Elafonissos Fishing & Shipping v Aigaion Insurance Co SA (the "AGIOS SPYRIDON") [2012]1
Commercial Court, 31 May 2012

Under English law, the legal effect of breach of warranty is draconian, entitling the insurer to treat himself as discharged from all liability under the policy, irrespective of causation. For this reason, warranties are interpreted strictly, a position vividly illustrated by the decision of the Court of Appeal in Hussain v Brown [1995].

In that case, involving a property policy, the assured had been asked in the proposal form "are any premises fitted with any system of intruder alarm?". The assured gave the answer "yes", which was true at the time. However, it had ceased to be case by the time the premises were damaged by a fire some five months later, in that there was no longer an operable intruder alarm system in place. Insurers failed in their argument that the warranty imposed an ongoing obligation to maintain the warranted system. If underwriters wished to impose such a warranty, said the Court of Appeal, it was open to them to specify it.

A similar point was considered more recently in the Agios Spyridon. The dispute in that case involved a hull and machinery policy claim arising from storm damage to a fishing vessel while at anchor in Madagascar. The policy contained a warranty to the effect that the vessel was "laid up ... in port of Mahanjanga". Shortly before trial, insurers sought to amend their defence, seeking to plead a case of breach of the warranty. According to the customary meaning of the warranty, argued insurers, the vessel had to be in "hot lay-up", meaning that she was still manned, and with at least her main engine operable. They also alleged that the lay-up warranty meant that the vessel would be laid up in a seaworthy condition. In a judgment handed down on 4 April 20122, the court refused to allow the amendments, on the grounds that neither had any real prospect of success.

The court did, however, allow the insurers to argue that "laid up in port" meant laid up in accordance with the regulations of the relevant port, it being insurers' case that the assured had failed to comply with those regulations. The matter proceeded to trial on that question, among various others.

On the facts, the court found at trial that insurers had failed to prove the existence of any formal written "regulations" governing lay-up at Mahanjanga. In so far as there might have existed some informal "oral requirements" these would not be enough. However, the judge went on to state that he would have rejected insurers' argument, as a matter of law, even if the insurers had been able to point to written regulations that had not been complied with. He noted that the express warranty simply required the vessel to be "laid up from 1/11/06 until 28/2/07 ... in Port of Mahajanga". This warranty was not breached. During the period specified, the vessel was in the port of Mahajanga, and it was laid up. Citing the Hussain v Brown case, the court held that there was no basis for implying some additional requirement as to compliance with the port regulations. If insurers wanted such protection, said the court, then it was up to them to stipulate it in clear terms.

This case provides a further lesson for insurers in connection with the drafting of warranties. Literal compliance will usually be required, but is sufficient

Footnotes

1) [2012] EWHC 1512 (Comm)

2) [2012] EWHC 892 (Comm); Taylor Wessing Insurance and Reinsurance Update, 1 May 2012

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