FACULTY OF LAW

STUDENT’S NAME: KIRABO DIANA

STUDENTS ID NO: 136-963

COUSRE UNIT: INSURANCE LAW LLB327

LECTURER’S NAME: CATHERINE NANSUBUGA

SEMESTER: TWO

YEAR: THREE

CAT.2

QUESTION; discuss the concept of warranties in insurance law.

Avtar Singh, in The Law of Insurance (2nd ed.) at page 1, defines insurance as a contract by
which one party in consideration of a price called the premium paid to him adequate to risk
becomes security to the other that he shall not suffer loss, damage or prejudice by the happening
of the perils specified to certain things which may be exposed to them. In Prudential assurance
Co. vs IRC1 Channell LJ defined insurance while giving its requirements where he stated that
there are three requirements for a valid contract of insurance, First, it should provide some benefit
for the policy holder on the occurrence of an uncertain event, secondly the occurrence should
involve some element of uncertainty; and thirdly the uncertain event should be one which is prima
facie adverse to the interests of the assured. The judge then added that this was not an exhaust
definition!

Section 1 of the Insurance Act Cap 191, it defines an insurance contract as follows: “A contract
under which one party, known as the insurer, in exchange for a premium, agrees with another
party, known as the policy holder, to make a payment, or provide a benefit to the policy holder or
another person on the occurrence of a specified uncertain event which, if it occurs, will be adverse
to the interests of the policy holder or to the interests of the person who will receive the payment
of benefit.”2

Part III of the Marine Insurance Act Cap 192 provides for warranties. A warranty is defined
to mean an essential term of the contract of insurance and it has the place of what is referred to as
“condition of the contract” in general contract law. This is because the liability of the insurer
depends upon the existence of the fact or the thing warranted.

According to Section 32(3) of the Marine Insurance Act, is defined to mean a condition which
must be exactly complied with, whether it is material to the risk or not, and, if it is not so complied
with, then, 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 the
insurer before that date. 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,

1
(1904) 2KB 658 at page 663
2
section 1 of the Insurance Act Cap 191
The Good Luck3 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.

Under Section 32(1) of the Marine Insurance Act cap 192 further provides that warranties mean
a promissory warranty, namely, a warranty by which the assured undertakes that some particular
thing shall or shall not be done or some condition shall be fulfilled, or by which he or she affirms
or negatives the existence of a particular state of facts.4

In the case of Beauchamp Vs National Mutual Indemnity Insurance Company5, 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 during 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).

3
[1991] 2 WLR 1279
4
Section 32(1) of the Marine Insurance Act cap 192
5
(1937) 3 ALLER 19
A warranty may be express or implied as per section 32(2) of the Marine Insurance Act cap
192.6 Under section 36 of the Marine Insurance Act cap 192 No implied warranty of nationality.
There is no implied warranty as to the nationality of a ship, or that her nationality shall not be
changed during the risk.

Under Section 37(1) of the Marine Insurance Act cap 192 provides for Warranty of good safety.
Where the subject matter insured is warranted "well" or "in good safety" on a particular day, it is
sufficient if it is safe at any time during that day. And Section 38(1) of the Marine Insurance Act
cap 192 Warranty of seaworthiness of ship (1) in a voyage policy there is an implied warranty that
at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular
adventure insured. Under subsection (2) where the policy attaches while the ship is in port, there
is also an implied warranty that she shall, at the commencement of the risk, be reasonably fit to
encounter the ordinary perils of the port.

A warranty has essential characteristics and these include the following;

Must be part of the written contract; The warranty must be found either in the policy or some
other written or printed document which is incorporated by reference to the policy.

The leading example is the decision of the House of Lords in the case of Provincial Insurance
Company vs Morgan7 where 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.

Must be literally fulfilled; This implies strict and literal compliance, which means that the actual
thing stipulated must presented or done. Otherwise failure entitles the insurer to repudiate the

6
section 32(2) of the Marine Insurance Act cap 192
7
(1933) A.C 240,
contract. However, the only option available to the insurer is repudiation, lest he or she will be
taken to have waived the right to do so.

