UK: Warranties And Conditions Precedent - Take Care

Last Updated: 16 December 2009
Article by Barlow Lyde & Gilbert LLP

In this article, we provide a summary of points to have in mind when drafting warranties and conditions precedent.

When agreeing a reinsurance contract, whether at renewal or for a new risk, warranties and conditions precedent may form an important element of the agreement and care must be taken in their formulation. Provisions of this nature may be included 'as standard' in many agreements but there are pitfalls for the unwary, so care is needed when drafting so as to avoid lengthy legal wrangling in the event of a dispute.

Under warranty

A warranty is a clause which goes to the root of the reinsurance contract. It can be used either to confirm the position of the reinsured at inception or to clarify the agreed way the reinsured is to conduct itself during the life of the policy.

  • Warranties can be agreed in respect of representations given at the time of placement, (for example, a representation as to the reinsured's loss position immediately prior to inception).
  • Warranties can be used to assist in the risk management of the contract by clarifying how the reinsured has agreed to conduct itself going forward, for example limiting the types of business which can be ceded by the reinsured.

Breach of a warranty automatically discharges the reinsurer from any further liability under the reinsurance contract from the date of breach. It is irrelevant whether the breach of warranty arose innocently, negligently, or fraudulently and the breach cannot subsequently be remedied by the reinsured. As those operating in the reinsurance market are not protected by consumer legislation, this remedy will apply whether the breach caused the loss or not. It is worth noting that the Law Commission's draft bill is expected in December 2009 and it may propose a significant change to the remedies available for breach of a warranty unrelated to the loss. It appears change is hoped for by some eminent members of the judiciary. Lord Mance, in his judgment in Wasa v Lexington, said of warranties: "This is an area where English law has long been recognised as unduly stringent and in need of review."

Whether change is forthcoming or not, to be effective warranties need to be very clearly drafted. As a reinsured in breach of warranty forfeits its benefit under the reinsurance contract, the court has been unsympathetic to reinsurers seeking to enforce breaches of warranty and this is unlikely to change. Any ambiguity in the wording of the intended warranty and the court may construe the provision as a 'suspensive condition'. A suspensive condition is one that merely suspends the risk until the reinsured complies with the provision again. A good example of a suspensive condition is: "the insured's fire alarm is to be in working order during the period of the policy". During the period the insured's fire alarm is not in working order, the underwriters would not be liable for a claim.

Keep in mind that if a warranty is intended to be a continuing warranty particularly clear words are needed. For example, in the case of Pratt v Aigaion (2009) in relation to a cover of a fishing vessel the insured warranted:

"Owner and/or Owner's experienced skipper on board and in charge at all times and one experienced crew member."

However, after the fishing vessel was lost to a fire, the insurers refused cover on the basis the continuing warranty had been breached when the crew had finished for the day and retired to the local pub. The Court of Appeal was characteristically unsympathetic to the insurers' view of the warranties' meaning and instead ruled it applied more restrictively.

When drafting, the clearest way to identify a warranty is to use simple and clear words, for example 'it is warranted that' or 'during the period of this reinsurance it is warranted that'. If a continuing warranty is intended, very clear words indeed must be used. Remember that the court will look at the commercial purpose behind the clause and at its context within the overall reinsurance contract to determine its true nature. In this regard it is important that any proposed warranty is consistent with the other terms of the contract. Any court seeking to construe whether a particular provision is intended to act as a warranty will consider how the term operates in the context of the contract as a whole and its commercial background. While labelling a clause a 'warranty' may help if the issue is in the balance, it is no guarantee the court will apply the term as one.

Conditions precedent examined

With careful use of conditions precedent, the parties to a reinsurance contract can identify with precision what risk is to be covered and how the management of any claims will be conducted. It is helpful to think of conditions precedent in these two categories:

  • First, a condition precedent to the validity of the policy or commencement of the risk, such as the payment of premium or the non-existence of overlapping policies. A condition precedent of this sort must be met. If it is not, the reinsurer will not come on risk under the reinsurance contract.
  • Secondly, a condition precedent to the reinsurer's liability for a particular claim. These are more common and often relate to the claims process or the reinsured's conduct, such as the giving of notice of a claim or cooperation pursuant to a claims control clause. Breach of this form of condition precedent means the reinsurer is not liable for the particular loss in question but the reinsurance contract remains valid and the reinsurer's liability for future claims is preserved. In this way, conditions precedent can be a useful tool for the reinsurer to control the way in which a reinsured conducts a claim.

As with warranties, it is important the condition precedent is clear to ensure it is applied correctly. What denotes a provision in a reinsurance contract as a condition precedent is not the use of the words 'condition precedent' alone but instead a 'conditional link' between the reinsured's obligation contained in the provision and the reinsurer's obligation to indemnify. So while it is not necessarily fatal to lump a large number of conditions together under the heading 'condition precedent' or to make it a condition of the underwriters being liable in respect of a claim that that the reinsured observe all the terms and conditions of the reinsurance, it is not best practice. The clearest way is to express the condition precedent as: 'it is a condition precedent to underwriters' liability that...'.

Keeping context

Having expended time and energy drafting the warranties and conditions precedent, it is important they are not subject to unintended consequences. For example, in many civil jurisdictions a breach of warranty must be causative of the loss if the reinsurer is to be discharged from liability. As with all drafting, it is therefore important to view clauses in the context of the reinsurance contract as a whole and not in isolation. While it sounds trite, if the parties have agreed the contract with the English law remedies in mind, it is sensible to ensure the contract records that it is governed by English law.


When writing new business, whether at renewal or otherwise, it is important to check that the wording of the reinsurance contract to be agreed with the reinsured clearly records both the nature and limits of the risk being underwritten and the way in which the reinsured is to conduct itself in the event that claims arise. If used accurately, warranties and conditions precedent provide simple and effective remedies making them powerful tools to clarify the bargain between reinsurer and reinsured.

In brief

With the above in mind, be aware of the following key points:

  • A warranty is a 'comply or else' clause. Think about whether a warranty is really appropriate.
  • For the wording to have the agreed effect, it must use clear words. If the parties want to include the consequences for breach of a warranty or a condition precedent, it is best to use the words 'warranty' or 'condition precedent'.
  • What have you actually drafted? Labels can be helpful but are not always conclusive. Does the warranty go to the root of the contract or have a material bearing on the risk of loss? Is a condition precedent to liability really a condition precedent, or is it just an administrative requirement under the policy?

Does the warranty or condition precedent make sense in the context of the policy as a whole; for example, have you checked the governing law clause?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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