How a warranty works in marine insurance policy?

Marine Insurance

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In marine insurance, a warranty is a promise or assurance given by the insured to the insurer regarding the condition or use of the insured property or vessel. A warranty outlines the insurer’s liability and determines if the insured can make a claim for vessel or cargo loss or damage. They play a crucial role in ensuring compliance and avoiding disputes.

Warranties are critical part of marine insurance policies, which impose strict requirements on the insured party. Failure to comply with the warranties may result in the insurer denying coverage, regardless of the cause or extent of the loss or damage. Warranties in marine insurance are of two types- express and implied warranties.

In marine insurance, warranties safeguard both the insurer and the insured by ensuring proper vessel maintenance and safe operation.

What are warranties in Marine Insurance?

Warranties are like statements according to which the insured promises to do or not to do some particular things. Remember, it is a statement of fact and not merely a condition. Moreover, warranties strongly insist upon statements and facts that should hold true throughout the tenure of the policy. Therefore, the contract becomes null and void at the time of breach of the warranty in marine insurance. It no longer stands valid regardless of whether the warranty was important or not.

Types of warranties in Marine Insurance :

There are two types of warranties in marine insurance:

Express Warranties

Express warranties are the warranties that are clearly stated/written in the insurance policy document. Some express warranties pertain to the fitness of ship for the intended journey, insured party’s compliance to the good operational and safety practices, disclosure of all material information by the insured, legality of the consignment and the voyage. Accurate description of cargo in the policy complying to the applicable laws and regulations.

Implied Warranties

Implied warranties are those that are not explicitly mentioned in the policy at all but are tacitly understood by the parties and implied by law or the nature of the insured property. Some common types of implied warranties include the seaworthiness of the vessel for the voyage and legality of the voyage. It is implied that insured must disclose all relevant information about the vessel, the voyage and must not engage in any fraudulent activity. Both parties must act in good faith and be transparent in deal with each other. Implied Warranties can be further categorised into- affirmative and promissory warranty.

How does the warranty work in marine insurance policies?

A warranty in marine insurance is a specific promise made by the insured to the insurer, usually related to the condition or operation of the vessel. If there is a breach of warranty by insured, the insurer has the right to deny a claim. Warranties in Marine Insurance policy can be either express or implied and are typically strict, meaning even a minor breach can result in the insurer refusing to pay the claim. It is essential for insured parties to understand and comply with all warranties to ensure that their coverage remains valid in case of a claim.

Seaworthiness of ships –

The ships used for transportation should be suitably constructed and equipped. They should be capable of withstanding ordinary stress on the voyage. The following points help us understand it better :

Deciding whether the ship is seaworthy or not is subjective and may vary with any particular vessel at different periods of time and destination, as a ship may be seaworthy for summer but may not be apt for winter.
Apart from the physical condition of the ship, seaworthiness also includes adequacy of equipment, the expertise of crew members, and the condition of the consignment
The ship must be cargo-worthiness and reasonably fit to carry the insured cargo. Note, that the warranty of seaworthiness doesn’t apply to the cargo. There is no warranty that the cargo should be seaworthy. The cargo owner may not be well acquainted with the shipping business.

A ship should be seaworthy at the port of commencement of the voyage and at different stages if the voyage is to be completed in different stages.

No change in the destination of the voyage

If the destination of the voyage is changed intentionally after the inception of the risk, there occurs a change in the voyage. If this happens, marine insurance company is no more responsible for covering the new voyage.

No delay in the voyage

There should be no delay in starting the voyage without a valid reason. It is important to dispatch the insured venture within a reasonable time duration. In case there is a delay, the insurer has all rights to refuse to give the coverage in the absence of any legal reason.

No deviation

The liability of the marine insurer ends if there is a deviation in the journey i.e., deviation from the common route. In case a ship deviates from its fixed passage, the insurer’s liability ends. This will be immaterial if the ship returns to its original path before the loss. However, the insurer can quit responsibility only if there is an actual deviation and not mere the intention of the deviation.

Exceptions of warranties in marine insurance

When delay or deviation is due to a particular warranty of the insurance policy
Delay or deviation for the safety of the ship or human lives is an exception
When delay or deviation was beyond the control of the crew

Case

Established in 2010, J/S Shipping Co. is a leading logistics company. As it exports to different parts of the world, the company has also bought a marine insurance policy to cover in-transit risks for its fleet. Last month, the company was ready to export one of its consignments to Sri Lanka. The port operation manager saw certain packages of the consignment not packed properly. However, the port operation manager did not stop the cargo.

When it reached the destination, the buyer found out some damages to certain packages and refused to accept the consignment. In this case, even though J/S Shipping Co. had a marine insurance policy, the insurer did not cover the damages. Since J/S Shipping was aware of the damaged packaging, it continued with the consignment and thereby breaching the warranty. Due to the infringement of the warranty, J/S Shipping Co. had to suffer the entire loss to own even if the company had a marine insurance policy.

About The Author

Simran

MBA Insurance and Risk

With extensive experience in the insurance industry, Simran is a seasoned writer specializing in articles on marine insurance for SecureNow. Drawing from 5 years of expertise in the field, she possesses a comprehensive understanding of the complexities and nuances of marine insurance policies. Her articles offer valuable insights into various aspects of marine insurance, including cargo protection, hull insurance, and liability coverage for marine-related risks. Renowned for their insightful analysis and informative content, Simran is committed to providing readers with actionable information that helps them navigate the intricacies of marine insurance with confidence.

Tagged: Marine Insurance