The paper will consider the following aspects of warranties:

1. The marine insurance warranty in history, and its reception into certain modern legal systems.
2. The warranty in present law.
3. The consequences of a breach of warranty.
4. Imperfections and inequities of the warranty.
5. Proposals for a way forward: the quest for fairness and uniformity.

Emerigon’s comments, written as they were in 1783, are perhaps more perspicacious of Roman 'insurance' practice:

If the Romans did not give this contract any distinct place in their laws, it is because this warlike people were wont to abandon to slaves and freed men the care of commerce by sea and land. But it did not the less exist in itself. It was enveloped under a common and generic form; a wild plant not yet cultivated, to which the spirit of commerce has since given the development and perfectness it possesses at this day.

It was the Italian merchants, most immediately affected by the papal ban on the maritime loan, who then used their commercial ingenuity to develop an insurance contract by a relatively swift process of evolution. We know that the northern trading cities of Italy played a crucial role in the development of the lex mercatoria, and thereby, the ius commune (which forms a part of the current South African Roman-Dutch common law). It is thus likely that the traders of the northern Italian cities therefore were the first to develop the fictitious loan,[12] and then, to short-circuit the Papal See, the simulated contracts of sale of the goods to the lender of finance for the purchase and transport of the goods -- with a premium added to the sale price to allow for the assumption of risk by the buyer (who was essentially the financier). Upon safe delivery, the simulated sale was either cancelled, or the goods were sold back upon agreed rates.

If the goods were lost the 'insured', as the seller, was paid out the sum for which he had contracted that the 'insurer' as buyer would pay him, but he had then to abandon all his rights in the property to the insurer. It is here that the principle of indemnity and subrogation has roots.[13] And it also follows that the insured could not 'sell' property to an insurer buyer unless he as the seller owned the property. It is here that the roots of the concept of insurable interest may be found.[14]

And it was not long before these simulated sale contracts developed into particular contracts for the assumption of risk upon the payment of a price, which came to be known as a premium. The lex mercatoria was quick to accommodate principles of premium insurance, and, driven by the expertise of the Lombardy merchants of Italy, the insurance pollizza (meaning in Italian a promise or an undertaking) spread constantly westwards until it took root in the City of London under the support of a royal warrant of Henry IV.[15] In its new home in England therefore, European marine insurance took hold in English law,[16] from where it later spread to the American and colonial English satellite legal systems.

What is important, however, is that more perhaps than many areas of shipping law, marine insurance continues today, in the main, to reflect its common roots. The modern marine policy still contains traces of the wording of the Italian pollizza of the late 14th century.[17] For the early English marine insurance underwriters (or perhaps should one more accurately refer to them as the Italian practitioners operating in England) were practising the marine insurance that had been distilled in Europe throughout the 17th Century. Thus for example Grotius, in 1631, wrote a substantial work on insurance which made significant reference to the provisions of the existing city ordinances on insurance in Holland.[18] Grotius was not alone in dealing with insurance. In France, Germany and finally in England, commentaries by learned authors dealing with insurance and marine insurance contributed greatly to the process of codification.[19] France, beginning with Louis XIV’s Ordinance of 1681 and ending with the Code Napoleon in 1807, then the Netherlands (1838), Germany (1900) and finally England (1906), defined their own laws of marine insurance, broadly in accord with the ius communis of marine insurance then practised in Europe.

There was little divergence in principle, for all were relying on the same roots.

