Beware of the warranties in Marine insurance

Insurers have the right, seldom exercised, to limit their risk by placing warranties in their policies that state if the warranty is breached the policy is void as of the breach. They are not used, it appears, because modern insurers do not understand the effect of warranties or the ability of a warranty to protect the insurer from risks it is not willing to take. It is defined by the California Insurance Code as: “A statement in a policy of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof.” [California Insurance Code § 441]

For example, when a policyholder made a warranty that he would not take an insured vessel outside specifically described waters he argued that breach of the cruising warranty was immaterial because the actual loss occurred while the vessel was in appropriate waters. This argument failed as a matter of law because California Insurance Code § 448, which allows voidance of even an immaterial warranty, will void a policy “where the policy expressly declares that it shall avoid it.” [Fountain v. Connecticut Fire Ins. Co., 158 Cal. 760, 765, 112 P. 546, 549 (1910).] Because the policy expressly states that a breach of the cruising warranty will render the policy “null and void,” the consequences of a breach were clear and not buried in a maze of small type, but rather are clearly set forth in a separate paragraph on policy Endorsement No. 1. [Certain Underwriters at Lloyd’s v. Montford, 52 F.3d 219 (9th Cir. 04/04/1995)]