This discussion emanates from a nearly two year old judgment of our Supreme Court rendered on 9th August ,2023, in the case of “ Hind Offshore vs. Iffco Tokio General Insurance Co Ltd ”{(2023) 9 SCC 407) and an article in the March ,2025 issue of the Insurance Times titled,” Unlocking the Implication of Warranty “by Prof (Dr) Abhijit K.Chattoraj ,both of which drew attention to a very important subject for Insurance in general and for Marine Insurance in particular –the subject of warranties .
WARRANTIES IN LIGHT OF A SUPREME COURT CASE
A warranty as defined in Sec 35(1) of the Marine Insurance Act, 1963 (this corresponds to Sec 33(1) of the UK Marine Insurance Act, 1906) “……. means a promissory warranty, that is to say a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.”
According to this definition warranties include undertakings (a) as to past or present facts and that some condition has been fulfilled (affirmative warranties), (b) as to future conduct of the assured (continuing/promissory warranties)
The legislative provisions on warranties can be viewed afresh in light of the Supreme Court case titled ,”Hind Offshore vs Iffco Tokio General Insurance Co Ltd”{(2023) 9 SCC 407) }involving a Marine Hull claim .
The details of the case are as follows :
Hind Offshore Pvt. Ltd entered into a Bareboat Charter Party Agreement with the, the registered owner of a sea vessel called M.V. Sea Panther.
A bareboat charter party agreement is an arrangement for the chartering a vessel where the owner does not provide any crew or provisions to the person chartering the vessel.
Hind Offshore, in its capacity as a bare boat charterer of the vessel took a Marine Hull Insurance Policy for the said Vessel from the insurer, IFFCO – Tokio General Insurance Co. Ltd incorporating ITC Hulls 1.10.83.
During the currency of the Policy, the Vessel suffered major damage to its port main engine, while on a voyage from Singapore to Mumbai. The appointed Surveyor opined on preliminary inspection that that the crankshafts and connecting rods were beyond repair. However, due to urgent commercial commitments, the main port engine was only temporarily repaired. The Insurer, based on the Surveyor’s recommendation, and the invoice submitted by the insured, paid Rs 1 crores as an advance for completing the repairs
Thereafter, the Insured renewed their Marine Hull Policy for another year and during the validity of this renewed policy, the Vessel was struck by a tug boat in Mumbai, as a result of which the Vessel sank with all the cargo on board. The Insured submitted a Claim for the total loss of the Vessel. Insurer got a survey conducted to assess the loss. The vessel was found classed by the American Bureau of Shipping (ABS) at the time of accident. However, the Surveyor’s Report, noted that:
(a) The Appellant or the owner of the Vessel did not inform ABS about the previous damage to the Vessel’s main port engine and ABS had issued the Class Warranty based only on their inspection.
(b) The Country Manager of ABS reported that if a vessel sustains any damage to either Hull or Machinery and the same is not reported to the Class, then the Class would deem to be automatically suspended as per ABS Rules for Building and Classing Steel Vessels….
(c) It was concluded in the Surveyor’s Final Report that the Vessel cannot be recovered and that the permanent repairs to the Vessel, at the said stage, won’t be effective, as the same ought to have been done after the first accident itself, which was not done by the Appellant-Insured.
(d) Thus, the Surveyor recommended that the Insurer recovers the advance Rs. 1 Crore, earlier paid to the Appellant-Insured.
As the Appellant-Insured’s Claim was not settled by the-Insurer, hence, the Insured filed a Consumer Complaint before the Hon’ble National Consumer Disputes Redressal Commission .When the NCDRC dismissed their complaint, the Insured aggrieved by the NCRDC order, filed Civil Appeal No. 7228 of 2015 before the Hon’ble Supreme Court of India
The Apex Court vide Order dated 09-08-2023 made the observations that:
I)After the first accident, although the Insured had informed the-Insurer about the damage caused to the port main engine of the Vessel, based on which the Insurer had paid a provisional claim of Rs 1 crore towards advance for preliminary repairs, it was the insured’s responsibility to subsequently get the complete repair / replacement of the damaged parts .
ii) The Appellant-Insured failed to subsequently get the complete repair of the Vessel done, and did not bring this fact to the knowledge of ABS-Surveyor. The Class certificate is supposed to be issued by the Surveyor only after taking into consideration all aspects including the defects, if any, brought to the notice of the Surveyor.
iii)As per the ABS Rules for Building and Classing Marine Vessels, the class certificate issued by ABS in respect of a vessel, will get suspended or cancelled in case, the defects or damage pertaining to the ship or vessel are not reported to ABS before issue of such class warranty / certificate.
