods
or moveable are seaworthy’
 Under the 1906 Act therefore, the fact that the goods are not
reasonably fit in all respects to encounter the ordinary perils of
the seas of the adventure insured, does not automatically
deprive the assured of cover.
 MIA 1906, that is, if a warranty is not complied with, subject to
any express provision in the policy, the insurer is discharged
from liability as from the date of the breach of warranty.
 The automatic discharge from liability was said to reflect the
fact that the rationale of warranties in insurance law is that the
insurer only accepts the risk provided that the warranty is
fulfilled.
Strict compliance
 It is for the insurer to establish the pleaded breach of the warranty. All the
insurer has to prove is that the policy contained a warranty which has been
breached by the assured.
 At the date of the breach the insurer is automatically discharged from liability.
 section 34(1) states that under some circumstances a warranty may be excused.
 Accordingly, ‘Non-compliance with a warranty is excused when, by reason of a
change of circumstances, the warranty ceases to be applicable to the
circumstances of the contract, or when compliance with the warranty is
rendered unlawful by any subsequent law.
 Unless the requirements of section 34(1) are satisfied, a warranty must be
strictly complied with, whether it be material to the risk or not.
 For instance, where there is a warranty to sail on
the 1st of August, and the ship did not sail till the 2nd, the warranty would not
be complied with.
 Moreover, the insurer is discharged from liability irrespective of the chain of
causation between
the breach and the warranty.
Waiver
 Waiver may bear different meanings: it may refer to a
forbearance from exercising a right or to an abandonment of
a right.
 Although a breach of warranty, once committed, cannot subsequently be
remedied by the assured,
 it is open to underwriters to waive it and thereby, in effect, reinstate.96
Under section 34(3) when 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.
 A right may be waived either by express words or by conduct
inconsistent with the exercising
of the right; and even where there is no actual waiver, the
person having the right may so conduct himself that it
becomes inequitable for him to enforce that right.
Express waiver
 A waiver or consent granted by the Lender under this Agreement will be effective only if
given in writing and then only in the instance and for the purpose for which it is given.
 An insurer may, by an express clause of the contract, waive a defence which would
otherwise be available by law.
 The wording of such an exclusion must be express, pertinent, and
apposite.
 The 2009 Institute Cargo Clauses (A,B,C) cl.5 provides that the insurance
will not cover loss damage or expense arising from unseaworthiness of the
vessel if the assured is privy to
unseaworthiness at the time the cargo is loaded.
 the insurer will not be liable for the loss caused by unfitness of container or
conveyance for the sea carriage where loading was carried out by the
assured or their employees and they are privy to such unfitness at the time
of the loading.
 Under clause 5.3 the insurers waive any breach of the implied warranties of
seaworthiness of the ship and fitness of the ship to carry the subject matter
insured to its destination.
 Breaches of warranty, however, are breaches of the contract of insurance itself.
Implied waiver
 a waiver that is assumed to be in effect from a person’s behavior and

shows he is waiving a right.

 breach of the duty of good faith opens to the insurer two alternative and inconsistent

courses of action: to avoid or not to avoid the contract.

 His election has generally to be an informed choice, made with

knowledge of the facts giving rise to the right.Once an election is made,

however, it is final and binding.
 Waiver by election does not apply in breach of warranty for the obvious

reason that breach

of warranty results in the insurer’s automatic discharge from liability.
 No other positive action is needed to make that discharge of liability effective. Hence the
insurer is not required to elect the two alternative and inconsistent courses of action.
Held covered’ clauses

  The insurer isnot obliged to hold any risk covered after expiry of any 

contract of insurance, interim or otherwise.
 entitles the assured, as soon as he discovers that the warranty has been
broken, to require the underwriter to hold him covered.
 by virtue of a held covered clause the underwriter is kept on risk,
notwithstanding that, in the absence of the clause, he would be discharged
from liability or the risk would fall outside the policy.
 used to mitigate the harsh consequences of a breach of a warranty
 It provides protection for the assured
 By the held covered clause the underwriter does not agree to hold the
assured covered on terms which differ from those of the policy, other than
as to premium.
Thank you!