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INTERPRETATION OF WARRANTIES

(1) Strictness of law of warranties mitigated by the contra proferentem rule:

Provincial Insurance Co. v Morgan [1933] AC 240.

Purposes for which lorry will be used and nature of goods. (a) Delivery of
coal (b) coal. On one occasion the lorry was carrying partly timber, partly
coal. Insurer sought to repudiate liability on the ground of breach of
promissory warranty. The court held that the clause was ambiguous and
would be construed against the insurer. See also Printpak v AGF
Insurance [1999] Lloyd’s Rep. IR 542. Hirst LJ said: “It does not follow
from the fact that the policy is a single contract that it is to be treated as a
seamless contractual instrument”;

(2) As Davey says in [1999] JBL 580,588:

“The “draconian nature” of the continuing warranty appears to have led the
courts away from a strict application of the rules developed in the marine
sphere. As to the draconian nature see Hales v Reliance Fire [1960] 2 LL
Rep. 391. There is now evidence of a refusal to give effect to terms
labelled as warranties (Hussain v Brown), and to dilute the full effect of a
breach even when the term is classified as a warranty (Kumar v AGF
Insurance).”

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FUTURE OR CONTINUING WARRANTIES

Applies to circumstances at the time contract is made and those arising during the
period of cover.

1. The law relating to warranties is harsh.

(a) The insurer is entitled to demand strict compliance with the warranty
even when the warranty is NOT MATERIAL to the risk and to
REPUDIATE THE POLICY from the date of the breach: Dawsons Ltd.
v Bonnin [1922] 2 AC 413 (H.L.); Thomson v Weems (1884) 9 App
Cas. 671, 689 per Lord Watson.

(b) The insurer is entitled to reject the claim for any breach of material
warranty however IRREVELANT the breach is to the loss sustained. It
is no answer that the loss was not caused by or contributed to by the
breach of warranty: see Glen v Lewis (1853) 155 ER 1494; Conn v
Westminister Insurance [1966] 1 LL. Rep. 407; and see De Maurier v
Bastion Insurance [1967] 2 LL. Rep. 550, 560 per Donaldson J.

(c) Warranties however minor can be made material by the simple device
of the basis of contract clause in the proposal form: Mackay v London
and General (1935) 51 LI. L. Rep. 201 (application for motor insurance;
omission to state fined 10 shillings many months before riding a motor-
cycle without efficient brakes after nut became loose.

2. Because of harsh consequences to the insured of finding a warranty, courts have


often interpreted warranties as merely descriptive of the risk or as delimiting the risk.
This means that the courts treat the insurer as being at risk only at the times when the
conditions described in the warranty obtain.

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For example, where in a proposal form for motor insurance the proposer warranted that
the car was to be used only for commercial travelling this was treated as a statement
descriptive of the risk covered by the insurance. Thus, the insurers were not liable
when there was a loss by a peril insured against while the vehicle was carrying four
passengers through the Black Mountains in Wales and so being used in a manner at
variance with the clause: see Roberts v Anglo-Saxon Insurance (1927)27 LL. L. R 313.

In Provincial Insurance v Morgan [1933] AC 200 the insured warranted that a lorry was
to be used for delivery of coal and that the nature of goods to be carried was coal. By a
recital in the policy it was agreed that the proposal and the declaration should be of a
promissory nature and effect, and should be the basis of the contract. The statement
was therefore a continuing warranty. A collision occurred between the lorry and a car. At
the time of the collision the lorry was carrying coal but occasionally the respondents
used it for carrying timber and had in fact done so on the day of the collision. The
insurer contended they were entitled to repudiate all liability on the policy.

Held, that the statement concerning user of the lorry was a term descriptive of the risk.
As a matter of construction it was not the intention of the insurers that the lorry should
carry only coal. So there had been no breach of anything to be done or complied with,
and the answers were not untrue.

3. Sometimes a clause referring to the future can be treated as a collateral


undertaking, breach of which gives the insurer a claim to damages: see Re Bradley and
Essex & Suffolk Accident [1912] 1 KB 415.

4. In determining whether a clause should be construed as a continuing warranty


Mac Gillivray says the courts have emphasized the following:

(1) The appearance of warranty. Does the clause have the appearance of
warranty?

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(2) Reference to the future. Is the statement in the clause referable to a future
situation?

(3) Protection of the insurer. Is it a provision which would be of little or no value


to the insurers if it related only to present facts?

(4) Undue restriction of the assured. Does a breach of the clause permanently
prejudice the insurers even if it is subsequently remedied?

Applied in Hair v Prudential Assurance [1983] 2 Lloyd’s Rep. 667, 672.

APPEARANCE OF WARRANTY

If the statement is warranted by a basis of contract clause, a court might apply Roberts
v Anglo-Saxon Insurance (supra). If there is no such clause and it had a real bearing on
the risk, it would be treated as a warranty. If it related to matters other than the risk it
might be treated as a collateral stipulation: Re Bradley and Essex & Suffolk Accident
(supra).

