Warranties And Representations: Key To Understanding Parties’ Obligations

Recently a captain posed a question to me regarding representations and warranties in an insurance contract – asking if one or the other can increase an insured’s liability under the contract. What are ‘representations’ and ‘warranties?’

Representations and warranties are defined as follows: A representation is a statement of such facts or circumstances relative to the proposed adventure, as are necessary to be communicated to the underwriters, to enable them to form a just estimate of the risk. A warranty being in the nature of a condition precedent, must be strictly and literally complied with; whether a warranty be material to the risk or not, the insured stakes his claim of indemnity upon the precise truth of it, if it be affirmative, or upon the exact performance of it, if executor… (A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856.)

Put simply: a representation is a statement made by an applicant/insured that is true and accurate to the best of the person’s knowledge. A warranty is a statement of fact. A misstatement of a representation (misrepresentation) isn’t necessarily going to lead to the cancellation of the contract if it was made unknowingly or accidentally; however, if an insurer discovers that a representation was made by the client in a deliberate attempt to mislead the insurer then the representation becomes a “material misrepresentation” and can be grounds to void the insurance contract.

Too often it is the case where an applicant may think, “Aaah… that’s not important,” and they fail to disclose information they deem unnecessary or arbitrary – but the insurer would consider it significant (or “material”) to their underwriting the risk. Once the offer is made by the insurance company and the client agrees to the terms, that misrepresentation could be deemed “material” and could cause them to lose their coverage. Further – if the insured makes a “warranty” that is knowingly false, the insurer will have grounds to terminate coverage with no obligation to honour any claims.

The truth is always the best course of action and dealing plainly and candidly with a marine insurance specialist is key to providing the best service for the client AND the insurer. For more information on this topic contact Gary Carroll at CYA/Comprehensive Yacht Assurance at info@cyacht.net or 954.604.2888.