The Two-Judge Bench of the Apex Court in its judgment said that,
“As per the terms of the insurance policy, the termination clause at 4.1 reads,
“Unless the Underwriters agree to the contrary in writing, this insurance shall terminate automatically at the time of change of the Classification Society of the vessel, or change, suspension, discontinuance, withdrawal or expiry of her Class therein, provided that if the Vessel is at sea, such automatic termination shall be deferred until arrival at her next port. However, where such change, suspension, discontinuance or withdrawal of her Class has resulted from loss or damage covered by Clause 6 of this insurance, such automatic termination shall only operate, should the Vessel sail from her next port without the prior approval of the Classification Society”.
Clause 6 covers perils and includes the perils of the sea. Rivers, lakes or other navigable waters.
Class warranty as per the policy warranted that the Assured Owner’s Manager and Superintendents shall comply with all requirements of the Classification Society regarding the reporting to the society of accident to and defects in the vessel and for the purpose of any claim the Assured will provide certification by the Classification Society that the vessel’s Class has been maintained. It is contended that the said warranty constitutes an express warranty in terms of Section 37 of the Marine Insurance Act, 1963 which was breached by the appellants by not disclosing the first accident and damage to the vessel. The appellant’s failure to comply with the requirements of ABS Rules and warranties by not reporting the accidents and damages to the vessel discharge the respondent from any liability under the insurance policy as per Section 35(3) of the Marine Insurance Act, 1963.”
From a perusal of Sections 35, 37, 41(5) and 55 of the Marine Insurance Act, 1963 relating to warranties, the Court noted that a warranty is a condition which has to be exactly complied with, whether it is material to the risk or not. Hence, if an insured breaches a warranty, the insurer is discharged from its liability w.e.f. from the date of breach of warrant
Both NCDRC and the Supreme Court have opined that the seaworthiness or otherwise of the vessel at the point of accident is of no relevance to the admissibility of the claim .Though the vessel was actually classed on the date of accident ,the fact that it was obtained by concealment of the prior damages, would render the same invalid under the Classification Society rules .The policy having being issued with an express warranty requirement of valid Classification , such invalidity would constitute a breach of warranty and and hence the claim would be inadmissible. Further ,mere knowledge of the insurer that there is a breach of warranty is not a waiver in absence of an express representation or disclosure to the insurer to that effect.
In an earlier case involving a cargo claim titled Rajankumar & Bros (Impex) vs. Oriental Insurance{ (2020), 4 SCC 364},the Apex Court in a judgment dt 7.2.2020, had similarly held that the non compliance of the Institute Classification Clause in the policy would discharge the insurer from liability and further :
a. It was not necessary to consider whether the non compliance of the warranty would materially affect the risk.
b. There was no requirement for a specific representation or conduct from the insurer
c. But if the insurer makes a specific confirmation to indemnify the insured after the occurrence of a loss, the insurer will still be discharged from liability if it can be proved that such confirmation was made without the knowledge of a breach of warranty.
EFFECT OF CHANGES IN INSURANCE ACT AND THE MARINE INSURANCE ACT IN UK
In this context an aspect that is overlooked by these judgments is that the Marine insurance policies issued by Indian underwriters are usually subject to Institute Cargo Clauses ,Institute Classification Clause (for Cargo ) and ITC Hulls Clause 1.10.83( for Hull) , which would normally contain the clear provision that they are subject to English law and practice .This raises the interesting question of whether the Indian Marine Insurance Act,1963 is at all applicable for claims under such policies .Till recently such a discussion would be of academic relevance only ,since the UK Marine Insurance Act,1906 and the Indian Marine Insurance Act,1963 were identical in all aspects.
But that is not the situation presently with the enactment of the Insurance Act, 2015 on 12th August, 2016 in the UK and the resultant changes effected in the UK Marine Insurance Act, 1906. .This is suitably highlighted in the excellent article by Prof (Dr) Abhijit K.Chattoraj in the Insurance Times issue of, March 2025, titled,” Unlocking the Implication of Warranty, where he states that:
Insurance Act, 2015(UK) initiated many changes that suit the requirements of customers and business entities ……..It is pertinent to mention that the two insurance laws that work in the UK
1. Consumer (Disclosure and Representations0 Act,2012,deals with consumer insurance contracts where an individual enters into the contract wholly or mainly for purposes unrelated to the individuals trade, business or profession .The word consumer means an individual entering a consumer insurance contract or proposing to do so .
2. Insurance Act, 2015 applies to non consumer insurance .It defines a non consumer insurance contract as a contract of insurance that is not a consumer insurance contract.
The changes made in these two acts and the Marine Act, 1906 somehow weren’t incorporated in India’s Insurance Laws (Amendment Act), 2015.”