In the case of West vs. National Motor & Accident Insurance8, The insured was alleged to be
guilty of breach of warranty by mis-stating the value of property he insured. When he subsequently
suffered a loss, the insurers purported to reject the claim and to rely upon a term in the policy to
refer the dispute to arbitration. It was held that by relying on the policy, they had waived any right
to avoid the policy for breach of warranty which was the only right they might have had.
Accordingly, they had no right to reject the particular claim.

It should be noted that where warranties require strict compliance, the rule is that in interpreting
the meaning of a warranty, it should be ready liberally in favor of the insured and against the
insurance company. Thus the insurer seeks a warranty on any particular matter; it must be
expressed in clear terms and without any ambiguity.

The matter warranted does not have to be material to the risk; the facts or the matter which is
warranted does not have to be material to the risk. This proposition is based on one of the early
decisions, namely, the case of Scales vs Scanlan9 , where it was stated that the insurer and the
insured are entitled to make a bargain that the whole contract shall depend on the existence of
certain facts, and if such a bargain is made, it must be adhered to even though the thing warranted
may be trivial.

One cannot seek to avoid the contract of insurance by pleading non-materiality of the breached. in
the case of Thompson vs Weems10 In this case a question in a proposal form asked; “Are you
temperate in your habits and, have you always been strictly so.” The proposer answered:
“temperate; Yes.” The form contained a basic clause which expressly said that in the event of
untruth, the policy is void. Held, the insurer was entitled to repudiate the policy. It was said that
materiality was irrelevant, even though, in fact, the matter must have material on the facts of the
case.

8
(1955) 1 W.L.R 343
9
(1843)6 L.R 367
10
(1884) 9 AC 671 (HL).
The breach of the warranty discharges the insurer notwithstanding that the loss has no
connection with the breach or that the breach has been remedied before the loss; Courts have
stated that the insurer is discharged from liability as from the date of breach of the warranty for
the simple reason that fulfillment of the warranty is a condition precedent to the liability of the
insurer. Courts have also stated that the rationale for this position is that the insurer only accepts
the risk provided that the warranty is fulfilled.

Warranty against loss; The loss does not have to be as a result of or in consequence of the
insured’s breach of the warranty. If the warranty is breached, the insurer is discharged or the
obligation/liability and it is immaterial as to how the loss has occurred.

According to section 24 (1) of the Marine Insurance Act cap 192 provides for Express
warranties. An express warranty may be in any form of words from which the intention to warrant
is to be inferred. An express warranty must be included in, or written upon, the policy, or must be
contained in a document incorporated by reference in the policy. Under section 24 (3) of the
Marine Insurance Act cap 192 an express warranty does not exclude an implied warranty, unless
the express warranty is inconsistent with the implied warranty. 11

Under section 39 (1) of the Marine Insurance Act cap 192 provides that No implied warranty
that goods are seaworthy. In a policy on goods or other movables there is no implied warranty
that the goods or movables are seaworthy. under subsection2 In a voyage policy on goods or other
movables there is an implied warranty that at the commencement of the voyage the ship is not only
seaworthy as a ship, but is also reasonably fit to carry the goods or other movables to the
destination contemplated by the policy.

EFFECT OF BREACH OF WARRANTY.

A breach of warranty can arise only on the basis that there is a contract which parties have entered
into. In a contract of insurance, the insurer promises to cover the risk on the basis of the truth of

11
section 24 (1) of the Marine Insurance Act cap 192
the warranties declared by the insured. If there is a breach of warranty, the insurer is not bound to
perform his part of the contract unless he chose to ignore the breach.

