Insurance Policy Warranties
The Danger of Failing to Fulfill Insurance Policy Warranties
Types of Warranties
Warranties in insurance contracts are of two different types: affirmative and promissory. The affirmative warranty is either express or implied. The promissory warranty is an express warranty.
Express Warranty
Express warranties relate to the present or past existence of particular facts relating to the risk upon the truth of which, the validity of the contract depends. [California Insurance Code § 440.]
A statement of fact becomes an express warranty when the insurer and the insured comply with California Insurance Code section 443. Section 443 provides:
Every express warranty made at or before the execution of a policy shall be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy, as making a part of it.
Some examples of express warranties include the following statements:
· “My business is a partnership.”
· “My building is reinforced brick.”
· “I have never been canceled by any insurer.”
· “I am 45 years old and have never smoked cigarettes.”
The California Insurance Code further explains the concept of the express warranty by saying:
A statement in a policy of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof. [California Insurance Code § 441].
The violation of an express warranty will void a policy in its entirety.[1] In the British case, A C Ward & Sons Ltd v. Catlin (Five) Ltd & Ors [2009] Commercial Court, the insurers attempted to avoid coverage on the failure of an alarm system, warranted by the insured to work. The court concluded that the warranty was not limited to the particular “protections” specified in the proposal form, nor was the Alarm Warranty confined to such alarm systems as might have been identified in the schedule.
As a matter of commercial common sense, the warranties referred to whatever protections or alarms actually existed, whether identified in the policy documentation or not. As to knowledge, the court adopted the view that a breach of warranty could occur only in the event of a defect of which the insured was, or should reasonably have been, aware, and which it had then failed to remedy promptly. However, even though the alarm warranty was not effective the insured also promised that theft coverage for cigarettes & tobacco in a warehouse was not operative outside of business hours unless the stock was kept within the special secure store on the ground floor. Since they were not on the first floor the insured was not allowed to recover.