The revised legislations heralded a new era for marine insurance warranties law in the UK with significant changes being affected.
To give a background for these revisions in UK, it needs to be said that it was felt that the provisions on warranties embodied in the English Marine Insurance Act 1906 had become obsolete. In fact, the UK Law Commission revealed that in the consultation process about insurance warranties 88% of respondents related to the industry agreed that there was a need to reform the law in relation to sections 33 and 34 of the Marine Insurance Act 1906. The Law Commission in its report highlighted the general view that the UK was out of sync with the global market practices.
CHANGES IN THE PROVISIONS RELATED TO WARRANTIES IN UK INSURANCE ACT, 2015
The significant changes in the provisions related to warranties were elucidated by Prof (Dr) Abhijit K.Chattoraj in his article but to refresh our memories the same can be summarized as follows:
a. The old strict compliance principle in marine insurance warranties has been fundamentally changed. Under the new Act, the result of a breach of warranty is the suspension of liability of the insurer under the contract of insurance. and not an automatic discharge. Therefore, insurers are not obliged to pay for a loss occurring during the period when the suspension was in force, but if a loss occurs subsequent to the remedy of the breach then liability of the insurer is not affected. For instance, regarding a warranty that there should be 5 watchmen at all times, there will be no cover while the vessel breaches the warranty on the number of watchmen but the cover will be reinstated as soon as the breach is corrected.
b. “Basis of the contract” clauses in insurance contracts have been abolished. These clauses effectively turned the contents of a proposal into a warranty and meant that an insurer could avoid a claim based on the fact that one of the statements of the proposal form, even on a trivial or immaterial issue, was inaccurate. Under the new Act any representation made by the insured is not liable to be considered as warranty unless they are expressly mentioned in the contract of insurance.
c. Finally, the causation rule is adopted for marine insurance warranties. The non-compliance with a term designed to reduce the risk of a particular type of loss, or a loss at a particular time or in a particular place, which is demonstrated to have not potentially increased the risk of an occurred loss, does not exonerate the insurer’s liability. Therefore, the insurer is not able to rely on any defense which is not material to the loss with the exception that this is not to be applied for terms that define the risk as a whole. As an example if the warranty states that the vessel should have fire alarms and the vessel sinks because of any reason not related to fire then the insurer is not able to refuse payment of the indemnity.
Now going back to the Supreme Court judgment in the Hind Offshore vs. Iffco Tokio case, it is stated therein that, “From a perusal of the provisions as contained in the Marine Insurance Act 1963 relating to warranties, if the requirement is not complied with, then the insurer is discharged from liability as from the date of breach of warranty but without prejudice to any liability incurred before that date.”
It is pertinent to note that the provisions referred in the judgment above.i.e. -Sec 35(3) of the Marine Insurance Act, 1963, (which corresponds to the same provisions in Sec 33(3) of the UK Marine Insurance Act, 1906) have been deleted in UK with the enactment of the new Insurance Act, 2015.
Since the new UK Insurance Act changes were effective from 16.08.2016 they will have no direct bearing on this claim which occurred on 3rd December, 2006 However, it would be interesting to conjecture on the possible outcome of a dispute involving a claim arising from an accident occurring after the UK Act amendment, under similar circumstances.
CHANGES IN THE PROVISIONS RELATED TO THE DUTY OF DISCLOSURE IN UK INSURANCE ACT, 2015
There are also very important changes brought about in the new Act on the aspect of the duty of disclosure .The duty of disclosure is one of the most important aspects of insurance law based on the principle of utmost good faith with its roots traceable to the 18th century when Lord Mansfield stated that “good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and from his believing to the contrary”.
In the UK Marine Insurance Act, 1906, in Section 18 (corresponding to Sec 20 of the Indian Marine Insurance Act, 1963) it was stated that the policyholder must disclose “every material circumstance” that he “knows or ought to know” to the insurer before signing a marine insurance contract and that, a circumstance is material when it “would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk”.
Under the old provisions, it is the assured who was required to play the active role without being questioned or told what is necessary to disclose and what is not. On the other hand, the passive role stipulated for the insurers in this matter enabled them to ask questions even after the happening of a claim arises an in the event of even a minor breach of the duty of disclosure, the insurer could avoid the contract as if it had never existed.
Sections 18 and 20 of the MIA 1906 on non-disclosure and misrepresentation were therefore replaced in the IA 2015 with the newly enacted section i.e. section 3 of the Act incorporating the concept of “duty of fair presentation”, applying only to the business insurance contracts (i.e. “non consumer”).
The duty of fair presentation requires the insured party to:
(a) disclosure of every material circumstance which the insured knows or ought to know, or
(b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purposes of revealing those material circumstances.”
