Marine Insurance

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What is warranty?

A warranty is an:

  • Important legal undertaking between the insured and the insurance service provider.
  • The brunt lies on the insured person, that a specific action will be performed, or will not be performed, or certain conditions have been met with or will be fulfilled.
  • Legal commitment, ensuring that certain facts do not exist. In other words, it is a matter of fact understanding between the insured and the insurer.

What does warranty imply?

This warranty implies that the matter (voyage) insured is being conducted in a lawful manner. That no content, object, person, or any condition, attached to the insurance undertaking is illegal.

Why is warranty crucial?

It is a legal statement, in which the aforementioned promises are made. It is a promise of faith, which takes the form of legal obligation by the insured. If any warranty statement or fact is not adhered to, then the insurance contract or policy stands null and void.

Under no circumstance, the insured can break this legal promise or warranty. Even if the breach of warranty is not relevant to the risk at any given point of time, it still applies and will be considered as unlawful.

See: What is covered under Marine Insurance

When the warranty is not applicable?

The only exception here is a condition or representation, which makes the warranty non-applicable in present circumstances. Otherwise, there is no way in which an insured can reverse his fortunes, by attempting to reverse the existing action (which is a breach of warranty). Sometimes, the insurer can waive the breach of warranty.

Nature of Warranty

In certain cases, your insurance service provider will explicitly attach warranties to your insurance, to limit their risk. If a breach happens, then your insurer has the right to cancel the insurance policy. Therefore, it is important to understand the effect of warranties, as a part of your policy, and make sure you have an adequate policy.

The type of warranties which are clearly mentioned by the insurer, or included in your policy, is known as express warranties. There are certain types of warranties which are only implied and understood between the two parties. These warranties are legally binding.

Case on Warrantee Insurance

M/S Shipping is a logistics company. The company has a marine insurance policy which is time-based. The company has an insurance policy covering in-transit risks for its small fleet. On February 01, 2017, the company has two cargo ships starting from the coastal region of Karnataka.

Scenario 1 One of the consignments is urgent. M/S Shipping Company knows in advance that weather may get rough in 3-4 days’ time. It cancels one cargo but does not cancel the other one. If any loss or damage to the cargo ship (during transit) happens, M/S Shipping will not be entitled to insurance benefit. Knowing the sea peril, it still carried on. This is clear breach of warranty.

Scenarios 2 Suppose the consignment is safely delivered to the consignee. Upon receiving the packaged goods, everything seems in fine condition. As the goods reach the warehouse, upon opening the package, the consignee notices damage to certain packages. It is likely that the insurance contract will still stand cancelled, as goods might have been damaged during the sea journey. Since M/S Shipping was aware of the risks, it continued thereby breaching the warranty.

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