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03 June 2009
In Norwegian marine insurance law, the term 'warranties' refers to conditions under which the insurer is discharged from liability in case of non-compliance, irrespective of whether there is fault on the part of the assured or causation between the breach and the loss. However, it is disputable whether such warranties are valid in marine policies governed by Norwegian law in cases where there is no causation between the breach of the warranty and the loss.
The concept of expressed or implied warranties does not exist in Norwegian insurance legislation. The concept of promissory warranties originates from UK law,(1) which provides that in the event of non-compliance with the warranty:
"subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of the warranty, but without prejudice to any liability incurred by him before that date."
In the 1992 Good Luck Case the House of Lords further elaborated on this point:
"[I]f a promissory warranty is not complied with, the insurer is discharged from liability as from the date of the breach of warranty, for the simple reason that fulfilment of the warranty is a condition precedent to the liability of the insurer. This moreover reflects the fact that the rationale of warranties in insurance law is that the insurer only accepts the risk provided that the warranty is fulfilled."
The material content of warranty clauses often falls under the scope of safety regulations or alteration of risk in the Insurance Contracts Act 1989. According to the act, the insurer can invoke breach of safety regulations or alteration of risk only when there is fault on the part of the assured and causation between the alteration of risk and the loss, or causation between the breach of the safety regulation and the loss.(2) Therefore, the act prevents the use of warranties within its mandatory scope.
However, with certain exceptions, the act may be departed from where the insurance relates to ships that are required to be registered according to the Maritime Code.(3) Thus, the starting point is that warranties in insurance contracts related to ocean-going vessels are valid regardless of whether such conditions fall within the act's definitions of safety regulations or alterations of risk.
In the preparatory works to the act the legislature expressed significant scepticism with regard to whether warranties should be allowed in any form in insurance agreements subject to Norwegian law. The concern was that the effect of warranties could be harsh on the assured in cases where cover is lost without there being any causation between the breach of warranty and the loss. However, the legislature noted that the shipping industry, including insurers and shipowners, wanted contractual freedom on this point. The preparatory works contain important statements to the effect that Section 36 of the act on unreasonable contracts may be applied to set aside warranties invoked in cases where there is no causation.
Insurance conditions with a warranty approach can be found both in the Norwegian Marine Insurance Plan and in the rules of the two Norwegian protection and indemnity (P&I) clubs. The provisions on loss of class, the P&I rules on change of classification society and the rules on the use of a ship for illegal purposes are examples of rules under which the assured can lose cover by non-fulfilment, irrespective of causation.
Specially drafted warranty clauses in addition to the standard wording also occur in hull and machinery insurance policies (eg, concerning particular directives with regard to maintenance and adherence to the International Safety Management Code).
The application of Section 36 of the act when there is no causation between the non-fulfilment of a warranty and the loss has not been tried by the Norwegian courts. Based on the preparatory documents to the act, it is arguable that the threshold will be low for setting aside warranties when it is evident that there is no causation. However, other factors may lead to a literal interpretation of warranty clauses in cases where there is no causation. The marine insurance plan is an agreed document and the P&I clubs' rules are made by mutual entities. The content of reinsurance contracts, and the fact that identical warranties are accepted in other jurisdictions, may also constitute arguments in favour of a literal interpretation.
In Oslo City Court's decision of March 5 2008 regarding the Tor Hollandia, the insurance agreement was based on the marine insurance plan, but the policy also contained the following special clause:
"It is a condition for the cover of machinery and other equipment that all suppliers' and manufacturers' manuals and other instructions concerning overhauls and maintenance are complied with and can be documented."
The court found that the clause was a warranty and not a safety regulation as invoked by the assured. The court stated that the clause contained no claim for causation between the breach and the loss. However, it appears from the circumstances and the court's reasoning that there was, in fact, causation.
Where the courts imply a claim for causation in a warranty clause, the burden of proof that there is no causation between the breach and the loss rests with the assured. This solution works in harmony with the burden of proof in relation to breach of safety regulations.(4) It may be that the courts apply a strict burden of proof as a compromise between possibly unreasonable results in cases where there is a clear lack of causation on the one hand and the insurer's need to limit its exposure to losses which in reality are caused by, for example, insufficient maintenance or neglect of proper safety management on the other. If the clause expressly places a strict burden of proof on the assured with regard to non-causation, it must be assumed that this will be accepted by the courts.
It is uncertain whether the courts may apply Section 36 of the act to set aside warranty clauses in cases where there is no causation. The solution in such cases will be based on a consideration of the particular case, where a number of different factors may be relevant.
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