However, if no enquiry is made then it is not necessary for the insured business to disclose a circumstance if “(a) it diminishes the risk,(b) the insurer knows it, (c) the insurer ought to know it, (d) the insurer is presumed to know it, or (e) it is something as to which the insurer waives
Further it is clarified that the insured “ought to know” information that would be revealed by a reasonable search of information available to it.
The disclosure has to be made in a manner which would be reasonably clear and accessible to a prudent insurer”, and, “every material representation as to a matter of fact is to be substantially correct, and every material representation as to a matter of expectation or belief is to be made in good faith”
Section 5 of the 2015 Act sets out the meaning of the insurer’s knowledge and provides that the insurer “knows” what is known to the individuals who decide on behalf of the insurer whether to accept the risk in question. Thus the knowledge of the insurer’s claims department may also be deemed to be knowledge of the insurer. Combined with the option given to the insured under Section 3(4) to disclose only that which would put the insurer on notice of the need to make further enquiry, this means that the insurer will need to take a proactive role in the disclosure process.
The insurers knowledge will include that which “an insurer offering insurance of the class in question to insured’s in the field of activity in question would reasonably be expected to know”, in other words, general knowledge.
Section 6 of the 2015 Act clarifies that Knowledge” includes not only actual knowledge, but also what is termed as “blind eye” knowledge – matters which the individual suspects but deliberately chooses to ignore for example defects in a vessel which are known to him. Failure to disclose such knowledge could also amount to a deliberate breach of the duty to make fair presentation.
Section 7(3) states that, an objective test would be applied to determine whether a circumstance or representation is material or not. Thus, the question would be whether the representation “would influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms”. In addition, section 7(5) also noted that, “a material representation is substantially correct if a prudent insurer would not consider the difference between what is represented and what is actually correct to be material.”
The remedy of complete avoidance under the 1906 Act for a breach of disclosure obligations is abolished in the 2015 Act and replaced with a proportionate system of remedies for breach of the duty to make a fair presentation… The new Act gives the insurer a remedy when they would be able to show that, “but for the breach, the insurer
a. would not have entered into the contract of insurance at all,
b. would have done so only on different terms
If any of the above criteria are met the breach will be a ‘qualifying’ breach, and the available remedy will depend on whether the insured knew it was in breach or did not care whether it was in breach. This would constitute a deliberate or reckless breach and the insurer would have the remedy of avoidance of the contract from inception and be able to retain the premium paid by the insured.
Where a qualifying breach is not deliberate or reckless, the available remedy under the Act would have the objective of putting the parties in the position they would have been in had a fair presentation been made.
If the insurer is able to establish, on the balance of probabilities, that they would not have underwritten the risk at all, the remedy will be avoidance from inception, with the premium being returned to the insured.
However, if it is found that the insurer would have entered into the contract but on certain different terms, other than the amount of premium, then the contract is to be deemed “as if it had been entered into on those different terms. Additionally, if the insurer would have entered into the contract but the rate of the premium would have been higher (irrespective of “whether the terms relating to matters other than the premium would have been the same or different”), then the insurer would be able to reduce that amount “proportionately “from the claims ,if any .
THE WAY FORWARD
It is nearly a decade since the enactment of the 2015UK Insurance Act and the consequent changes in the UK Marine Insurance Act. It had as its central aim the creation of a fairer balance between the interests of the insurer and the insured. . The 1906 Act was drafted at a time when the insurance industry was finding its feet and when there was a concern about the possibility of deception by the insured. Consequently, it confers wide-ranging rights upon insurers to refuse claims or to treat their liability as discharged, which, to the modern eye, seems disproportionate to the breach committed by the insured.
The new Act introduces some new concepts and, along with that, considerable uncertainty for example, the concept of section 11 of ‘whole risk’ is a new one and both insured’s and insurers can expect legal challenges until the courts have resolved what this means. Under the new Act, it is possible for insurers to contract out of most of the new provisions and therefore the new Act creates only a default regime. The general view is that the UK Act, 2015 is not satisfactory or final and hence more changes or revisions are expected.
In India, the Insurance Act is slated to be amended shortly It is the right time for us to bring in a revised regime on warranties/disclosures in our Marine Insurance Act./Insurance Act .If we are to achieve the aim of ‘Insurance for all’ by 2047 ,it would be essential for the Indian insurance industry to fall in line with the global trends by effecting legislative changes which would replace the archaic provisions the old Acts with a clear, unambiguous, unbiased and customer friendly realm of Insurance law .
Authored By:
Basudev Sanyal –Retired Deputy General Manager, United India Insurance Co Ltd
