9 S.Ac.L.J.
Retreat of Continuing Warranties?
139
RETREAT OF CONTINUING WARRANTIES?
The natural way to begin any discussion of the sort of terms which exist in
the context of an insurance contract is point out that the law of insurance
has its own peculiar terms of reference. The terms of reference used to
denote the nature of particular terms in the law of insurance differs from
that as used in the general law of contracts. A perfect example of how the
law of general contracts classifies terms is found in the Sales of Goods
Act1:
Whether a stipulation in a contract of sale is a condition, the breach
of which may give rise to a right to treat the contract as repudiated, or
a warranty, the breach of which may give rise to a claim for damages
but not to a right to reject the goods and treat the contract as repudiated,
depends in each case on the construction of the contract; and a
stipulation may be a condition, though called a warranty in the
contract, (emphasis my own) 2
This is to be contrasted with the formulation found under the Marine
Insurance Act3:
A warranty, as above defined is a condition which must be exactly
complied with, whether it is 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.4
The mere labelling of a term as a “condition”, “condition precedent” or
“warranty” does not automatically confer a definite legal status on the
term, although it will go some way in showing the intention of the parties.
In the ultimate analysis, the task is primarily one of determining the
intentions of the parlies.5
1
2
3
4
5
Cap 393, Rev Ed 1994.
Section 11(2).
Cap 387, Rev Ed 1994. This is a reprint of the UK Marine Insurance Act 1906 which was
made applicable without any amendments by virture of its inclusion in the First Schedule
of the Application of English Law Act (Cap 7A, Rev Ed 1994). Section 9(1) of the latter
Act empowers the Law Revision Commissioners appointed under the Revised Edition of
the Laws Act (Cap 275, Rev Ed 1994) to prepare and publish a revised edition of any
English enactment specified in the said First Schedule. All further references made to,
or discussions with regard to, one statute are equally applicable to the other.
Section 33(3). See also New Zealand Insurance Co Ltd v Ong Choon Lin [1992] 1 CLJ
44, at 53.
see Poll Chu Chai. Law of Insurance, Vol 1: Principles of Insurance Law (4th Ed, 1996),
at 291.
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(1997)
It can be seen, therefore, that the terms “warranty” and “condition”, in the
context of an insurance contract, have acquired a meaning peculiar only to
insurance law. Under general contract law, a condition is the critical term
with which the failure to comply entitles the innocent party to treat himself
as discharged from the contract. On the other hand, a condition in an
insurance policy is a term which would entitle an insurance company to
claim damages in the event of a breach by the insured but not to disclaim
liability under the policy.6
If an insurance company is to be entitled to disclaim liability for breach of
a condition, the insurance company must make the condition a condition
precedent to liability. Whether a term in a policy is a mere condition or
condition precedent is a matter of construction. The mere fact that an
insurer has labelled a term as a condition precedent does not turn that
term into a condition precedent unless the context in which the term appears
is capable of making the term a conditional precedent.7
In general contract law, a warranty is merely a collateral promise or term,
a breach of which only entitles the innocent party to a remedy by way of
damages. In contradistinction, a warranty as a term of an insurance contract
is one upon the breach of which the insurer is discharged from the contract.
Warranties must be strictly complied with. It is quite irrelevant that the
breach is unconnected with a loss that occurs.
6
7
see Poh, ibid; see also New Zealand Insurance Co Ltd v Ong Choon Lin, supra note 4,
at 53, where the Supreme Court of Malaysia adopted Dr Poh’s exposition found in the
Second Edition of the same book.
One of the most common terms found in any policy is a provision that notice of a loss
must be given. The form of such provisions may vary but the substance do not — invariably
they are all drafted with the same object: making the liability of the insurers depend on
the prior compliance by the insured of the condition as to the giving of notice of the
event giving rise to the claim. Whether any particular provision will achieve this result
is ultimately a question of construction. Where the provision is ambiguous, the courts will
construe it more strongly against the insurers by applying the contra proferentem rule,
(see Poh, supra note 5, at 630)
Therefore, a failure by the insured to give prompt notice of a loss or of an accident in
accordance with the terms of the contract will not entitle the insurers to avoid liability
if the duty to give prompt notice has not been made a condition precedent to the insurers’
liability. In Stoneham v Ocean, Railway & General Accident Insurance Co (1877) 19
QBD 237, the insured was insured against the risk of bodily injuries caused by external
accident. The policy provided that in the event of a fatal accident, notice thereof must
be given to the head office in London within 7 days. Another provision therein provided
“that this policy shall be subject to the conditions indorsed hereon which shall be
considered as incorporated herein”. The insured was accidentally drowned in Jersey and
it was impossible to give notice of the accident within 7 days.
9 S.Ac.L.J.
I.
Retreat of Continuing Warranties?
141
DRACONIAN NATURE OF WARRANTY8
The severity of the consequences which follows the breach of a warranty
can be appreciated by comparison with the position with non-disclosure or
misrepresentation. In insurance law, the latter concept refers to a misstatement or non-disclosure of a past or existing fact which is made before
or at the time of conclusion of the contract and which would influence the
judgment of a prudent insurer in fixing the premium or determining whether
he would take the risk.9 One fundamental difference between the concept
of warranties and that of misrepresentation or non-disclosure is that it is
8
9
The insurers contended that they were not liable under the policy, inter alia, as the
condition with regard to notice was not complied with. It was alleged by the insurers that
the condition with regard to notice being given within 7 days was a condition precedent
to their liability. Since it was not complied with, they were not liable under the policy.
It was held by the court that it was not possible to construe the condition relied on by
the insurers as a condition precedent. Mathew J decided that where the provision as to
the giving of notice has not been expressly stated to be a condition precedent to the
liability of the insurers, the insurers will not be able to avoid liability under the policy for
a breach of the provision. In such a situation, the insurers would have to content themselves
with a claim in damages for the breach.
In the opinion of the court whether the stipulation is a condition precedent to the right
of the insured to claim is a question of construction of the contract. In the policy before
the court, neither was the clause stated to be so, nor was there any stipulation that if
notice was not given, the policy would be void.
On the facts, the rationale of the clause was probably to save the insurers extra expenses
which they would incur, if they had to investigate the circumstances of the accident after
a long interval. On consideration of the terms of the document, the clause was not a
condition precedent. Where an insured was in breach of a condition in the policy, the
insurers were entitled to claim damages for the breach of the condition, but they could
not disclaim liability under the policy.
Thus, it is clear from Stoneham’s case that if an insurer is to be entitled to disclaim
liability under the contract for a breach of a condition by the insured, he must go one
step further — compliance with the condition has to be made a condition precedent to
the liability of the insurer.
In a similar vein, Lord Watson in London Guarantee Co v Fearnley (1880) 5 App Cas
911 stressed that where parlies to a contract of insurance choose in express terms to
declare that a certain condition of the policy shall be a condition precedent, effect shall
be given to it unless it appears that the term is so capricious or unreasonable that a Court
of Law ought not to enforce it or if it be sua natura incapable of being made a condition
precedent. See also Poh, supra note 5, at 294–298.
For criticism of the development of warranties in insurance law, see Patterson, “Warranties
in Insurance Law” (1934) 34 Columbia LR 595; Vance, “The History of the Development
of the Warranty in Insurance Law” (1911) 20 Yale LJ 523; Hasson, “The ‘Basis of the
Contract Clause’ in Insurance Law” (1971) 34 MLR 29. See also generally Birds, “Insurance
Contracts” in Termination of Contracts (Birds, Bradgate & Villiers ed, 1995), Ch 4.
see Section 18(2) of the Marine Insurance Act, 1906. See also Container Transport
International v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd’s
Rep 476; Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501.
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not required to show that the former is in any way relevant to the risks to
be insured under the contract.10
In determining whether there has been a misrepresentation of fact, the
representation in question must be considered in its entirety and in the
context in which it was made. A representation of fact is regarded as true
if it is substantially correct in the sense that the state of affairs would not
be considered material by a prudent insurer. On the other hand, warranties
must be strictly complied with. It is irrelevant that the promise contained
in the warranty has been substantially complied with nor does it matter
that the substratum of the bargain has not been altered by non-compliance.
The stark difference in classifying a term as a warranty and when it is not
and, as such, the insurer has to show that there is a material
misrepresentation can be seen by the comparison of two cases where the
facts are strikingly similar. The first is that of Pawson v Watson11 where the
assured represented that there were twelve guns and twenty men on board
a ship. In fact she carried nine guns, six swivels, sixteen men and nine boys.
On the other hand, in De Hahn v Hartley12, which concerned a marine
policy covering a ship and its cargo from Africa to its port of discharge in
the West Indies, the assured warranted that the ship sailed from Liverpool
with 50 hands on board. In fact, it sailed with only 46 hands but took on
an extra six hands in Anglesey, very shortly out of Liverpool, and it thus
had and continued to have 52 hands before its capture.
In Pawson v Watson13, Lord Mansfield agreed that a warranty inserted in
a policy of insurance must be literally and strictly complied with, whereas
10 see eg. Dawsons Ltd v Bonnin & Ors [1922] 2 AC 413. There was a basis clause in the
proposal form (which declared that the truth of all the answers thereto were warranted
and that this should form the basis of the contract) for a motor policy. The assured
declared that his motor lorry was usually garaged at 46, Cadogan Street, his place of
business. This was not true as the lorry was usually garaged at the assured’s garage on
the outskirts of Glasgow. The inaccurate answer was given inadvertently. The lorry was
burnt accidently while it was at its usual garage. The insurers sought to disclaim liability
on the basis of the untrue answer.