REFERENCE TO THE FUTURE

Where by reference to the tense or the subject-matter of the description the statement
clearly relates to the future there is no problem: Beauchamp v National Mutual
Indemnity [1937] 3 All ER 19.

Where, although the declaration is expressed to be promissory most or all of the


answers in fact relate to the past, the declaration may not be construed as a future
warranty: see Sweeney v Kennedy (1948) 82 LL. L. R. 294, 300.

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PROTECTION OF INSURERS

If little point in confining compliance with the warranty to the time when it was made, the
clause may be construed as a future warranty.

Statements in burglary policies that buildings are always occupied will be held to be
continuing warranties: Winicofsky v Army and Navy General (1919) 35 TLR 238.

But where insurers obtain adequate protection even when the clause is confined to
present facts such clauses have not been treated as continuing warranties: see Woolfall
& Rimmer v Moyle [1942] 1 KB 66 and Sweeney v Kennedy (supra).

But in Hussain v Brown [1996] 1 Lloyd’s Rep. 627, 629 it was held that there was no
presumption that warranties as to the nature and use of buildings would be treated as
continuing warranties.

UNDUE RESTRICTION ON THE ASSURED

If the statement of user or description is contained in a proposal form or contained in a


policy and the accuracy of it is expressed to be warranted, the court will be inclined to
construe it as a suspensive condition where the user of the insured object is potentially
highly varied and it would be harsh on the assured to lose his entire policy through one
departure from the situation warranted: Mac Gillivray at para 10-73.

MOTOR POLICIES

Farr v Motor Traders Mutual [1920] 3 KB 669 Claimant insured two taxi cabs. In the
proposal form he stated that the vehicles were driven in one shift per 24 hours. For a
short period when one was under repair, the other was driven in two shifts in the course

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of a single day. The relevant accident occurred much later when both cabs were on the
road and being used in one shift per day.

Held, that the insurers were liable. The statement was not a promissory warranty, for
which the insurer could repudiate. It was merely descriptive of the risk.

Thus temporary alteration of user of a motor vehicle may not avoid the policy, unless the
temporary alteration were to increase the risk of the insurer.

ALL-RISKS POLICIES

De Maurier v Bastion Insurance [1967] 2 Lloyd’s Rep. 550.


Insured warranted that road vehicles were fitted with locks and alarm systems. At time
of the first loss the required locks had not been fitted. At the time of the second loss
they were. The insurers at first repudiated both claims. They admitted liability for the
second later, but resisted the first loss.

Held, that the insurers were not liable for the first loss, as the risk was suspended
because the required locks were not fitted. The clause was not a warranty but merely a
warranty descriptive of the risk.

Where the statement is in the body of the policy and warrants that certain anti-theft
security measures would be complied with, and at the time of the loss they were not, it
was held that the alleged warranty was a clause descriptive of the risk and not a
warranty in the strict sense: see CTN Cash and Carry v General Accident [1989] 1
Lloyd’s Rep. 299.

It is thought that pursuant to the decision in The Good Luck the insurer could now argue
that he rejected liability but not the policy. The suspensive condition argument could still
be mounted as an alternative contention.

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In KIer Knitwear Ltd. v Lombard General [2000] Lloyd’s Rep. IR 47. On renewal of its
coverage the claimant warranted in an endorsement that within 30 days of renewal the
sprinkler system would be inspected and all rectification work commissioned within 14
days after the inspection report. A condition in the policy made the warranty a continuing
one and spelled out that breach of any one of them would bar any claim. The claimant’s
premises suffered storm damage. No inspection had taken place up to 90 days after
renewal. Morland J. held that the endorsement was not a true warranty but only a
suspensive condition.

IF CONSTRUED AS A CONTINUING WARRANTY

Even if construed as a continuing warranty the courts may yet restrict the scope of the
obligation thereunder.

In Winicofsky v Army and Navy (1919) 35 TLR 283 “always occupied” in relation to
premises was treated as meaning “maintained and occupied as a residence” regardless
of temporary absences.

CHANGE OF USE

In Dobson v Sotheby (1807) 173 ER 1091 the policy covered a barn against fire risk,
and there was a condition providing for forfeiture of the policy if the insured buildings
were ever used “to stow or warehouse hazardous goods.” A tar barrel was brought to
the barn and a fire lit for tarring. A fire occurred. The insurers contended the policy was
invalidated.

Held, that the condition was intended to exclude only the habitual user of fire and
ordinary deposit of hazardous goods. Occasional introduction of fire was not a breach

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of condition.

In Shaw v Robberds (1837) 112 ER 29 the policy covered fire risks on a building
described as “kiln for drying corn in use.” On one occasion during the term of the policy
it was used to dry bark from a ship as an isolated act of kindness.

Held, that the prohibition related to habitual user of the kiln and was not contravened by
an isolated act of kindness outside the usual business user.

CONTINUING WARRANTY IN FIRE AND BURGLARY POLICIES

The description of premises and their user in a fire or burglary policy is usually
interpreted as a warranty that the premises will continue to correspond to the
description during the term of the policy.

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