Professor Van Niekerk concludes however that, in the circumstances of marine insurance practice at the time, the Dutch marine insurers seldom made use of contractual terms to reduce the likelihood of a risk materialising. Where, however, and apparently largely as the exception rather than the rule, an insurer inserted into otherwise standard terms a specific injunction upon the assured to do something or refrain from doing something during the currency of the policy, the courts enforced the will of the parties. The breach of such a term was however treated in the same way as breach of any other contractual term in the then civilian systems: breach was required to go the root of the contract in order to enable the aggrieved party to repudiate. Furthermore, the breach of an essential term of an insurance contract was required to be causative of the loss for the insurer to avoid liability.[21] It should perhaps also be noted that the causative connection between the breach and the loss was not viewed in those times in today's somewhat more restrictive light of the proximate or dominant cause. It was sufficient that the breach be a link in the actual causative chain which gave rise to a result. Professor Van Niekerk sums up the 18th century Dutch practice thus:

The term and therefore also its breach must have been relevant or, in modern terminology, material not merely to the risk of loss or damage in general which the insurer had taken over, but to the risk of the particular loss or damage which had actually occurred.[22]

By the 19th century it was common for insurers in Europe both to issue policies drawn by themselves (as opposed to the more common earlier practice of policies being prepared by the insured), and to include terms to delimit the happening of the risk. Some of the terms became commonplace: an insured would often undertake that its vessel would sail in convoy. He would undertake that the vessel was in all respects seaworthy for the voyage.[23]

In England, although the English legal system embraced freedom of contract, and whilst therefore English marine insurers were themselves not shy to insert clauses for their own protection by delimiting the risk, English law dealt with a breach of such terms in a way different from its European brothers. The essential term treated as a material and causative contractual stipulation by the civilians acquired an identity and a life of its own in the hands of the English jurists.[24] Where a contractual term was regarded as a 'warranty', it was automatically treated as an essential term, entitling the insurer to repudiate the contract. And the causative requirement fell away. As early as 1778 in Pawson v Watson[25] Lord Mansfield recognised a warranty as:

a term of the contract of insurance which must be strictly complied with and upon any breach of which, however trivial, the insurer is entitled to repudiate the policy.

Although it would appear that the European systems also required strict compliance,[26] the reasons therefor and the consequences of non-compliance were very different. A civilian term controlling the risk, even in the manner of a warranty, was required to be complied with because it was essential. If its breach went to the root of the contract, repudiation was possible, but, in the marine insurance context, only if it caused the loss (in the European sense of causation). A trivial breach of a warranty is unlikely to be causative of the loss. But if a breach is sufficiently serious as to cause the loss it must surely go to the root of the contract -- which is the Roman Dutch law yardstick for repudiation by the aggrieved party. The English law generally, and more specifically in relation to the warranty, accordingly developed different tenets of repudiation.[27]

And lest there be any doubt of the ability of an insurer to walk away from a policy where there has been a non-causative breach of warranty in early English law, Lord Mansfield in Woolmer v Muilman[28] in 1763 upheld an insurer’s repudiation of a claim where cargo was insured on a policy which warranted both ship and cargo to be neutral (which neither were) but where the ship was in fact lost in a storm.

The English warranty was in another respect also a more draconian measure than the breach of an essential term across the Channel. In English law, a temporary breach of warranty extinguished the policy upon repudiation by the insurer. Subsequent remedying of the breach would not again place the insurer at risk, even if the insurer had continued to accept premiums. In the civilian practice in the 18th and 19th centuries, a temporary breach of an essential term, provided that it was later remedied, would not affect an insurer's liability — provided of course that the cause of the loss was not the breach of the term either in retrospect or at the time of the breach. Causation was and remains in the European systems the key to cancellation of the policy.

Toward the end of the 19th century the spotlight swings to the codification efforts of Sir MacKenzie Chalmers. It is generally accepted that his 1906 Marine Insurance Act is very largely a restatement of the ius communis of marine insurance law on both sides of the channel as it had developed during the closing decades of the 19th century.[29] Which is why, even today, the civilian jurisprudence of marine insurance remains relevant to many marine insurance issues not definitively codified in the English Act. There were however certain exceptions in which English law had sailed a different course. And one of them was in the treatment of the English insurance warranty.[30]

All systems which have received the English insurance warranty accept the difference between affirmative and promissory (or continuing warranties). The affirmative warranty, to borrow from the English Act, affirms or negatives the existence of a particular state of facts.[31] The promissory warranty (again to borrow from the Act) undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled. This would include my warranty that I shall not use my boat more than 30 miles off the coast, or that I shall at all times have on board a certified skipper.

