Law of Insurance Warranties, The

Alastair Owen

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CHAPTER 4 Implied warranties and the case for a separate regime for marine insurance

Implied warranties

4.1 The Marine Insurance Act 1906 provides for implied warranties in relation to seaworthiness and legality. Perhaps surprisingly, the Insurance Act 2015 did not abolish implied warranties: sections 10 and 11 of the Insurance Act 2015 confirm that the provisions of the Act applying to breaches of warranty (and in the case of s11 other provisions) apply to implied, as well as express, warranties.1 Accordingly under s10 of the Act, breaches of implied warranties also result in suspension of liability, rather than a full discharge from liability for the insurer. Because implied warranties have not been abolished by the Insurance Act, it is necessary to address them in some detail.

Implied warranty of seaworthiness

4.2 S39(1) of the Marine Insurance Act2 provides that 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.’ S39(3) provides that where a voyage will be conducted in stages, with differing requirements for each stage, there is an implied warranty of seaworthiness for each stage.3 Soyer argues that the reason the warranty of seaworthiness is implied in voyage policies is because the assured is usually in control/possession of the vessel before she embarks on a voyage and, in this respect, is capable of rendering her seaworthy.4 4.3 Note that the implied seaworthy warranty applies only at the commencement of the risk and the start of each stage of the voyage: s39(1) and (3).5 Seaworthiness is defined by s39(4): ‘A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.’6 The definition of seaworthiness in Black’s Law Dictionary is ‘an ability to withstand ordinary stress of wind,

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waves and other weather which the vessel might normally be expected to encounter.’7 S40(2) of the Act provides that in voyage policies on goods, there is an implied warranty that at the commencement of the voyage the ship is reasonably fit to carry the goods to the contemplated destination. Mustill J in JJ Lloyd’s Instrument Ltd v Northern Star Insurance Co (The Jay Jay)8 categorised weather conditions under three headings: (i) ‘abnormal bad weather’: where the weather lies outside the range of conditions which the assured could reasonably foresee that the vessel might encounter; (ii) ‘adverse’ weather: weather at the unfavourable end of what might be foreseen; (iii) ‘favourable weather’: within the foreseeable range, but not bad enough to be ‘adverse.’ To be seaworthy, Mustill J opined that a vessel must be able to cope with both ‘favourable’ and ‘adverse’ weather. In McFadden v Blue Star Line,9 Channel J suggested that for a vessel to be seaworthy it must ‘have that degree of fitness which an ordinary, careful and prudent owner would require his vessel to have at the commencement of her voyage, having regard to all the probable circumstances of it.’ 4.4 The scope of the implied warranty is wide: while some breaches will go directly to the integrity of the vessel, others can be more technical in nature and yet fall foul of the implied warranty: in Woolf v Clagett it was held that leaving port with insufficient medicines may amount to a breach of the implied warranty.10 In Garnat Trading & Shipping (Singapore) Pte Ltd v Baominh Insurance Corp.11 it was held that seaworthiness is relative to the nature of the ship: the vessel should be in a condition to encounter whatever perils of the sea a ship of that kind and laden in that way may be fairly expected to encounter. Once again, prior to the Insurance Act 2015, it was immaterial that a defect was remedied prior to a loss, or that there was no linkage between the breach and the cause of loss. In Quebec Marine Insurance Co v Commercial Bank of Canada,12 a defective boiler was repaired prior to the loss of the vessel, however, as there had been a breach of the implied warranty of seaworthiness (the vessel having sailed with the defective boiler), the underwriters were able to escape liability. It is clear that seaworthiness means the same in an insurance policy as it does in a contract for carriage by sea: The Fireman’s Fund Insurance Company v Western Australia Insurance Co Ltd and Atlantic Insurance Co Ltd.13 4.5 The implied warranty does not suggest that the vessel will be free from the suspicion of unseaworthiness, only that she is, in fact, seaworthy.14 Seaworthiness is a question of fact; the issue is, having regard to all the circumstances of the particular voyage, was the vessel at the time she set sail, able to encounter the ordinary perils that might reasonably be expected on that particular voyage: Steel v State Line SS Co.15 Accordingly the definition of seaworthiness varies according to the voyage to be undertaken and the nature of the seaworthiness obligation may differ for the same voyage if undertaken in different seasons: a voyage in winter may well require a higher bar to meet the implied warranty than the

