London: Breach of Warranty Allowed Reinsurers to Avoid Reinsurance Contract

    In the case of Amlin Corporate Member Limited & Ors v Oriental Assurance Corporation [2013] EWHC 2380 (Comm), (we have previously reported on related proceedings here and here) the Claimant reinsurers sought a declaration that a warranty in the reinsurance contract had been breached by an insured vessel sailing despite a storm warning having been issued at the port of sailing and on part of the route. The warranty was found to have been breached, and in accordance with the terms of the warranty, the reinsurance contract was avoided.

    The insurance contract covered loss or damage to cargo on the vessel, which sailed into the eye of Typhoon Frank on 20 June 2008, and capsized killing 819 of the 851 people on board. Before departing Manila for its destination port of Cebu, a storm warning had been issued at Manila and for part of the intended route. The warranty in question stated that the insured vessel “shall not sail or put out of Sheltered Port when there is a typhoon or storm announced at the port of sailing, port of destination or any intervening point.” The court interpreted this as a two-limbed warranty, limb 1 being a warning issued at the point of sailing, and limb 2  being the route passing through the possible path of the storm.

    The issues in dispute were: (1) whether the warranty should be interpreted in line with guidelines issued by the Headquarters Philippine Coast Guard (which left it up to the ship owner/master to decide whether to sail if a level 1 storm warning was issued); and (2) whether the usual route was the intended route for the purposes of the warranty (even if there was a backup route in case of bad weather).

    The Court found that the policy of the warranty was “safety first”, and it was designed to protect the reinsurers from liability caused by (often unpredictable) typhoons, even if that meant that ships were sometimes forced to stay in port unnecessarily. The wording was clear and unambiguous, so not open to interpretation. Limb 1 was therefore breached. In answer to issue (2), the Court held that the fact that there was an alternate route which the captain could have taken did not alter the intended route for the purposes of the warranty, especially as he had not altered course to take the alternate route. In any event, both the usual and the alternate route were, on the facts, within the “Danger Sector” for the possible path of the typhoon. Limb 2 was therefore also breached.

    The outcome of this case, involving as it does very clear breaches of warranty, is uncontroversial and is in line with the normal rules of policy interpretation.

    Explore Additional Topics


    Please understand that your communications with Locke Lord LLP through this website do not constitute or create an attorney-client relationship with Locke Lord LLP. Any information you send to Locke Lord LLP through this website is on a non-confidential and non-privileged basis. Therefore, do not send or include any information in your email that you consider to be confidential or privileged.