English law, both historical and current, also distinguishes the implied from the express warranty. And it implies a warranty of seaworthiness into a voyage policy but not into a time policy. There is a warranty of legality, applicable to both time and voyage policies.

One should perhaps also reflect upon the ways in which a warranty may be created. The policy may be explicit in requiring the assured to warrant certain terms. Without mentioning the word 'warranty', the policy may prescribe that certain provisions requires strict compliance, failing which the insurer shall have the right to repudiate. Terms may similarly be expressed as 'conditions precedent' in English practice. This would equate with the 'essential term' in continental practice, from which the law will infer a right of the aggrieved party to repudiate. In our law, any words which a court may construe as imposing an obligation of strict compliance and a concomitant remedy of repudiation may be accepted by that court as a warranty.

There is then a distinction between warranties relating to past or to present fact (whether affirmatory or promissory) and those relating to opinion. Generally it is accepted that an assured can not be held accountable for a breach of warranty of opinion, unless the assured has dishonestly supplied an incorrect answer to an insurer's questions.[32]

Finally, and undoubtedly the most insidious of all, is a term in a policy which elevates the contents of a proposal form, however trivial or immaterial in respect of either the acceptance of the risk or the assessment of the premium, to the status of a warranty.[33]

Let us now briefly examine a selection of domestic regimes which recognise the warranty and others which provide only for contractual terms with no special attributes of omnipotence.

1. The United Kingdom
   The 1906 Marine Insurance Act in sec 33(3) defines a warranty as either promissory or affirmatory, express or implied, and then states:

A warranty as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If it be 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 him before that date.

There is no comfort to the assured if the breach is remedied. By sec 34(2):

Where 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.

Sections 33 and 34 reinforce the status of the warranty in English law as the ultimate trump card[34] in the insurer’s hand. It has the effect of excusing an insurer on account of any breach of warranty by the insured, causative or non-causative, trivial or material. It is, potentially at least, the nuclear weapon of the English marine insurance policy.

English law, in the face of long-standing and on-going criticism of the inequity of the law of insurance warranties, has brought about limited reform in two ways. First, the English interpretational rule of contra preferentem generally favours the insured in situations where there is real doubt concerning the meaning of the policy wording.[35] And second, an industry-driven initiative has since 1977 imposed a measure of self-regulation in successive Statements of Insurance Practice.[36]

In the marine context, London cover is often extended specifically for breach of warranty upon payment of an additional premium. This, as with the Statements in relation to non-marine insurance, is an attempt by a hopefully somewhat embarrassed industry to take the edge off the otherwise draconian effects of the Marine Insurance Act. But self-regulation should not relieve the legislature of its responsibility to ensure that its laws are fair. As John Birds writes:

Even if it is the case that insurers have not generally relied on their strict legal rights … this is no answer to the necessity for reform of the law.[37]

2. The United States[38]
   The legal systems of the United States in general recognise warranties as contractual undertakings whereby the assured represents that something will or will not be done, states a condition to be fulfilled, or affirms or negates the existence of certain facts.[39] United States law also recognises both implied and express warranties. But the United States national law has as a singularly undesirable import, embraced the British consequences of a breach of warranty, regardless of either causality or materiality.[40] The draconian effect of the national law has however been ameliorated in some states by the doctrine of 'substantial compliance' in relation to a promissory warranty, and by the requirement that a breach of warranty must be related to the loss before an insurer may cancel the contract. Hence the attempts by litigants to avoid national law by retreating to the comparatively forgiving environment of certain state laws — as was done tactically in Wilburn Boat.[41]