It was held that although the place at which the lorry was usually garaged was not
material to the risk, the insurers were not liable to indemnify the insured for their loss
on the ground that the description of the usual garage in the proposal form had become
a warranty which had to be exactly complied with.
Once a slatement has been made the basis of the contract, materiality of the statement
was no longer in issue. The insurer is entitled to avoid the policy if he shows that the
slatement was incorrect, even the truth of the slalement would indicate that the insurer
was taking on a lower risk than originally stated.
(This was in answer to a contention that the statement was not material as it tended to
show that the risk undertaken was in fact lower than what had been agreed. The House
found that the misstatemenl was not material but held that this question of materiality
could not be considered in the light of the basis clause)
11 (1778) 2 Cowp 785.
12 (1786) 1 TR 343.
13 supra note 11.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
143
a representation to the underwriter need only be substantially performed.
But if it is false in a material point, it will avoid the policy. It was accepted
by his Lordship that, in insurance law, there is no
clearer distinction than that which exists between a warranty which
makes part of the written policy, and a collateral representation, which,
if false in a point of materiality, makes the policy void: but if not
material, it can hardly ever be fraudulent. 14
Where it is a warranty, it must be strictly performed as being part of the
agreement. A representation will only result in the avoidance of the policy
if false in a point of materiality. In the ultimate analysis, it was found that
the statement in question was a representation on the ground that if the
parties had considered it as a warranty, they would have had it inserted in
the policy. The representation was substantially true, actually resulting in
the lowering of the risk. Thus, there was no misrepresentation and the
insurers were not entitled to repudiate their liability under the contract of
insurance.
In contradistinction, it was held in De Hahn v Hartley 15 that the insurer
could avoid all liability for breach of warranty, even though it was obvious
that the breach could have had no connection with the loss which
subsequently occurred and though the warranty was substantially complied
with.
The court took great pains to point out that there is a material distinction
between a warranty and a representation. Lord Mansfield put it in terms
which was later to become the locus classicus:
There is a material distinction between a warranty and a
representation. A representation may be equitably and substantially
answered; but a warranty must be strictly complied with... A warranty
in a policy of insurance is a condition or a contingency, and unless
that be performed, there is no contract. It is perfectly immaterial for
what purpose a warranty is introduced; but, being inserted, the contract
does not exist unless it be literally complied with.16
Thus, it is clear that the very meaning of a warranty is to preclude all
questions of whether it has been substantially complied with; it must be
literally so.
The other preliminary point which must be noted is that the nature of a
term used in a contract depends on the context in which it is used. The
mere fact that a term has been labelled as a “condition” or a “warranty”
14 ibid, at 787.
15 supra note 12.
16 ibid, at 345–346.
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does not conclusively turn that term into a condition or a warranty if the
context in which the term appears makes it inappropriate or inapt.17
II.
EFFECT OF BREACH OF WARRANTY
As has been pointed out earlier, a warranty is to be strictly complied with.
Irrespective of whether the breach relates to the risk or the loss in question,
it takes the very slightest of breach of warranty to terminate the contract.
The traditional view, at least in the realm of non-marine insurance contracts,
held until the decision of Lord Goff in Bank of Nova Scotia v Hellenic
Mutual War Risks Association (Bermuda) Ltd., The Good Luck 18 in 1991,
17 See Poh, supra note 5, at 291. See for example the decision of CTN Cash & Carry Ltd
v General Accident Fire and Life Assurance Corpn [1989] 1 Lloyd’s Rep. 299. The facts
are set out in full in the judgment, ibid, at 300–302. The plaintiffs insured their various
premises with the defendants for, inter alia, burglary and loss of money. A theft with
assault was committed on one of the premises after the staff manning the checkout kiosk
was lured out and attacked. The insurers, after paying out the claim, sought to find a way
to reduce their risk. It was a toss up between having a security post installed at the
entrance to the premises. The alternative was to have a warranty that the checkout kiosk
would be locked and “never left unattended”. The latter solution was settled upon and
the insurers inserted the following provision into the policy:
It is warranted that the secure cash kiosk shall be attended and locked at all times
during business hours.
One evening, during normal business hours, when the cashier was outside of the cash
kiosk, she and two other employees were set upon and were tied up. The assailants made
off with goods worth a great deal.
The plaintiffs made a claim. The insurers denied liability on the ground that the plaintiffs
were in breach of warranty, namely, that the cash kiosk was unattended at the time of
the robbery. The insurers contended that if the cash kiosk had been attended to. the
panic alarm in the kiosk could have been activated, which in turn would have triggered
an alarm signal at the police station.
It was held by the court that the term relied on by the insurers was, despite the word
“warranty” being attached to it, a term delimiting the risk. In this case, since there was
no one in the cash kiosk at the time of the robbery, the risk was not covered by the
policy. As such, since the robbery took place when the kiosk was not attended and it took
place during business hours, the insurers were not liable.
It was held that a term in a policy which was labelled as a warranty could not be
construed as a warranty if it would lead to absurdity in the context of the whole contract
and the fact that a term is stated to be a “warranty” but which is not, cannot be transformed
by merely having that label attached to it. That is not in itself conclusive.
MacPherson J gave two reasons, ibid, at 302–303, why he did not think that was a
warranty:
(1) that it was his strong impression and conclusion upon the facts relating to its
inception. (the term was inserted after the first burglary where the attendant at the
kiosk was lured out. This clause was the compromise between the insurer and the
insured in the course of settlement negotiations on how to ensure such an event
would not occur again).
(2) It was strongly relevant that there were 12 sections in the policy. It would be
unrealistic to imagine a breach of this warranty bearing in any way upon the rest
of the sections of the policy. In other words, his Lordship did not think that this
clause was one that went to the root of the contract.
18 [1992] 1 AC 233.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
145
was that the breach of warranty entitled the insurer to a right of election
— whether to treat himself as discharged from his obligations under the
contract of insurance from the time of such election, or to affirm the contract
and have resort to the right of damages.19 This view must however now be
treated as being “at the very least highly suspect”20 in the light of the
decision of the House of Lords in The Good Luck.21
In The Good Luck22, the named ship was insured with the defendant
shipowners’ mutual insurance club and mortgaged to the plaintiff bank.
The benefit was of the insurance had been assigned to the plaintiff, as
required by the mortgage. Further, a letter of undertaking had been given
by the defendants to the plaintiff under which the defendants undertook
to advise the plaintiff promptly “if the ship ceases to be insured”. It
transpired that the ship was sent by the shipowner, in clear breach of
warranty, to the Arabian Gulf which was a prohibited area under the rules
of the club. The ship became a constructive total loss. Both the plaintiff
and the defendants knew of the loss. However, the defendants failed to
inform the plaintiff until a few weeks after they had themselves come to
know of the breach of warranty. In this state of blissful ignorance, the
plaintiff bank made another advance to the defendant, which it would not
have done if it had been advised accordingly as required under the letter
of undertaking.
The issue before the House of Lords revolved around the question of
whether the insurance of the ship had ceased as soon as the ship entered
into the prohibited zone thereby breaking the warranty, or whether the
defendants had ceased to insure the ship, as they argued, only at a later
date when the defendants had made a formal decision not to indemnify the
shipowners.23 This question would also have impact on how one was to
look at the effect of the breach of a warranty — did the insurer, as innocent
parties in general contract law did in the event of a breach of a condition,
have the right of election whether to treat the contract as discharged (and
the contract would thus be discharged as from the time of election) or to
affirm it and claim damages. The House of Lords overruled the Court of
Appeal24 and restored the decision of the first instance court25 and held
that the plaintiff bank was entitled to damages for the defendants’ breach
of its undertaking.
19 ie. the same analysis as applicable in the general law of contract: sec Andrew Phang,
Cheshire Fifoot & Furmston’s Law of Contract: Singapore and Malaysian Edition (1994),
at 768–774.
20 Birds, Modern Law of Insurance (3rd Ed, 1993) at 119.
21 supra note 18.
22 ibid.
23 Thus, if the defendants only ceased to insure the ship upon their election, then there
would be no breach of their undertaking to the plaintiffs; however, if the defendants were
discharged as soon as the warranty was broken, then notice would have been given too
late to comply with the undertaking.
24 [1989] 2 Lloyd’s Rep 239.
25 [1988] 1 Lloyd’s Rep 514.
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Lord Goff, with whom the rest of the House agreed, took the view that the
Court of Appeal, which had approached the question from the general
contract law perspective rather than having primary regard to the express
provisions of the Marine Insurance Act 1906, had been “led astray by
passages in certain books and other texts which refer to the insurer being
entitled to avoid the policy of insurance, or to repudiate.”26 In the opinion
of Lord Goff, all these extrinsic aids to construction were irrelevant as the
words of the codifying statute were clear.27
Thus, the effect of a breach of warranty is clear — when an insured is in
breach of a warranty in a contract of insurance, an insurer is automatically
discharged from his liability under the contract as from the date of the
breach. The breach of warranty does not bring the contract to an end, in
26 Of course, one must have sympathy for the Court of Appeal which was simply echoing
the views then commonly held. Clarke, The Law of Insurance Contracts (2nd Ed, 1994),
at 513 observed:
If the Court of Appeal was led astray, it is hardly surprising, as the texts included (a)
books written by Sir Mackenzie Chalmers between 1907 and 1933, with the view “that
a breach of warranty in insurance law appears to stand on the same footing as the
breach of a condition in any other contract”; (b) a report of the Law Reform Committee
in 1957 based on the combined opinion of Lords Jenkin, Parker, Devlin and Diplock,
with the view ‘that any breach entitles the insurer to repudiate the contract”: Fifth
Report, Conditions and Exceptions in Insurance Contracts 1957, Cmnd 62, para 8; and
(c) a report of the Law Commission in 1980, with the view that “the insurer is entitled
to repudiate the policy”: Insurance Law, Non-Disclosure and Breach of Warranty,
Cmnd 8064, para 104. Other academic authority ranged against Lord Goff includes
Arnold, The Law of Marine Insurance and Average (16th ed., 1981) para 708 and
MacGillivray para 790. Also in this sense: Lord Wright in Provincial Ins Co v Morgan
[1933] AC 240, 255.
