Insurance Warranty Given Plain Meaning by Court of Appeal

A useful insight into the interpretation of insurance warranties was given by the Court of Appeal in 2014.

A three member Court of Appeal, consisting of Lord Dyson MR, Davis LJ and Gloster LJ, recently handed down its judgment in the case of Amlin Corporate Member Ltd &Ors v Oriental Assurance Company [2014].

Upholding Field J’s decision at first instance, the Court of Appeal held that terms in the ‘Typhoon Warranty’ had indeed been breached and therefore that the reinsurers were entitled to the declaration sought, i.e. the claimant reinsurers were not liable under the policy.

Analysis of the Outcome in Amlin Corporate Member Ltd & Ors v Oriental Assurance Company [2014]

The judgment meant that certain Lloyd’s reinsurers, including Amlin Corporate, were not liable in covering the loss of cargo on board a vessel which capsized in the Philippines in the midst of a Typhoon. Princess of the Stars, the insured vessel travelling from Manila to Cebu, was lost following her sailing into the very eye of Typhoon Frank in 2008.

Located in both the insurance and reinsurance policies, the “Typhoon Warranty” clause – a widely used clause in marine insurance and reinsurance preventing cover in the event of typhoons/storms – was construed strictly by Field J, at first instance, with the Court of Appeal supporting this interpretation.

The clause made clear that the policy was void if a vessel sailed out of port “when there is a typhoon or storm warning at that port” or when the intended route to be sailed, including the destination, “may be within the possible path of the typhoon or storm warning announced at the port of sailing…”

Despite the port of sailing failing to advise ships not to set sail in its typhoon warning, the warranty was held to apply. The Court of Appeal made clear that, according to the specific wording of the warranty, a warning in itself was sufficient for the warranty to be breached. The warranty was further breached given that the vessel’s route was within the possible path of the typhoon or storm announced at the port.

In reaching its decision, the court rejected the defendant’s argument that the insurance policy, including the warranty, should be construed in accordance with how an experienced assured would have understood the storm notice. The court held that the clause can only be given its plain meaning and, as such, the issued warning sufficed for the policy to be void.

Interpretation of the Warranty under English Law

This interpretation of the Typhoon Warranty may not reflect how it was understood at a local level by Philippine mariners. However, it is the case that the policy was to be governed by English law and subject to exclusive English jurisdiction, following the popularity of English admiralty law and English courts as the choice of forum.

For specialist advice regarding the drafting or enforcement of warranties contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.