The main problem facing an outsider is to determine what 'United States law' is. Has a jurist yet been born who can easily answer this question? The United States, in common with its other English satellite jurisdictions, including South Africa, has yet to promulgate its own (Federal) Marine Insurance Act[42] and, in the absence of a truly overriding federal law of marine insurance, one is left with what to an outsider is the utterly incomprehensible jurisprudential Serbian bog by being sent up the innumerable creeks of state law of marine insurance in a Wilburn Boat without a paddle. Notwithstanding the considerable teaching abilities of my colleague, Michael Sturley, I can profess no reliable knowledge or understanding of  'the American law of marine insurance'. To borrow from the reply of the USA Maritime Law Association to the CMI’s recent questionnaire on marine insurance:

Wilburn Boat held that issues of marine insurance are governed by the national law of the United States when there is a well-established rules of federal or national admiralty law, or, if not, the court determines that it should fashion a federal or national rule.

In the eyes of a foreigner to the US system (and I suspect to many an American practitioner) Wilburn Boat must in itself stand as one of the greatest motivational arguments for an international convention on marine insurance, or at the very least an Oslo-Antwerp Rules -- or perhaps more appropriately, The Lombardy Rules – as an international 'Restatement' on the subject.[43] Bringing the USA to the table to sign such an international arrangement would, of course, be an entirely different matter.[44]

3. Australia
   Australia enacted its own version of the 1906 English Act in 1909. The provisions of the Act relating to warranties are dealt with in Division 7. The warranty is defined in terms similar to the English Act, and its central features have been described as follows:[45]

• A warranty is a condition which must be strictly complied with, whether it is material to the risk or not.[46]
• Fulfilment of the warranty is a condition precedent to the liability of the insurer.[47]
• If the insured does not comply with the warranty, the insurer is automatically discharged from liability for the loss as from the date of the beach, although earlier liability is not affected.[48]
• Subject to any contrary express provision in the policy, the insured cannot use the defence that the breach did not cause the loss or was remedied before the loss.

The effect of the Australian statutory provisions in marine insurance is thus that the insurer, as in English law, may avoid all liability under the policy from the date of the breach of a warranty regardless of the materiality of the warranty, the state of mind of the insured, or of any causative connection between the breach and the loss.[49] Judicial and academic efforts are being made in Australia to seek a legislative remedy for the undoubted inequities which can result. This has already been achieved in relation to non-marine insurance and pleasure craft policies[50] by means of the Insurance Contracts Act, 1984. One would hope therefore that the Australians would be willing participants in any international initiatives which flow from last year's Oslo conference and this conference to demote the warranty to where it historically correctly belongs.

4. Canada
   The Canadian courts have determined that marine insurance is a federal matter. The Canadian Federal Marine Insurance Act, 1993 has marine insurance provisions which largely mirror the English 1906 Act. The warranty thus rules supreme.

   A glimpse at the civil code of Quebec is however interesting. In relation to marine insurance the code enacts that:

   A warranty shall be exactly complied with whether or not it may materially influence the judgment of an insurer. Where a warranty is not complied with, the insurer is discharged from liability as from the date of the breach of the warranty with respect to any loss which occurs subsequently; the insured may not avail himself of the defence that the breach has been remedied, and the warranty complied with, before the loss.[51]

   But the code treats non-marine insurance differently. It reads:

   A breach of warranty aggravating the risk suspends the coverage. The suspension ceases upon the acquiescence of the insurer or the remedy of the breach.[52]

5. Scandinavia
   Scandinavian laws do not recognise the elevation of a contractual term, however material and causative, to any special status akin to the English insurance warranty. In Sweden, insurance is governed by the Insurance Contracts Act,[53] though underwritten generally in terms of the present General Marine Insurance Plan, a contractual self-regulating set of rules devised by the industry. The Plan, and its sister instrument in Norway, the Norwegian Marine Insurance Plan, unsurprisingly, does not therefore make any mention of a 'warranty'. Both Plans preserve the freedom of contract, within the confines of the Plan. The Norwegian Plan, for instance, in paragraph 3 – 28 provides:

The insurer may require that certain terms shall be included in contracts concerning the operation of the insured ship, or that certain terms of contract shall not be included in such contracts. The requirement may be made in respect of contracts in general or in respect of contracts for a specific port or trade.

