The Insurance Act 2015 has fundamentally changed the central rules of engagement for marine insurance – or at least some of them. Whether or not an assured owner will recover on his or her policy may now be contrary to what one might have expected under the old regime. One of the most frequently queried elements of the new Act is whether or not it is wise to avoid mention of warranties and lean towards using terms like condition precedent or express warranty.
“We regularly get asked; can’t we just dress something up as a condition precedent and not call it a warranty, thereby avoiding getting burnt by the new regime?” explains Richard Hugg, senior associate at Ince & Co. “Unfortunately, it is not quite so simple; for example, Section 11 refers to ‘terms’ not just ‘warranties’, and it remains to be seen how the Courts will approach the various issues which may arise. There is also the issue of ‘contracting out’.”
Under the previous regime, if a warranty was breached, the insurer would be automatically discharged of its liability from the date of breach, regardless of whether it was remedied before the loss and regardless of whether there was a causal connection between the breach and loss.
Under the new regime, if there has been a breach of a Section 10 warranty (e.g. a Class warranty), but it is rectified before the loss, then insurers, subject to the fine print in Section 10 and other policy terms/considerations, will be liable for the loss.
The regime under Section 11 - terms aimed at the risk of a particular type of loss, or loss at a particular time or place - is even more insured friendly. Even when in breach of such a warranty at the time of the loss, the insured may still be able to recover if it can show that the breach did not increase the risk of the loss that actually occurred in the circumstances in which it occurred.
As such, some insurers may wish to contract out of the new, arguably more assured friendly, warranty regime; indeed, the P&I clubs have contracted out of the new act completely - so far as is permitted.
However, in accordance with the ‘contracting out’ and ‘transparency’ requirements detailed in the Act, it is important to note that any term attempting to circumvent the effect of the Act by introducing a so called ‘disadvantageous’ term, which puts the insured in a worse position than if the Act applied, must be clear and unambiguous as to its effect and brought to the attention of the insured before the contract is finalised. The Law Commission, when introducing the new Act, made clear that it anticipated disputes in this area and parties to contracts of insurance are advised to tread carefully and ensure they are advised properly and in a timely manner.