27 supra note 18, at 262, where Lord Goff, expressed his opinion on the words in Sections
33 and 34 of the Marine Insurance Act, 1906:
Those words are clear. They show that discharge of the insurer from liability is automatic
and is not dependent upon any decision by the insurer to treat the contract as at an
end. ... Section 33(3) of the 1906 Act reflects what has been described, in successive
editions of Chalmers’ The Marine Insurance Act, 1906, as the inveterate practice in
marine insurance of using the term ‘warranty’ as signifying a condition precedent. ...
Once this is appreciated, it becomes readily understandable that, if 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 or further liability of the insurer. This moreover reflects that
the rationale of warranties in insurance law is that the insurer only accepts the risk
provided that the warranty is fulfilled. This is entirely understandable; and it follows
that the immediate effect of a breach of warranty is to discharge the insurer from
liability as from the date of the breach. In the case of conditions precedent, the word
‘condition’ is being used in its classical sense in English law, under which the coming
into existence of (for example) an obligation, or the duty or further duty to perform
an obligation, is dependent upon the fulfilment of the specified condition. Here, where
we are concerned with a promissory warranty, ie. a promissory condition precedent,
contained in an existing contract of insurance, non-fulfilment of the condition does not
prevent the contract from coming into existence. What it does (as section 33(3) makes
plain) is to discharge the insurer from liability as from the date of the breach.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
147
that the insurer remains liable for a loss which occurs prior to the breach.28
The insurer is discharged from the date of the breach unless he waives the
breach.29 The hitherto held view of the effect of a breach of warranty in
insurance law will have to be revised in light of Lord Goff’s decision.30
III.
CONTINUING WARRANTIES
We saw earlier the nature of a warranty — a breach of it discharges the
insurer from the date of the breach unless he later waives the breach.
However, it is pertinent to note a further qualification to this. There are
two different types of warranties, namely warranties as to past or present
fact only and continuing or promissory warranties.
28 that is clear from the last part of Section 33(3) of the Marine Insurance Act, 1906, itself
which provides that “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 dale.” (emphasis my own)
29 see Section 34(3) of the Marine Insurance Act, 1906, which provides that a “breach of
warranty may be waived by the insurer”.
30 see Clarke, supra note 26, at 513 where, while expressing some reservations about some
of the assumptions made by Lord Goff in his decision, the author accepts that the same
position would probably hold true in general insurance law as well:
Clear indeed, but on the assumption, first, that the nature of a warranty depends solely
on the construction of the Act, without regard to other branches of the law of insurance.
It does not. Nor, indeed, was it the view of Lord Goff, and he continued in general
terms: “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 or further liability of the insurer. This moreover reflects that the rationale of
warranties in insurance law is that the insurer only accepts the risk provided that the
warranty is fulfilled.” If this is true of marine warranties, then it is true also of nonmarine warranties. The second assumption is that the question is uncluttered by previous
authority. It is not. Indeed, the Court of Appeal in The Good Luck was, in the opinion
of Lord Goff, “led astray by passages in certain books and other texts which refer to
the insurer being entitled to avoid the policy of insurance, or to repudiate”. This view,
which was widely held in the past, must now be revised.
see also Birds, supra note 20, at 121–122, where the learned author opined:
There is a logic to this reasoning. It makes the warranty more like an exception to the
risk than a condition in the usual contractual sense, since the operation of an exception
is in no way dependent upon a decision of the insurer. The contract may survive a
breach of warranty in the sense of there being obligations of the insured which may
survive the breach (for example, to pay a premium), although it is likely to be a rare
occurrence. In practice the contract will come to an end. The language of repudiation
is inappropriate, as Lord Goff points out, at least in terms of repudiating or avoiding
the policy. “[I]t is only in the sense of repudiating liability ... that it would be right to
describe [the insurer] as being entitled to repudiate.” ...
We have already expressed the view that The Good Luck should apply to nonmarine insurance contracts. Indeed, while Lord Goff was primarily concerned to construe
the marine insurance provisions, much of what he said ... was not so confined. If our
view is right, authorities which have assumed that, in a non-marine context, the effect
of a breach of warranty is to give the insurer the right to repudiate the policy must be
regarded as wrong.
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In the absence of evidence to the contrary, a warranty will be read as one
which only refers to facts which are correct up to the inception of the
insurance policy. Where a statement which relates to the future is merely
a statement of the insured’s present intention, the question of the creation
of a continuing warranty also does not arise and the insured is not prevented
from subsequently changing his mind.31
A continuing or promissory warranty is one which relates to the future in
the sense that the insured undertakes that a fact is true at the
commencement of the risk and will remain true during the currency of the
policy. It is to be noted here that the term “promissory warranty” can be
misleading as most warranties may be said to be promissory warranties.
Indeed, as far as marine insurance is concerned, such a distinction would
be inapplicable as Section 33(3) of the Marine Insurance Act, 1906 makes
it clear that a promissory warranty refers to “a warranty by which the
assured undertakes that some particular thing shall or shall not be done,
or that some condition shall be fulfilled, or whereby he affirms or negatives
the existence of a particular state of facts.”
A distinction must also be made with regard to the effect of a breach of
the warranty: whereas the breach of warranty as to past or present facts
will discharge the insurer from liability ab initio, since as such breaches
would inevitably have occurred right at the inception of the contract, the
breach of a continuing warranty would only discharge the insurer from
liability from the date of such a breach and the contract remains valid until
that time. Any prior contractual rights or obligations which may have
accrued would continue to be effective.32
Whether a warranty is a continuing or promissory warranty is a question
of construction. Much depends on the precise wording of the warranty, but
unless the intention of the parties is very clear to the contrary, a warranty
will not, as a general rule, be read as one which relates to the insured’s
future conduct.33 So, obviously, an insurer who requires the extended
protection which a continuing or promissory warranty can afford should
use language which makes it very clear that a continuing warranty has
31 See for example Kirkbride v Donner [1974] 1 Lloyd’s Rep 549, where an answer to a
question “Will the car be driven by any person under 25?”, in an application for a motor
policy, was held to be a statement only of the applicant’s current intention, rather than
a continuing warranty.
32 see Section 33(3) of the Marine Insurance Act, 1906, supra note 28.
33 see Woolfall & Rimmer v Moyle [1942] 1 KB 66; Kennedy v Smith 1976 SLT 110; Kirkbride
v Donner, supra note 23; Hair v Prudential Assurance Co Ltd [1983] 2 Lloyd’s Rep 667.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
149
been created. Note should also be taken of the contra proferentum rule
which the courts will not hesitate to use against the insurer.34
Once it is clear that the warranty in the insurance policy is of a promissory
character, it has to be observed by the insured throughout the entire
duration of the policy. A breach of a promissory warranty during the
currency of the policy discharges the insurer from his liability under the
policy as from the date of the breach. A clear example of the futurity of
the language used having a decisive influence on the court in construing a
term as a continuing warranty is that of Palatine Insurance Company Ltd.
v Gregory.35 The policy in question was one against the risk of fire covering
timber kept in a timber yard. The issue revolved around the New Brunswick
34 See especially the earlier cases on increase of risk where the insurers had tried to argue
that a statement as to the use of the premises to be insured constituted a continuing
warranty and that any change in use of such premises would discharge the insurer from
any further liability under the contract of insurance. See for example the case of Pim v
Reid (1843) 6 Man & G 1: The plaintiff was a paper-maker. A policy against fire effected
by the plaintiff provided, inter alia, that:
In the insurance of goods, &c. the building or place in which the same are deposited
is to be described, the quantity and description of such goods, also whether any hazardous
trade is carried on, or any hazardous articles deposited, therein; ...
About four months after the making of the policy, the insured ceased to carry on the
trade of a paper maker on the insured premises. Soon after, the insured’s brother-in-law
came to live on the premises with his family. He brought onto the premises a large
quantity of cotton waste for cleaning and dying. A fire broke out destroying the property
insured.
The insurers repudiated liability on the grounds, inter alia, that the plaintiff had failed
to inform them that there had been a change in the trade as well as an increase in the
risk.
The court rejected the arguments of the insurers. There was no particular condition in
the policy which applied to the situation in question and therefore the insurers were not
entitled to avoid the policy.
On the facts and construction of the clause that “party insured is to communicate any
circumstance which is material ... to enable insurers to judge the risk they have undertaken
...” (emphasis my own), an alteration in business after the policy has been effected cannot
be material so as to enable the insurer to judge the risk they had undertaken. The court
held that this clause referred to the stale of circumstances before the policy. Thus, the
condition did not cover any change after the execution of the policy.