My understanding of the working of the Plan is that a breach by an insured of terms inserted into the contract (whether they be warranties or not) would only entitle the assured to avoid liability in whole or in part (the pro rata regein rule) if or to the extent that the breach were both material and causative. This is by reason of the operation of law rather than by any particular item in the Plan itself.

6. Belgium
   It would be a bold foreigner who dares to state the law of Belgium whilst on that country’s home ground. I take strength however from the reply of the Belgian Maritime Law Association to the CMI’s marine insurance questionnaire upon which this note is based.

Marine Insurance in Belgium is governed by Title VI art 191 – 250 of the Maritime Code, which is stated still to be complementary to the general law of insurance of 1874.

The Belgian reply in relation to warranties and the effect of their breach, says it all:

A warranty, such as is described in the British Marine Insurance Act 1906, is unknown in Belgian law. Belgian practitioners are most satisfied with this vacuum.

This is not to say that an assured has carte blanche in Belgian law. Belgium sticks to its civilian roots in allowing a contract to be terminated only in the event of a causative, and accordingly material, breach of an essential term of the contract.

7. Germany
   Whilst the German Commercial Code governs marine insurance in secs 778 – 900, the regulation of marine insurance would appear to be left largely to the Standard Insurance Conditions in use in the German market since 1919. There is no recognition in either the Code or the Standard Conditions of a warranty. The ability of an insurer to avoid liability under a marine policy will be determined by the clauses themselves, under the general principle of law that if a contract partner does not comply with a contractual obligation, he will be liable in damages to his contract partner.[54]

8. China
   China would appear to have received the English law of warranties into its law. The Maritime Code of the Peoples’ Republic of China in Chapter XII makes provision for the warranty, and requires the insured to

notify the insurer in writing immediately where the insured has not complied with the warranties under the contract. The insurer may, upon receipt of the notice, terminate the contract or demand an amendment to the terms and conditions of the insurance coverage or an increase in the premium.[55]

There would, however, appear to be no automatic cancellation of the cover upon a breach of warranty.

9. South Africa
   Although marine insurance in South Africa is determined by Roman-Dutch law, there has been a broad-based reception of certain principles of English insurance law into court precedent.[56] Like the United States (and at a similar stage in the discussions towards the possibility of enacting an indigenous Marine Insurance Act) South Africa has not statutory defined its marine insurance law. It does however have a Short-Term Insurance Act, which came into effect on 1 January 1999. This Act carried forward (in section 63(1) the legislative softening of the effect of a breach of warranty which had been inserted into the previous legislation in 1968.[57] The effect of this section is that, in relation to affirmatory warranties only, the insurer may not avoid liability unless the nature of the warranty was such as to be likely to have materially affected the assessment of the risk under the policy concerned at the time of its issue or at the time of any renewal or variation thereof.

   The section requires a subjective testing of materiality against the viewpoint of the actual insurer concerned in relation to the policy that was issued.[58] It is unsatisfactory in two main respects. First, it does not extend to the very type of warranty which is most likely to produce the most inequitable results – the promissory warranty (as this is not considered to be a 'representation' to which the Act refers) and, second, it imposes a test of materiality which is far too easy for the defending insurer to establish. It has only to show that it (and not the reasonable insurer) would have considered the warranty material to the risk, to be able to repudiate.

