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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
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