Moreover, a mere alteration in the risk insured during the currency of the policy did
not entitle the insurer to avoid liability under the policy unless this has been specially
guarded against by a specific term in the policy. On principle, an alteration in the risk
insured during the currency of the policy would not vitiate the policy. The mere fact that
there has been some increase in the risk insured did not prevent an insured from recovering
under his insurance policy.
See also the case of Dobson v Sotheby (1827) Moo & M 90 where a similarly unsuccessful
attempt was made by an insurer to place a construction on a description of the insured
premises as being a warranty to prohibit the insured from changing the use of the insured
premises during the currency of the policy. See also Shaw v Robberds (1837) 6 LJKB 106
for a similar failure by the insurers to argue that such a description as constituting a
warranty against future change in use of the insured premises. See also Poh, supra note
5, at 733–740.
35 [1926] AC 90.
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Fire Insurance Policies Act 1913 which deemed that fire policies were
subject to certain statutory conditions. Section 4 of the Act36 provided
If the insurer desires to vary the said conditions, or to omit any of
them, or to add new conditions, there shall be added on the instrument
of contract containing the printed statutory conditions words to the
effect set out in the second schedule, printed in conspicuous type,
and in ink of a different colour, and with the heading ‘variations in
conditions’.
It was further provided by section 5 that unless section 4 is complied with,
such variations shall not be valid and binding on the insured.37
The policy was expressed to be subject to, inter alia, “the 50-foot clear
space clause”. The clause referred to was as follows:
Warranted by the assured that a continuous clear space of 50 feet
shall hereafter be maintained between the property hereby insured
and any sawmill or woodworking establishments, and the said space
shall not be used for the piling of lumber thereon for temporary
purposes, tramways upon which the lumber is not piled alone being
excepted, and 300 feet between any open refuse-burner ...38
It was admitted that this term was not highlighted as required by the Act.
At the date of the policy an open refuse-burner was situated only eighty
feet away, and not three hundred feet as required by the clear-space clause,
from the insured timber. There it remained thoughout the currency of the
policy. Sparks from the afore-mentioned burner ignited the timber which
was wholly destroyed by the consequent fire.
When a claim was made under the policy, the insurers sought to rely on
the clear-space clause and, as such, the loss did not come within the ambit
of the policy. It was argued that the clause was not a condition of the
policy, but was only one descriptive of or one limiting the risk covered.
The insured, on the other hand, argued that the term was not so much a
term descriptive of the risk but was a continuing warranty and as such was
unenforceable and invalid because the insurers had failed to comply with
the Act.
36 The relevant sections are reproduced in the speech of the Privy Council, ibid, at 91.
37 Section 5 reads as follows:
No such variation, addition or omission shall, unless the same is distinctly indicated
and set forth in the manner hereinbefore mentioned or to the like effect, be valid and
binding on the assured; and no questions shall be considered as to whether any such
variation, addition, or omission is, under the circumstances, just and reasonable; but on
the contrary policy shall, as against the insurer, be subject to the statutory conditions
only, unless the variations, additions or omissions are distinctly indicated and set forth
in the manner or to the effect aforesaid. ...
38 The clause is reproduced in its entirely in supra note 35, at 92
9 S.Ac.L.J.
Retreat of Continuing Warranties?
151
The Privy Council was influenced in finding that it was a continuing
warranty, and consequently void, by two particular matters:
(1) the policy was expressed to be “subject to” the clause and the
clause itself was introduced by the word “warranted”. Their
Lordships took this use of words to point to the parties’ intention
that it should constitute a warranty.39
(2) the clause requires that the clear space be “maintained”, ie. to be
maintained throughout the currency of the policy, and the effect
of this stipulation is to impose an obligation which continues and
is to be observed throughout the currency of the policy.40 Here
the futurity of the language used suggested that the obligation
imposed was to be a continuing one.41
IV.
EXCEPTIONS TO REQUIREMENT OF FUTURITY
As has been pointed out, promissory or continuing warranties may arise
from the completed proposal form or from the body of the policy itself. In
the ultimate analysis, whether a warranty is promissory or simply present
depends on the language used. There seems to be no bar to it being both,
but in order to be promissory, it must generally contain in its wording a
clear reference to the future.
However, there appears to be two exceptions to the requirement of futurity
in the language used. These would be where the context in which the
answer in the proposal form is given suggests that it refers to the future.
39 ibid, at 93–94, where Viscount Cave LC said:
In their Lordships’ opinion the clear space clause was not a description of the goods
or of the risk insured, but was in the true sense a condition of the insurance. Each
policy is expressed to be “subject to” the clause, and the clause is introduced by the
word “warranted”, which is commonly used in relation to a condition in a policy.
Further, the clause requires that the clear space prescribed shall be “maintained” —
that is to say, maintained throughout the currency of the policy; and the effect of this
stipulation is to impose on the insured an obligation which continues and is to be
observed throughout the currency of the policy. ... For these reasons their Lordships
are of the opinion that the clear space clause was void, ...
40 ibid.
41 Contrast this case with the decision in Woolfall & Rimmer v Moyle, supra note 33, where
the insured had warranted in an answer in the proposal form for employers’ liability
insurance that its machinery, plant and ways were “properly fenced and guarded, and
otherwise in good order and condition.” The Court of Appeal had no hesitation in
rejecting the argument of the insurers that the warranty was a continuing one. The use
of the present, rather than past, tense proved to be the insurers’ undoing. As pointed out
by Lord Greene MR, at 70:
In my opinion, there is not a particle of justification for reading into that perfectly
simple question any element of futurity whatsoever. The argument that the Court
should read into it such an element was based ... on the suggestion that the question
would be valueless from the underwriters’ point of view unless that were done.
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A. Subject Matter Suggests Futurity
The first situation is where the provision can only be read as to the future.
Where a warranty can only serve a purpose and afford the insurer protection
if it relates to the insured’s future conduct, it will be regarded as a continuing
or promissory warranty. This is basically a situation where the subjectmatter of the description indicates that it is obviously meant to refer to a
future situation.42
The oft-cited authority for this proposition is the decision of Beauchamp
v National Mutual Indemnity Insurance Co Ltd.43 The insured was a builder
who had never previously done demolition work. He had bought an old
mill (Alexander Mill) and was minded to demolish it. He then effected a
policy with the defendants for the specific purpose of covering himself
against any liability towards his workmen he might incur in the course of
the demolition of the mill. In the proposal form particulars of his line of
work was given by the insured as “demolishing and building” and he further
specifically named the building to be demolished. Further, Question 3 of
the proposal form asked:
Are any acids, gases, chemicals, explosives, or any other dangerous
preparations used in your business?
He answered “no”. This answer was true at the time of the answer. There
was the usual basis clause.
When the insured made a claim under the policy in respect of an accident
in which three of his workmen were killed as a result of the detonation of
explosives in the course of the demolition works, the insurers repudiated
liability. The insurers did this on the ground that the insured had, by using
explosives in the course of the demolition work, breached the continuing
warranty with regard to the use of explosives. The alternative ground on
which the insurers sought to deny liability was that the answer given in the
proposal form with regard to the use of explosives was a term delimiting
the risk insured.44
The court accepted the arguments of the insurers. Finlay J pointed out that
the insurance was in respect of one isolated demolition job to be undertaken
in the future. Accordingly, when the insured was asked in the proposal
form whether explosives would be used in his business, the “business”
referred to the proposed demolition job. That being the case, the question
in the proposal form and the builder’s answer to that question must be
42 see MacGillivray & Parkington on Insurance Law (8th Ed, 1988), at para 777.
43 [1937] 3 All ER 19.
44 There were two other grounds on which the insurer relied on which need us concern us
at this juncture. They are set out in the judgment of Finlay J, ibid, at 21.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
153
taken to be a continuing warranty that explosives will not be used in the
future. As the insurers could not be called upon to indemnify the insured
for the consequences of a demolition job which involved the use of
explosives when they had merely agreed to afford cover for a “nonexplosives” demolition job, the insured’s claim under the policy failed.
In the circumstances, because he had not used explosives before, the
question addressed to the insured and his answer could only be read as
referring to the future.45
B. Special Rule for Fire and Burglary Policies
Secondly, it has been held that as far as fire and burglary policies are
concerned, the description of the location of the insured property and
statements to the effect that certain hazardous materials are not within the
insured premises or the premises in which insured property is kept is of
such importance to the insurer that there may well be a continuing warranty
to the effect that the description in question will not be changed. Thus,
there appears to be a principle that in fire and other policies on property,
warranties as to the nature of the premises and precautions taken against
loss will prima facie be read as to the future, on the ground that otherwise
they would be of little or no value to the insurer.46
The decision which has been oft-cited for this proposition is the decision
of Hales v Reliance Fire & Accident Insurance Corpn Ltd.47 The plaintiff
ran a small business described in the proposal form as “grocery, provisions,
newspapers, tobacco and confectionery”. He effected a compound retail
shop-keepers’ policy against fire and explosion risks with the defendants.
45 see ibid, at 22, where Finlay J took the approach that
It is necessary here to ascertain what was being insured and what was being referred
to. The plaintiff ... was a builder. He was a person who was not doing any other
demolition work. This insurance was solely in respect of one isolated demolition job
... and it seems to me, therefore, that the proposal form must inevitably have reference
to the future, because, although, in fact, the plaintiff was in business, he was not
insuring anything in regard to his general business, but was insuring in respect only of
his special job in the future. Accordingly, it seems to me that the whole of the proposal
must be regarded as having reference to a future event, and when, in these circumstances,
he is asked, “Are any acids, gases, chemicals, explosives, or any other dangerous
preparations used in your business: it means the business on which he is going to
embark, the business of demolition. Accordingly, it seems to me that it does have the
nature of a warranty or a condition. I think that the true view to take is that he was
insuring what I may conveniently call ... a non-explosive demolition. I think the risk,
where the demolition is an explosive one, is greater than where it is a non-explosive
one, and what he was insuring was, I think, a non-explosive one.