   South African judicial opinion favours a reform in the law of warranties. A judge of appeal in 1998 referred to the law as 'toxic', and called for decisive legislative intervention.[59] However the 1999 Short-Term Insurance Act has again failed to address the problem. An initiative of the South African MLA and a working group set up by the South African Law Commission is now re-examining the situation. The process is no doubt hindered by a misguided reluctance in some insurance quarters (especially in relation to marine business) to break away from what are perceived to be South Africa’s English 'roots'. In relation to the warranty however, these roots are exceedingly shallow, and should be no hindrance in the quest for a law which is fair. The fact that reform would, in the process, restore the essential principles of the Roman-Dutch law relating to the breach of contractual terms, will be a bonus, particularly as those principles still govern the breach of an insurance contract in the non-English insurance world.

Indeed, the Institute Clauses themselves recognise that an insured will be held covered for a breach of specific named warranties subject to the payment of an additional premium.[60] In practice also, English marine insurers seldom appear to rely upon a breach of warranty of seaworthiness in a voyage policy, and they frequently pay out upon policies where there has been a non-causative immaterial breach as a matter of honour. Changes to the law would simply address what has been recognised academically and judicially as technical traps[61] for the benefit of the insurer written into the fine print of policies which are not worth the paper upon which they are written requiring a prudent person seeking insurance to have an attorney at his elbow to tell him what the true construction of the document is.[62]

Perhaps Lord Renbury says it all in Glicksman v Lancaster and General Assurance Company Limited:[63]

I think it a mean and contemptible policy on the part of an insurance company that it should take the premiums and then refuse to pay upon a ground which no one says was really material. Here, upon purely technical grounds, they, having in a point a fact not being perceived in any material particular, avail themselves of what seems to me the contemptible defence that although they have taken the premiums, they are protected from paying.

What is extraordinary, in my view, is that although those comments were made in 1927, three quarters of a century ago, there has still been no change. They were repeated in the English Law Commission Report of 1980[64] in a stinging criticism of the English law of insurance warranties and of its immoral and inequitable effect. The Law Commission summarised the defects in the present law relating to warranties as follows:[65]

1. It seems quite wrong that an insurer should be entitled to demand strict compliance with the warranty which is not material to the risk and to repudiate the policy for a breach of it.
2. Similarly, it seems unjust that an insurer should be entitled to reject a claim for any breach of even a material warranty, no matter how irrelevant the breach may be to the loss.
3. Material warranties are of such importance to the insured that in our view he ought to be able to refer to a written document in which they are contained.

The Commission then devotes a special section to the inequities of the clauses which deem the contents of a proposal to be the basis of a contract of insurance. The report describes such clauses as 'a major mischief in the present law'. Yet 20 years later we remain in a situation where no reform has yet been legislated -- neither in England, as the mother of the mischief, nor in its satellite jurisdictions. Co-perpetrators in the perpetuation of this mischief must therefore be all jurisdictions, like South Africa, the United States, Canada, Australia and New Zealand, and even in China in which the mischief is given legitimacy.

Surely there can be no doubt that the adoption of basic and uniform international rules of marine insurance will provide the impetus and indeed the framework for legislative reform. If any country country then continues to resist reform, parties to insurance contracts would be at liberty to invoke the Rules contractually. There is much common ground. This conference in Antwerp will no doubt be an important step in the direction of determining whether or not an international initiative is an attainable reality, or whether nationalistic self-interest has already pushed the players too far apart to bring them back to their common roots.

Perhaps a reminder of those common roots such as that which was attempted at the beginning of this paper may play a small part in the process. Perhaps also those who undertake such a brave initiative should take heart from a study of the essential commonality of marine insurance to help them compromise their differences.

The words of Emerigon come to mind:

This is a law not peculiar to one but common to all commercial nations. Whence it is derived but from natural reason, existing in all men and reaching the same results in all countries alike.[66]

Let natural reason again prevail. Let the same results again flow from breach of an essential term (whatever its name may be) in all countries alike. And let us consign the toxic English warranty to the obscurity of history where it belongs. As we in South Africa have now learnt to chorus:

Viva The Lombardy Rules, Viva!