Lloyd's Maritime and Commercial Law Quarterly
BEGINNING OF A NEW ERA FOR INSURANCE WARRANTIES?
Bari¸s Soyer*
Warranties play a significant role in insurance law and practice. The current legal regime concerning insurance warranties has been questioned over the years by academics, practitioners and also judges. Recently, the English and Scottish Law Commissions have embarked upon a project with a view to reforming the current warranty regime. The Law Commissions’ third Consultation Paper, in June 2012, sets out their recent proposals for a law reform. The main objective of this article is to consider the appropriateness and viability of the proposed changes, taking into account their potential impact on law and underwriting practices. It is concluded that the Law Commissions are generally on the right path and their recommendations deserve firm support, although some difficulties are likely to emerge that could fuel litigation if the proposals are to be implemented in their current format.
1. Introduction
For centuries, warranties have been constantly employed in insurance contracts either to circumscribe the risk to which the underwriter subscribes or guard against possible alteration of the insured risk during the currency of the policy.1 The contractual status of warranties and the role they play in insurance law have been described in a categorical fashion by Lord Goff of Chieveley in Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck):
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“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 fulfilment of warranty is a condition precedent to the liability of the insurer. This moreover reflects the fact that the insurer only accepts the risk provided that the warranty is fulfilled.”
Over the years, the legal regime concerning insurance warranties has attracted relentless
* Professor of Commercial and Maritime Law; Director of the Institute of International Shipping and Trade Law, Swansea University. An earlier version of this article was presented at a symposium for market participants entitled “Reforming Marine and Commercial Insurance Law”, organised by the Institute of International Shipping and Trade Law at Swansea University in collaboration with the Law Commission, which was held at the London headquarters of the Association of British Insurers (“ABI”) on 25 April 2013.
1. Warranties relating to present or past facts assist the underwriters in rating the risk, while future warranties are invariably incorporated into insurance contracts to ensure that the assured takes specified precautions or avoids certain actions so that the risk undertaken at the outset is not increased.
2. [1992] 1 AC 233, 262–263.
BEGINNING OF A NEW ERA FOR INSURANCE WARRANTIES?
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