46 Birds, supra note 20, at 125; MacGillivray & Parkington, supra note 42, at 320, para 778:
a similar passage in the 5th edition of MacGillivray & Parkington was the one approved
by and relied on by McNair J, in Hales v Reliance, infra note 47, at 395.
47 [1960] 2 Lloyd’s Rep. 391.
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The plaintiff, in accordance with his usual practice, took delivery of fireworks
for sale over the period of Guy Fawkes Day. As the fireworks came loose
in two open cardboxes, he stored one of them in a biscuit tin, while the
other was kept away in a safe place. Shortly thereafter, the tin exploded
and a fire broke out, causing damage to the plaintiff’s trading property,
premises and some plate glass.48 When a claim was made under the policy,
the insurers repudiated liability, inter alia, on the basis that there was a
breach of a continuing warranty regarding the using or keeping of
inflammable goods on the premises. The question which was alleged to be
inaccurately answered was Question 2(b) of the proposal form:
Are any inflammable oils or goods used or kept on the premises?
Answer: “Lighter Fuel”. The proposal form contained the usual basis
clause.49
McNair J upheld the insurer’s contention. His Lordship agreed that as far
as fire and burglary policies are concerned, warranties as to the nature of
the premises and precautions taken against loss will prima facie be read as
applicable to the whole duration of the policy.
This was so as it would obviously be of little value to have a warranty that
a building contained no artificial heating apparatus, or that a night watchman
was kept on the premises, unless the warranty was effective to ensure the
subsistence of those conditions throughout the duration of the risk. Viewed
in this light, Question 2(b) and the answer to it must be taken as a warranty
both as to the existence of the fact that there were no inflammable goods
other than lighter fuel on the premises at the time of the proposal for
insurance as well as during the currency of the risk.50
Thus, the traditional position seems to be that the courts will construe a
term as a continuing warranty in two main situations:51
(1) where there is a reference to the future: this may clearly arise on
the face of the clause itself or it may arise by virtue of the subject
matter of the description. The first scenario is where the tense
used or the language clearly makes reference to the future. The
other situation occurs where although the language may not be
clear on the face of it, in the context of the particular subject
matter of the insurance, it obviously is intended to refer to a
future situation. Where, however, it is possible to read the clause
48 The facts are contained in the judgment of McNair J, ibid, at 393–394.
49 For a fuller account of the terms of the policy as well as the questions and answers in the
proposal form, sec McNair J, ibid, at 394–395.
50 ibid, at 395.
51 see Poh, supra note 5, at 323–326. See also MacGillivray & Parkington, supra note 42,
paras 777 and 778, at 320–321.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
155
as referring to the future as well as referring to present or past
facts, the courts tend not to be terribly sympathetic to the
arguments of the insurers that the clause should be read as
imposing a continuing obligation on the part of the insured to
maintain the status quo.52
(2) The other main situation where the courts seem to be willing to
hold that the warranty imposes an obligation which continues
throughout the currency of the policy is where it is felt that to do
so would afford the insurers the protection they seek. It appears
to be a strong argument in favour of construing a term as a
continuing warranty that the term would serve little or no purpose
if compliance therewith is confined to the situation before or
when the contract is made. As was suggested by one commentator:
Thus in fire and burglary insurance, warranties as to the nature
of the premises and precautions taken against loss will prima
facie be read as applicable to the whole duration of the policy.
It would obviously be of little value to have a warranty that a
building contained no artificial heating apparatus, or that a
night watchman was kept on the premises, unless the warranty
was effective to ensure that the subsistence of those conditions
throughout the duration of the risk.53
Correspondingly, where the insurer is sufficiently protected even though
the clause is construed to be confined to present or past facts, there is no
good reason not to limit its scope accordingly.54
V. 3HUSSAIN v BROWN 55 — OVERRULING HALES v
RELIANCE 56?
It has been explained that the courts are normally loathe to hold that a
warranty imposes a continuing obligation to maintain the status quo during
the currency of the insurance unless there are clear words to indicate this
intention. The common view of commentators has been that, in the absence
of such clear futurity in the language used in the clauses in question, the
issue is not necessarily closed as the type of policy may dictate the conclusion
that the warranty is a continuing one despite the lack of futurity in its
language on the basis that the clause would otherwise not offer the insurers
52 see in particular the cases relating to increase of risk. (MacGillivray & Parkington, supra
note 42, at 320)
53 MacGillivray & Parkington, supra note 42, para 778 at 320. The corresponding passage
in the 5th edition of the same work was cited and approved of by McNair J in Hales v
Reliance, supra note 47, at 395.
54 Woolfall & Rimmer v Moyle, supra note 41; Sweeney v Kennedy (1949) 82 L1 LR 295.
55 [1996] 1 Lloyd’s Rep 627.
56 supra note 47.
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sufficient protection. This view has not attracted universal acclaim.57 It
may well be that this suggestion that in particular types of policies this
peculiar result must be arrived at may have seen its demise with the Court
of Appeal decision in Hussain v Brown.58
In Hussain v Brown59, the plaintiff had taken out a policy on his premises
to cover the risk of fire. Question 9 in the proposal form had asked:
Are the premises fitted with any system of intruder alarm?
If YES give name of installing company. (Please provide a copy alarm
specification if applicable)
The plaintiff answered “Yes” followed by “See specification”. Attached to
the complete proposal form was a copy of specifications for a proposed
security system and a survey report, both of which were dated around two
years prior to the proposal. In any event, by the time the proposal was
presented to the insurers, the security alarm had been fitted and
modifications carried out. The proposal form contained the usual basis
clause.60 The proposal was duly accepted by the insurers and the insurance
certificate issued.61
Later that same year, a fire occurred at the plaintiff’s premises and a claim
was made under the policy. It was admitted by the plaintiff that, before
and at the time of the fire, the security system was inoperative. The insurers
repudiated liability on the basis that the answer given to Question 9 in the
proposal form constituted a continuing warranty that the premises would
be fitted with a alarm system and that the system would be operational.
Since the plaintiffs were in breach of this warranty, they were accordingly
discharged from liability under the policy.
It was held by the first instance court that the answer to Question 9 and
the warranty as to the truth thereof only related to the state of affairs
current at the time when the proposal form was signed. It did not import
any warranty as to the future and as such, the insurers could not rely on
it to discharge themselves from liability.
57 see criticism of the case of Hales v Reliance, supra note 47, in Birds, “Warranties in
Insurance Proposal Forms” [1977] JBL 231, at 237–238.
58 supra note 55.
59 ibid.
60 The declaration was as follows:
I/We the Proposer warrant that the above statements are true and that they shall be
the basis of the contract between me/us and the Underwriters and will be incorporated
into such contract.
61 The certificate provided that the proposal and declaration were to be the basis and form
part of the contract.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
157
The Court of Appeal dismissed the appeal and affirmed the decision of the
lower court. The Court of Appeal took great pains in pointing out that
despite judicial authority and suggestions by commentators, there is no
special principle of insurance law which requires that answers in proposal
forms to be construed, prima facie or otherwise, as promises relating to a
future state of affairs.62 The issue of whether they produced a continuing
warranty must depend on normal rules of construction: consideration of
the words which had been used by the parties in the context in which they
have been used. Where the words are ambiguous, the court will select the
meaning which most closely approximates the presumed intentions of the
parties.63
Bearing all this in mind, the Court of Appeal then scrutinised the question.
Firstly, there was nothing in the language to suggest that it was intended
to elicit information as to a future state of affairs as it was framed in the
present tense. Moreover, there was nothing in the question to suggest that
the insurers were seeking information as to the practice of the plaintiff
with regards to the alarm system.64 Thus, it was untenable to suggest from
the words of the simple question, or indeed even the context in which it
was asked, anything which suggests it relates to an undertaking as to the
future.65
The Court of Appeal was also particularly concerned with the draconian
nature of a continuing warranty: the breach of a warranty results in an
automatic cancellation of the cover and it is also wholly irrelevant that the
loss in question does not have any connection at all with the breach. If the
insurers should be desirous of the protection of a continuing warranty,
then it must be incumbent upon them to provide for it in clear and
unambiguous terms. The mere fact that to construe such a question as a
continuing warranty would afford the insurers more protection, than to
62 In fact, Saville LJ went as far as to venture the opinion that Hales v Reliance, supra note
47, would be wrongly decided if it was suggesting that there was such a special principle
in insurance law: see supra note 55, at 629:
Indeed, as I have indicated, if and to the extent that it suggests that there is any special
principle applicable to proposals for insurance in general, or fire insurance in particular,
I consider it to be wrong.
63 Saville LJ, supra note 55, at 629.
64 Saville LJ, supra note 55, at 630; see also Rose LJ, supra note 55, at 631, where he
pointed out that
Question 9 is a perfectly simple question which contains no element of futurity and it
is unarguable to maintain that it does.
65 In any event, the suggestion that not to construe the question and answer as relating to
a future state of affairs would render the question of no assistance to the insurer, Saville
LJ, supra note 55 at 630, disagreed:
... it is, in my view, of value to underwriters to know whether or not an alarm is fitted,
for depending on the answer, underwriters could require one to be fitted, or indeed
seek a continuing warranty or decline the risk.