According to Section 33 (3) of the Marine Insurance Act cap 192 provides that a breach of
warranty may be waived by the insurer. On discovering the breach, the insurer may either elect to
treat the contract as repudiated, in which event he is no longer bound by the contract, or he may
affirm it in which case he will continue to be bound by the contract. 12

The effect of a breach of warranty is to render the contract voidable at the option of the other party,
that is, insurer. According to Section 33 (1) of the Marine Insurance Act cap 192, 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. 13

The right to repudiate liability must be exercised within a reasonable time after discovering the
breach of warranty. Otherwise, the right will be lost, unless there is a continuing breach. The
insurer will be estopped from setting up the breach of warranty as a defense, when with full
knowledge with the breach, he acts or conducts in such a way that the insured is led to supposed
that the insurer did not intend to treat the contract as at end on account of the breach.

Under Section 33(2) of the marine insurance Act cap 192 provides that were a warranty is broken
the assured cannot avail himself of the defence that the breach has been remedied and the warranty
complied with, before the loss. The breach of the warranty discharges the insurer not withstanding
that the loss has no connection with the breach or that the breach has been remedied before the
loss. Accordingly, even a minor or trivial breach of warranty is enough to terminate the risk under
the insurance contract. In Overseas Commodities Ltd vs Stylethe14 insured warranted that each
can of pork in a consignment had been date- stamped by the manufacturer. In fact, a number of
cans had the datestamp missing. The insured claimed due to a quantity of the cargo being swept
overboard in a storm. It was held that the insurers could rely on the breach of warranty in denying

12
Section 33 (3) of the Marine Insurance Act cap 192
13
Section 33 (1) of the Marine Insurance Act cap 192
14
[1958]1 L.R 546
the claim. The fact that the insured was blameless is, therefore, irrelevant, for liability is strict. The
court will not ask whether the breach was material or otherwise to the risk or to the loss sustained.

A breach of this warranty would occur if the insured knowingly gave false information to the
insurer. Promissory warranties are based on future promises or continuing promises from
completed proposal forms or within the body of the insurance policy. Some conditions can be
warranties but warranties may not always be conditions. The nature of conditions is quite
complicated in insurance law; amises or stipulations. Burden of Proof in case of breach of
Conditions and warranties.

Under Section 35(1) of the marine insurance Act cap 192 provides for Warranty of neutrality.
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. however under Section 35(2) Where a ship is expressly warranted "neutral", there is also
an implied condition that, so far as the assured can control the matter, the ship shall be properly
documented, namely, that the ship shall carry the necessary papers to establish her neutrality, and
that she shall not falsify or suppress her papers, or use simulated papers; and if any loss occurs
through breach of that condition, the insurer may avoid the contract. 15

It is important to note that under section 40 of the marine insurance Act cap 192 provides for a
Warranty of legality. there is an implied warranty that the adventure insured is a lawful one, and
that, so far as the assured can control the matter, the adventure shall be carried out in a lawful
manner.

In Conclusion therefore, warranties and conditions are subject to interpretation of language used
and the intention of parties. Some conditions can be warranties but warranties may not always be
conditions. In the case of Violin vs Fireman’s Fund Insurance16 , It was stated that a warranty
must be strictly satisfied if the insured is to have coverage. Essentially, a warranty is intended to
be an absolute condition; the insured agrees certain acts will be or have been done and the validity
of the contract depends upon the fulfillment of these acts. Therefore, an insured cannot avoid the

15
Section 35(1) of the marine insurance Act cap 192
16
81 Nev.456,406 P.2d 287(1985)
effect of the breach of a warranty on the grounds that it was not material to the fact or risk. For a
provision or clause to qualify as a warranty, the statement must be expressly included in the
contract, and the provision must clearly show that the parties intended that the right would depend
on the truth of the statement.

Conditions in most cases do not relate to the statement of fact or the risk covered within the
insurance and voiding a contract as breach of contract must only be proved to be substantially true.
They are usually matters relating to procedure and general terms such as the obligation to disclose
relevant information attached to the insurance policy. Important to note is that as much as certain
conditions or requirements have been put in place to distinguish these two aspect courts have
always leaned on considering the language and intentions of the parties.

REFERENCE

1. 1995 constitution of Uganda