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same voyage conducted in summer.16 Similarly the nature of the cargo can be a factor in determining whether or not a vessel is seaworthy: Stanton v Richardson.17 Inevitably and sensibly the definition of seaworthiness also develops over time to reflect evolving technologies, international conventions etc. Perhaps surprisingly, a vessel will be judged seaworthy for the purposes of the implied warranty if all reasonably practicable steps have been taken to make her seaworthy: Burges v Wickham;18 accordingly it seems the implied warranty is not the same as an objective assessment of safety or security. It is also important to note that the implied warranty is absolute in nature: a breach can occur regardless of whether the assured has acted honestly or whether he was aware of the defect. In Lee v Beach,19 the owner of a vessel had it surveyed and (he thought) had fully repaired it, but the vessel proved unseaworthy as a result of a latent defect; the court held that the underwriter was able to escape liability. The competence of the crew is relevant to the implied warranty of seaworthiness: in Wedderburn v Bell20 it was held that ‘seaworthiness’ includes a crew sufficient generally in number and skill for the proper navigation of the vessel. A ship will be considered unseaworthy if her crew is incompetent, but not if they are merely negligent.21 The absence of relevant equipment, not necessarily attached to the vessel can be sufficient to render it unseaworthy: The Eurasian Dream;22 in this case the lack of walkie-talkies to provide adequate means of communication between master and crew was sufficient to breach the implied warranty. On the other hand a temporary defect which could be easily remedied by the crew does not constitute a breach of the implied warranty23 and it does not matter that in practice the defect has not been addressed: Steel v State Line SS Co.24 A temporary defect that is not capable of ready remedy would constitute a breach: Dobell v Rosemore.25 Insufficient fuel to enable the vessel to complete the voyage renders the vessel unseaworthy: Thin v Richards & Co.26 Soyer argues, and this author concurs, while a failure to provide a pilot at the commencement of a voyage where one is required as a result of custom or statute would constitute a breach of the implied warranty, the lack of a pilot at the end of the voyage or at an intermediate stage, should not render the vessel unseaworthy.27 Note that the implied warranty of seaworthiness does not extend to vessels used to transfer the cargo from the quay to vessel prior to the commencement of the relevant voyage. Clause 5.1 of the Institute Cargo Clauses (ICC) 2009 version (type A, B and C) does however exclude liability of the insurer for loss caused by the unfitness of such vessels. 4.6 An express warranty does not exclude an implied warranty unless it is inconsistent with the latter; in order to have such an effect the wording must be ‘be express, pertinent

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and apposite.’28 Stipulations in the policy may, in practice, not have the effect of excluding the implied warranty or mitigating the consequences of it: in Quebec Marine Insurance Co v Commercial Bank of Canada,29 the policy contained an exception of losses from rottenness, inherent defects and other seaworthiness, but the Privy Council held that implied warranty was not thereby excluded. 4.7 S39(1) applies at the commencement of the voyage; there is no implied warranty that the vessel will continue to be seaworthy: Holdsworth v Wise.30 What is the meaning of ‘commencement of the voyage’? Soyer argues31 and this author would concur, that ‘commencement of the voyage’ means the same as ‘at the time of sailing’ and that it comprises leaving the vessel’s moorings ready for sea, though not leaving port, so long as it was possible to demonstrate a motive to commence the voyage.32 4.8 A recent case, Alize 1954 & another v Allianz Elementar Versicherung AG & Others (The CMA CGM LIBRA),33 heard in the Court of Appeal, but subject to appeal to the Supreme Court, may have extended the definition of seaworthiness further, potentially blurring the boundary between seaworthiness and navigational issues. The decision will raise concerns for carriers and shipowners. 4.9 In May 2011, the container vessel CMA CGM LIBRA (the ‘Vessel’) grounded while leaving the port of Xiamen, China. Some of the cargo interests refused to pay the owners’ claim for general average contributions, alleging fault on the part of the owners. There were defects in the passage plan and the relevant working chart. Neither document had recorded a warning, contained within a Notice to Mariners, that charted depths were unreliable, and that waters were shallower than recorded on the chart. At first instance, it was held that the defective passage plan and chart rendered the vessel unseaworthy. Given that the master and second officer could, by exercising reasonable care and skill, have prepared a proper passage plan, the court further held that the owners had not exercised due diligence. 4.10 The Court of Appeal held that a vessel may be rendered unseaworthy by negligence in the navigation or the management of the vessel. The court further held that once the owners had assumed responsibility for the cargo as carriers, all the acts of the master and crew in preparing for the voyage were performed qua carrier, and the obligation to exercise due diligence to make the ship seaworthy was an overriding obligation. 4.11 The court recognised that the ‘conclusion that the vessel was unseaworthy due to having a defective passage plan appears to have been novel,’ but stressed that ‘a properly prepared passage plan is an essential document which the vessel must carry at the beginning of any voyage. There is no reason why the absence of such a document should not render a vessel unseaworthy, just as in the case of any other essential document.’34 4.12 The appeal to the Supreme Court will be significant in terms of potentially further refining the definition of seaworthiness. The owners are appealing the Court of

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Appeal’s decision on the ground that passage planning constitutes a navigational decision, rather than an ‘attribute of the vessel,’ and therefore the failure to record the warning was a type of error in navigation that could not render the vessel unseaworthy. One issue that will likely be addressed in the appeal is the contention by the owners that the obligation to exercise due diligence was limited to acts by third parties qua carrier, and the failure by the master and crew to navigate carefully was outside of the ‘orbit of responsibility’ of the owners.35 4.13 As it stands the ruling suggests that a carrier or owner will be liable for mistakes made by its employees if those mistakes lead to a subsequent loss during the voyage, notwithstanding that those mistakes are navigational in nature and are made before the commencement of the voyage. It is currently anticipated that the Supreme Court hearing will be held in late 2021. 4.14 S40(1) of the MIA provides that in a policy on goods there is no implied warranty that the goods are seaworthy.36 Because s40(2)37 provides that the vessel should not only be seaworthy as a ship, but also be reasonably fit to carry the goods contemplated (the implied warranty of cargoworthiness), it is possible in the same voyage to satisfy the implied warranty in relation to (say) the ship, but not the cargo. S40(2) reads as follows:

In a voyage policy on goods or other moveables there is an implied warranty that at the commencement of the voyage the ship is not only seaworthy as a ship, but also that she is reasonably fit to carry the goods or other moveables to the destination contemplated by the policy.

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