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construe it as one relating merely to past or existing state of affairs, is not
sufficient grounds in itself to construe as relating to the future.66
VI.
REAFFIRMING THE MAINSTREAM POSITION
Perhaps the rejection of Hales v Reliance67 is not as surprising as it may
seem initially. It has always attracted criticism from commentators.68
One thing is clear: the argument that warranties as to the nature of the
premises and precautions taken against loss, in the context of policies against
the risk of fire or any other risks relating to premises, has to be read as
relating to the future lest they be of little or no value to the insurer has lost
its currency. The mere allegation that the only way in which insurers would
be offered sufficient protection if the warranty is read as subsisting
throughout the currency of the policy is one which insurers should be slow
to rely solely on henceforth. As has been pointed out by Saville LJ, the
question is one to be decided purely on construction alone:
In my judgment, despite these authorities and the passage from
Macgillivray approved by Mr Justice McNair, there is no special
principle of insurance law requiring answers in proposal forms to be
read, prima facie or otherwise, as importing promises to the future.
Whether or not they do depends upon ordinary rules of construction,
namely consideration of the words the parties have used in the light
of the context in which they used them and (where the words admit
of more than one meaning) selection of that meaning which seems
most closely to correspond with the presumed intentions of the
parties.69
Saville LJ also pointed out that this would, in effect, bring some consistency
into the construction of alleged continuing warranties. It had been pointed
out by Kershaw J, at the first instance decision, that the approach had been
taken in other areas in previous decisions which McNair had not been
referred to.70 The courts in these cases, which Saville LJ approved, had
construed questions in the proposal form using the present tense as only
referring to the present state of affairs, and as not importing any warranty
as to the future.
66 see Saville LJ, supra note 55, at 630.
67 supra note 47.
68 see Birds, supra note 20, at 125; see also Birds, supra note 57, at 237–238; Merkin,
Insurance Contract Law (1996), at B.2.3-15–B.2.3-16. Contra MacGillivray & Parkington,
supra note 42, at para 778, where a paragraph similar to the one which McNair J relied
on is reproduced without further comment.
69 supra note 55, at 629.
70 as referred to by Saville LJ, supra note 55, at 627. The decisions referred to were the
cases of Weber & Berger v Employers’ Liability Assurance Corporation (1926) 24 Ll L
Rep 321 and Woolfall & Rimmer v Moyle, supra note 33.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
159
It is pertinent to look at the approach taken by some of the other cases
referred to in the judgment of Saville LJ as illustrating the mainstream
approach to such arguments by insurers in an attempt to construe what
would otherwise appear to be clearly present warranties into continuing
warranties.
A.
Weber & Berger v Employers’ Liability Assurance Corporation71
In Weber & Berger v Employers’ Liability Assurance Corporation72, the
policy in question was one which covered the stock-in-trade of the insured
against the risk of burglary. The insured had answered in the affirmative
one of the questions asked in the proposal form which was:
Do you keep books with a complete record of all purchases and
sales, and are these books regularly entered up?
There was the usual basis clause making the truth of all answers in the
proposal form the basis of the contract, as well as incorporating these
answers as terms of the contract of insurance.
During the currency of the policy a burglary occurred and a claim was
made thereunder. The insurers sought to deny liability by asserting that
the question and answer as to the keeping of books constituted a clause
where the insured had warranted, not only that the books had been kept
and regularly updated at the date of the proposal and up to that date but
also, that the keeping of such books would continue throughout the running
of the risk. It was found by the umpire that the books had been kept and
regularly entered into right up to the date of the proposal. It was also
found that, however, for a period prior to the burglary, the books were
kept but not regularly updated.
MacKinnon J was dubious if the question and answer in the proposal form
could be read as relating to the future conduct of the insured.73 The contra
71 ibid.
72 ibid.
73 ibid, at 322, where he observed:
To my mind the only question in this case is whether these questions and answers in
the proposal form are, as they purport to be, particularly questions and answers to be
truthfully answered; or whether, by reason of the proposal form and the policy, there
is to be read into the policy a promise by the assured as to his future conduct during
the currency of the policy with regard to his keeping books. As regards this promise
there is no express statement in the proposal form — the declaration at the end of it
— that he promises to do anything. All the proposal form says is: “I hereby declare and
warrant that the above answers and other particulars are true”; and when it is
incorporated into the policy it is referred to as a statement signed by and on behalf of
the assured warranting the truth of the statements made therein. ...
This reading of these documents in this way would result in adding, to what is stated
in the policy as being the matters which provide for something or anything to be done
by the assured, and provide for it by adding to the statement of fact to be true, further
words making that a promise of something which he shall do in the future.
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proferentum rule of construction would naturally lead to this result.74
Further, MacKinnon J felt little sympathy for the insurers as he felt that
it would have been so easy for the insurers, if they felt that they needed
the protection of a continuing warranty as to the insured’s future conduct,
to expressly require it in clear and unequivocal terms:
Quite apart from any application of the rule that a document of this
sort ought to be construed ... contra proferentum — leaving that out
of account altogether, I do not think it is a reasonable interpretation
of the document to say that that amounts to any promise of conduct
in the future. It is in terms a statement of fact and a promise that the
answer to that question of fact is true. It is perfectly true to add that
it is a matter as to which the company, having received an answer in
the affirmative, might very reasonably have stipulated that it should
also be a promise for the future. But though it would be quite
reasonable from their point of view that they should exact that
promise, I do not think that they ever did ask them to give that
promise, and I do not think the assured ever did give that promise.75
B.
Woolfall
& Rimmer Ltd v Moyle76
An even stronger endorsement of this approach that if the insurer should
be desirous of the protection of a continuing warranty, it should be expressed
in clear and unambiguous terms is expressed by members of the Court of
Appeal in Woolfall & Rimmer Ltd v Moyle. 77 The policy in question was
one for the indemnity of any liability at common law or by statute for
workmen’s compensation. The issue which need concern us78 is that which
revolved around the construction of Question 2(c) in the proposal form:
Are your machinery, plant and ways properly fenced and guarded,
and otherwise in good order and condition?
The answer given by the insured was “Yes”. It was argued on behalf of the
insurers that the question carries a greater meaning than merely relating
to the point in time when the proposal was made: the whole point of the
question was to discover the nature of the risk which the insurers were to
74
75
76
77
78
ie. the rejection of such an argument.
supra note 70, at 322.
supra note 33.
ibid.
The other main issue concerned the question as to the duties and obligations imposed on
the insured by a condition precedent to liability (condition 5) which stipulated that “the
assured shall take reasonable precautions to prevent accidents...”. The court construed
the term to apply only to the personal acts of the insured, and, thus, where the insured
had entrusted work to a trustworthy and skilled foreman who was vastly experienced in
the industry, the negligence of the foreman would not constitute a breach of this term.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
161
undertake and for that purpose it would be valueless if the question was
treated as applying only to past or present facts. Asquith J, hearing the
case at first instance, rejected the construction the insurers sought to put
on the question and answer.
The Court of Appeal similarly did not feel much sympathy towards the
insurers. As far as Lord Greene MR was concerned, it was not true that
the question would be valueless to the insurer, besides which if it had been
so important to the insurers to impose such a stipulation covering the
entire currency of the policy they could easily have done so:
In my opinion, there is not a particle of justification for reading into
that perfectly clear simple question any element of futurity whatsoever.
The argument that the court should read into it such an element was
based, as I understood it, on the suggestion that the answer would be
valueless from the underwriters’ point of view unless that were done.
I entirely disagree. The value of the question to the underwriters, as
I construe it, is that it enables them to find out with what sort of
person they are dealing, that is, whether or not he keeps his machinery,
plant and ways properly fenced and guarded and otherwise in good
order and condition. Obviously, if he was careless about that, so that
at the time the question was answered his machinery, plant and ways
were not in good order and condition, the risk would be of a different
character. If the underwriters intended to refer to the future, it is
most unfortunate that a printed document of this kind, tendered by
Lloyd’s underwriters to persons desiring to insure with them, should
not be so expressed. Had they intended that this question should
carry the meaning which they now suggest, nothing would have been
easier than to say so. If they did not mean it, I am at a loss to
understand how the point now comes to be taken.79
C.
Hair v The Prudential Assurance Co Ltd 80
The strong views of the Court of Appeal in Woolfall & Rimmer Ltd v
Moyle81 has also been applied in Hair v The Prudential Assurance Co Ltd82
a case dealing with a Hearth and Home insurance. In answer to questions
raised in the proposal form, the insured had, inter alia, stated that the
property was occupied by the insured’s son but owned by the proposer;
and that the premises were left unattended regularly, apart from holidays,
79 supra note 33, at 70–71, cited and relied on by Saville LJ in Hussain v Brown, supra note
55, at 629. It perhaps noteworthy that the other member of the Court of Appeal, who had
dealt with this issue, concurred with (he Master of the Rolls on this point: Goddard LJ,
supra note 33, at 75–76; Du Parq LJ, on the other hand, confined his comments to
condition 5: see supra note 33, at 77–78.
80 infra note 82.
81 supra note 33.
82 [1983] 2 Lloyds Rep 667.
