AUTOMATIC DISCHARGE FROM LIABILITY (WARRANTY/MARINE INSURANCE IN CAMEROON)
A warranty is a condition which must be exactly complied with. Though called a warranty, it is in fact, a ‘condition’ of a promissory nature. Condition in this sense is capable of two meanings: it could be used in the lay or non-technical sense to mean a provision, a requirement or simply a term of the contract which in this case must be exactly complied with; or it could be interpreted in a strict and purely legal sense, as understood in the general law of contract, as a particular type of contractual term, a condition as opposed to a warranty or innominate term.
Under ordinary contract law, a warranty is a term of a contract the breach of which would bestow upon the innocent party the right only to damages. That an insurance warranty does not belong to such a class of warranty known in the general law of contract was made clear in The Cap Tarifa case.
Traditionally, a marine insurance warranty has always been recognised as a condition. However, in the past, it has also been referred to as a condition precedent to the attachment of risk; a condition precedent to the liability or further liability of the insurer; and even a condition subsequent. Recently, in The Good Luck, it was confirmed that it is a condition precedent to the liability or further liability of the insurer.
A condition precedent
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.
Condition and/or condition precedent
The term ‘condition precedent’ is normally used to describe an ‘event’ or ‘order of performance’ in the sense that the performance by one party may be a condition precedent to the liability of the other’. A ‘condition,’ however, is simply a term of a contract which requires conformity.
A clause may well be a condition and a condition precedent at the same time. Regrettably, the term ‘condition precedent’ has been loosely used to refer to both a term of a contract and an event, that is, the prior or concurrent performance by one party before that of the other became due.
Under general contract law, a breach of a condition precedent normally produces the following consequences:
• The injured party can simply refuse to perform his part of the bargain without having to make any previous election; and
• The injured party is only justified in refusing to perform for so long as the failure continues.
Whether the second effect is to be applied to a breach of a promissory warranty is a question which needs to be considered.
Automatic Discharge
The discharge of the insurer from liability is automatic and is not dependent upon any decision by the insurer to treat the contract or the insurance as at an end; though the insurer may waive the breach of the warranty.
A condition, as an ordinary contractual term, does not possess the quality of enabling the innocent party in the event of its breach to be automatically discharged from all future liability under the contract. The legal requirement that the innocent party has to exercise the option either to affirm or rescind the contract in the event of a breach of a ‘condition’ is obviously incompatible with the rule of automatic discharge.
The future of the contract
In relation to a warranty on geographical limits, the second of the above consequences of a breach of a condition precedent is particularly significant to the question of whether a ship which has entered and departed from a prohibited area is covered for a loss of or damage sustained whilst traversing outside the prohibited area during the currency of the policy. Is the policy revived or restored on the ship leaving the prohibited area? A continuing liability to pay a premium may survive the discharge of the insurer from liability.
Suspension of the contract
Is it possible that the contract is suspended whilst the insured vessel is in the prohibited area? The suspension theory is consistent with ordinary contract principles applicable to a condition precedent, but not a condition which ‘justifies rescission in the sense of an outright or permanent refusal to perform and to accept further performance from the party in breach.
Thus, if an insurance warranty is to be construed as a condition precedent in its strict sense, it is possible that the risks under the policy could be turned on and turned off by the actions of the assured. To restore coverage, all that the assured has to do is to leave the prohibited zone, provided, of course, that the policy has not expired.
A Possible new approach to the marine insurance warranty doctrine
This new approach as opined by Lord Justice Kerr of the Court of Appeal in the case of State Trading Corpn of India Ltd v M Golodetz Ltd who stated that “upon the true construct of the contract, the consequence of the breach is that the cover ceases to be applicable unless the insurer subsequently affirms the contract rather than to treat the occurrence as a breach of the contract by the insured which the insurer subsequently accepts as a wrongful repudiation”.