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(1997)
for approximately eight hours daily during weekdays.83 When a fire broke
out on the insured premises in an arson attack, the claim was denied by the
insurers on the ground, inter alia, that the insured was in breach of the
warranties as to the occupation of the premises, ie the building was neither
in the occupation of the insured or her son and was unoccupied and left
unattended for long periods other than for holidays. The critical point for
the insurers was that these questions and answers constituted a warranty
by the insured that the status quo should be maintained throughout the
duration of the cover. It was found by the court that the answers were
correct at the time they were tendered to the insurers.84
Woolf J (as he then was) found it difficult to accept the insurers’ contention
that the effect of the questions and answers was to require that the son
would have to go on living in and scrupulously occupying the insured
premises within the perimeters set by the given answers throughout the
duration of the cover. While he accepted that that was a possible
interpretation of the effect of the answers to the questions, it was not the
correct interpretation.85 Woolf J was referred by counsel to the relevant
passages in McGillivray & Parkington on Insurance Law and decided to
confine himself to the four questions posed therein86 to determine whether
a clause should be construed as a continuing warranty. Bearing in mind
those considerations, he came to the following conclusion:
... it seems to me that the proper way to regard the questions and
answers is to treat them as being an indication of the state of affairs
which existed at the time when the answers were given, or was going
to exist within the immediate future thereafter and was going to
continue so far as the insured was concerned for the period of the
policy, but they did not amount to a warranty that no change would
occur. They were doing no more than indicating the situation as the
plaintiff then understood it would be and was going to continue to
83 Question 10:
Is the dwelling a house, a maisonette or self contained flat, ie with separate entrance
door, in your sole occupation? If not, please give full description.
[Answer:] Yes, occupied by insured’s son but owned by proposer.
Question 11:
To what extent are the premises to be insured left unattended regularly apart from
holidays?
[Answer:] 8 hours daily approx. (weekdays)
84 supra note 82, at 672.
85 ibid, at 672.
86 para 626, which is reproduced as para 775 of the current edition:
In determining whether a clause shall be construed as a continuing warranty the courts
have emphasised the following considerations:
(i) does the clause have the appearance of a warranty;
(ii) is it clearly referable to a future situation;
(iii) is it a provision which would be of little or no value to the insurers if it related
only to present facts;
(iv) does a breach of the clause permanently prejudice the insurers even if it is
subsequently remedied?
9 S.Ac.L.J.
Retreat of Continuing Warranties?
163
be, but they did not amount to an assurance that there would not be
a change during the period of insurance. To regard them as a
continuing obligation to have a name individual in occupation
throughout the period seems to me to be putting an unreasonable
interpretation upon the effect of the questions and answers there
appearing.87
VII.
RETREAT OF CONTINUING WARRANTIES?
What is clear from the above cases, as well as Hussain v Brown88, is the
following:
(1) There is no doubt that there is no longer any authority to suggest
that it is a prima facie interpretation on terms relating to
precautions, even insofar as fire and property insurance policies
are concerned, that they impose a continuing obligation
throughout the currency of the cover to maintain the status quo.89
Insofar as Hales v Reliance Fire90 is authority for the proposition
that there is a special rule with regard to fire or property insurance,
it is wrongly decided.91
87
88
89
90
91
supra note 82, at 672–673.
supra note 55.
see Hussain v Brown, supra note 55, at 629.
supra note 43.
see Hussain v Brown, supra note 55, at 629. Of course, the decision is still explicable on
other grounds which becomes apparent when one is apprised of the other clauses contained
in the policy in that case. As suggested by Birds, supra note 20, at 125, the same result
could have been more logically achieved by reliance on a specific term which declared
that all warranties were to be continuing as well as an increase of risk clause.
[Condition 8, reproduced in the judgment of Hales v Reliance Fire, supra note 47 at 395,
stipulates that:
Every Warranty to which the Policy is, or may be, made subject, shall from the time
the Warranty attaches apply and continue to be in force during the whole currency of
the Policy, and non-compliance with any such Warranty, whether it increases the risk
or not, shall be a bar to any claim thereunder ....
It was admitted by McNair J himself, ibid, at 395–396, that:
It is not necessary to rely upon Condition 8 of the policy, which I have already read,
though the application of Condition 8 would produce the same result if, contrary to the
view I have expressed, the question and answer themselves had not produced that
result.]
See further Birds, supra note 57, at 237:
With respect, this seems an insecure foundation to construe a statement which has a
clear and literal, though narrower, meaning, more especially as the question was the
insurer’s, and it would have been so easy to make reference to the future in it. The
policy in Hales did have a specific condition which declared that all warranties should
continue to be in force during the whole currency of the policy, but the judge expressly
found it unnecessary to rely on that. It is submitted that reliance on that would have
been better, but there would still have been room for argument as to ambiguity if the
insurer had to rely upon a separate condition to change the otherwise clear meaning
of the warranty. Surely the most satisfactory solution would have been to rely on the
failure by the insured to notify the insurer of an increase in risk, which was governed
by a specific condition in the policy. This point was raised in defence by the insurer but
was not considered in the judgment.
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(1997)
(2) The contention that the only way in which the insurer can afford
himself sufficient protection is to read such clauses as warranties
relating, not just to past or present facts but also, to the future
conduct of the insured will not be accepted by the courts. If they
so desire such protection, the insured should be left in no doubt
as to the undertaking: the clause or question has to be clear and
unambiguous in its reference to the future.92
(3) As far as the courts are concerned, questions relating to the past
or present conduct of the insured or to matters relating to the
subject matter of insurance are of value to the insurer nonetheless
in that they would be indicative of the sort of risk they are asked
to underwrite. This would allow the insurers to assess the risks
involved and make provisions accordingly: by the requirement of
additional precautions or by requiring that a stipulated state of
affairs be maintained or even charging a higher premium or simply
declining to underwrite the risk.93
(4) Even if the courts were to accept that it is possible to read the
warranty in question as either relating to past or present facts
alone or relating to future events or conduct of the insured as
well, the courts will construe the warranty contra proferentum
and will resolve the ambiguity in favour of the insured.94
A valiant attempt was also made by Merkin, supra note 68, at B.2.3.-16, to explain the
decision thus:
First, the fact in issue was one which clearly affected the risk which the insurers were
required to run. The second is that the loss which was suffered was directly connected
with the breach of warranty; this is irrelevant in strict law, but it may well have had
some influence upon McNair J.
In light of the decision of the Court of Appeal in Hussain v Brown, supra note 55, it is
unlikely that the first ground would carry any weight before the courts as the court had
displayed a total lack of sympathy for such an argument — if the insurers were so
concerned about the risk posed, then they could so easily have stipulated a clear and
unambiguous continuing warranty in that respect.
92 see Hussain v Brown, supra note 55, at 629–630, 631; Weber & Berger v Employers’
Liability Assurance Corporation, supra note 70, at 322; Woolfall & Rimmer v Moyle,
supra note 33, at 70–71; Hair v Prudential Assurance Co Ltd, supra note 82, at 672.
93 see Hussain v Brown, ibid, at 630 where Savillc LJ opined:
... it is, in my view, of value to underwriters to know whether or not an alarm is fitted,
for depending on the answer, underwriters could require one to be fitted, or indeed
seek a continuing warranty or decline the risk.
see also Weber & Berger v Employers’ Liability Assurance Corporation, ibid, at 322;
Woolfall & Rimmer v Moyle, ibid, at 70–71, 75–76.
94 see Hussain v Brown, ibid, at 629–630, 631; Weber & Berger v Employers’ Liability
Assurance Corporation, ibid, at 322; Woolfall & Rimmer v Moyle, ibid, at 70–71; Hair v
Prudential Assurance Co Ltd, supra note 82, at 672.
9 S.Ac.L.J.
VIII.
Retreat of Continuing Warranties?
165
IS THERE A FUTURE FOR BEAUCHAMF? 95
It is an interesting question, if the approach of the Court of Appeal in
Hussain v Brown96 is to be followed, as to whether the decision of
Beauchamp v National Mutual Indemnity Insurance Co. Ltd.97 survives as
being illustrative of a general exception to the normal requirement of
futurity in the language of the warranty, or will it be the case that it will
be viewed as a decision based purely on its own peculiar facts.
Much emphasis was placed by Finlay J in Beauchamp v National Mutual
Indemnity Insurance Co. Ltd.98 on the fact that the policy in question
contained a memorandum99 to the effect that the policy was confined to
the specific demolition work to be undertaken by the insured. His Lordship
felt that the way to construe the effect of the question and answer was to
ascertain what was being insured and what was being referred to. Since the
policy was clearly with respect to a specified task, that of the demolition
of the mill, the question with regard to the use of explosives has to be read
with reference to this future undertaking of the insured.100
This approach is perhaps not satisfactory in the best of circumstances. It is
particularly difficult to justify now that the Court of Appeal in Hussain v
Brown101 has reaffirmed the use of the principle of contra proferentum in
the event of an ambiguity. To begin with, the question had not an iota of
hint that it referred to the future. 102 The question was clearly phrased in
the present tense. Moreover, the question referred to the insured’s
“business”: again, there is a question as to whether this referred to the
insured’s normal line of work, or was it meant to refer to the intended
undertaking of the insured. Even if one could strain the language to fit in
the possibility that it might well be referring to the intended demolition
job, surely the ambiguity arising out of bad draftsmanship ought to be
construed against the person who drafted the question, ie the insurers. If
the question was meant to relate to the future undertaking of the insured,
it would surely have been very simple for the insurers to frame the question
supra note 43.
supra note 55.
supra note 43.
ibid.
The memorandum is reproduced in the judgment of Finlay J, ibid, at 20:
It is hereby understood and agreed notwithstanding anything herein contained to the
contrary, that the within insurance is only to indemnify the insured in respect of the
work involved in the demolition of the building previously known as Alexandra Mill
off Oldham Road, Oldham, and that such indemnity shall continue until the completion
of such work or the date of expiry of this policy within-mentioned, whichever date
shall precede the other.
100 see text in supra note 45.
101 supra note 55.
102 Question 3 of the policy was:
Are any acids, gases, chemicals, explosives, or any other dangerous preparations used
in your business?
95
96
97
98
99
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(1997)
clearly to be in respect of the demolition.103 Another simple solution would
be to indicate in the policy itself, or by way of an endorsement, that the
risk run by the insurers was only with regard to an “non-explosive”
demolition. This failure to construe the question contra proferentum against
the insurer is open to the serious objection that the insurer is able to assert
that the risk run is something which may be entirely different from what
the insured may be led, by the wording of the question, into thinking he
is paying premiums for.
As has been pointed out by the Court of Appeal in two of their decisions,
such a construction of the question to be referable only to past or present
facts is not open to the oft-raised objection that it would mean that the
question is then of little or no value to the insurer.104 Here, the question
could very well be one to indicate to the insurer the experience and
competence of the insured with respect to the use of dangerous preparations
in his work, which would in turn indicate the sort of risk he poses insofar
as there being possible accidents in the works insured.105 Besides, it may
well be the case that the insurer should have realised that it is a real
possibility that explosives may be used in the works, and thus, they should
have, if they so desired the protection thereof, expressly stipulated that no
explosives were to be used.106
Perhaps the greatest objection to the reasoning of Finlay J is that it is not
a very big step to argue that if it is possible to conclude that where the
cover is for a specified demolition, questions which may relate to the insured
risk must be read as referring to the demolition to be insured, then it is
also equally plausible to put forward the same sort of argument with regards
to all types of policies. In any sort of policy, the cover sought is with
regards to the future, and usually is referable by a fixed period of time, and
it would be possible to argue that since the policy is in reference to that
particular time frame, “accordingly, ... the whole of the proposal must be
regarded as having reference to a future event” 107 (or in our hypothesis, a
future time frame). This line of reasoning cannot be right as it would then
obviate the necessity for the insurers to inject any sort of futurity into any
103 Of course, this may still not be enough if the court were to be able to construe the
question and answer to be merely indicative of the insured’s present intention.
104 Hussain v Brown, supra note 55, at 629–630, 631; Woolfall & Rimmer v Moyle, supra
note 33, at 70–71.
105 Hussain v Brown, ibid, at 629–630, 631; Woolfall & Rimmer v Moyle, ibid, at 70–71,
75–76.
106 See Merkin, supra note 68, at B.2.3-16 where he articulates his difficulties with the
reasoning of Finlay J:
It must be said that this reasoning is not altogether easy to understand. Given the
nature of the work to be insured, it would have been equally possible to conclude that
the insurer should have realised that explosives would be used, and that the purpose
of the question was to find out whether the proposer was a novice in such matters.
107 Finlay J, supra note 43, at 22.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
167
question or term of the policy in order for the court to construe it as
introducing an obligation subsisting throughout the currency of the policy.
It then only remains for the courts to determine whether it is a warranty
or not.
Of course, it is never anyone’s intention to suggest that insurers should
bear the brunt of the capriciousness of the future conduct of the insured.
But it must be said that neither should the insurer be allowed to draft an
obscure term and then, with the benefit of hindsight, when a loss occurs to
allege that the term introduces a continuing obligation. The rationale of
the contra proferentum rule is clear: it is incumbent upon the person who
drafts the document to do so in clear language and he should not be
allowed to lure the other party into a binding agreement and then allege
the terms are different from what the other party reasonably understands
it to be.108 As Lord St Leonards put it most emphatically in Anderson v
Fitzgerald:109
A policy ought to be framed that he who runs can read. It ought to
be framed with such deliberate care, that no form of expression by
which, on the one hand, the party assured can be caught, or by which,
on the other, the Company can be cheated, shall be framed on the
face of it: nothing ought to be wanting in it, the absence of which may
lead to such results. When you consider that such contracts as this
are often entered into with men in humble conditions of life, who can
but ill understand them, it is clear that they ought not to be framed
in a manner to perplex the judgment of the first Judges in the land,
and lead to such serious differences of opinion among them.110
IX.
CONCLUSION
In the ultimate analysis, the draconian nature of the warranty must be
borne in mind. Once a breach has been found, the contract of insurance
is automatically discharged from the time of breach. The rules regarding
warranties finds particularly harsh expression in continuing warranties: the
insured has to watch his every step throughout the currency of the cover.
Even if there is currently no legislation preventing the imposition of
continuing obligations on the insured, 111 the courts should nonetheless play
108
109
110
111
see infra note 113 and infra note 115.
(1853) 4 HLC 484.
ibid, at 510–511.
Section 24(4) of the Insurance Act (Cap 142, Rev Ed 1994) only requires that the
proposal form contain a prominently displayed warning that if a proposer does not fully
and faithfully give the facts as he knows them or ought to know them, he may receive
nothing from the policy. This provision only pertains to answers given to questions in
the proposal form insofar as the effect of breach of warranty and breach of the duty of
disclosure is concerned. It does not touch on or prevent the imposition of continuing
warranties.
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(1997)
their role in ensuring that no insured finds himself without cover when he
has been led to think otherwise. If the insurer feels that a particular course
of conduct or practice, be it that it should be strictly complied with or it
should be strictly prohibited, is crucial enough to the risk such that
protection is needed in that respect, he should be required to state so in
clear and unambiguous terms. It should never suffice for the insurer to
suggest that even though a question, which is clear on the face of it, appears
reasonably to the insured to only ask for particulars of past or present
facts, it is actually of a broader or more comprehensive ambit since this is
the only in which the question would be value to him.
This point was most eloquently put by Farwell LJ in Re Bradley and Essex
and Suffolk Accident Indemnity Society112 :
Contracts of insurance are contracts in which uberrima fides is
required, not only from the assured, but also from the company
assuring. It is the universal practice for the companies to prepare
both the form of proposal and the form of policy: both are issued by
them on printed forms kept ready for use; it is their duty to make the
policy accord with and not the exceed the proposal, and to express
both in clear and unambiguous terms, lest (as Fletcher-Moulton LJ,
quoting Lord St. Leonards, says in Joel v Law Union and Crown
Insurance Co.) provisions should be introduced into policies which
“unless they are fully explained to the parties, will lead a vast number
of persons to suppose that they have made provision for their families
by an insurance on their lives, and by payment of perhaps a very
considerable portions of their income, when in point of fact, from the
very commencement, the policy was not worth the paper on which it
was written.” It is especially incumbent on insurance companies to
make clear, both in their proposal forms and in their policies, the
conditions which are precedent to their liability to pay, for such
conditions have the same effect as forfeiture clauses, and may inflict
loss and injury to the assured and those claiming under him out of all
proportion to any damage that could possibly accrue to the company
from non-observance or non-performance of the conditions.
Accordingly, it has been established that the doctrine that policies
are to be construed “contra proferentes” applies strongly against the
company.113
If an insurer wishes an insured to warrant the existence of a state of affairs
in the future, or that the present state of affairs should continue to existing
in the future, he should do so by means of an express warranty. It is not
appropriate for an insurer to use an answer given by an insured in response
to a question in a proposal form as constituting a promissory warranty as
the insured may not realise that his answer would constitute a promissory
112 [1912] 1 KB 415.
113 ibid, at 430.
9 S.Ac.L.J.
Retreat of Continuing Warranties?
169
warranty under the policy. Answers given by an insured in a proposal form
are normally taken by the insured, unless the questions thereto are couched
in clear reference to the future, to refer to a state of affairs existing at the
time when the answers are given. The answers are not intended to constitute
a promise that the same state of affairs will continue during the currency
of the policy. The problem is highlighted by Lord Shaw of Dunfermilne in
Condogianis v Guardian Assurance Co Ltd114:
The more serious proposition arose on the construction of the question
and answer. In a contract of insurance it is a weighty fact that the
questions are framed by the insurer, and that if an answer is obtained
to such a question which is upon a fair construction a true answer, it
is not open to the insuring company to maintain that the question
was put in a sense different from or more comprehensive than the
proponent’s answer covered. When an ambiguity exists, the contract
must stand if an answer has been made to the question on a fair and
reasonable construction of that question. Otherwise the ambiguity
would be a trap against which the insured would be protected by
Courts of law. Their Lordships accept that doctrine to the full, and
no question is made of the soundness of it ...115
Of course, it may said that the cases in which a continuing warranty is
imposed without fair warning to the insured are only occasional and
marginal cases. It may even be said that most reputable insurers would not
use the “trap” of the basis clause in construing such answers to questions
in proposal forms to impose continuing warranties. Be that as it may, there
is still strong and cogent reasons why the courts should nonetheless be
vigilant against insurers seeking to read continuing warranties into questions
and answers which, on a fair and reasonable reading, could easily refer
only to past or present facts. For the marginal cases are where the law has
to be most vigilant against abuse.
LEE KIAT SENG*
114 [1921] 2 AC 125.
115 ibid, at 130.
LLB (NUS); LLM (Lond); Advocate & Solicitor (Singapore); Lecturer, Faculty of Law,
*
National University of Singapore. I would like to express my deepest appreciation to my
colleague Dr Poh Chu Chai for his valuable comments and suggestions. All errors are,
of course, mine alone.