5.15 Canada‘s Marine Insurance Act 1993 is also based on the MIA (UK). However, a review of recent Canadian cases by Christopher Giaschi illustrates how Canadian courts may be increasingly disinclined to hold that terms of the contract of marine insurance are promissory warranties, even when the language of the contract expresses them to be warranties.
‗Recent developments in the law in relation to warranties in policies of marine insurance indicate that there has been a judicial amendment of, if not complete revocation of the Marine Insurance Acts. It is only in very rare circumstances that a Canadian court will find a policy to contain a true warranty. These circumstances will essentially be limited to situations where the warranty is material to the risk and the breach has a bearing on the loss.‘266
5.16 For example, in Century Insurance Company of Canada v Case Existo-logical Laboratories Ltd (The Bamcell II)267 the contract contained the following clause: ‗Warranted that a watchman is stationed on board the Bamcell II each night from 2200 hours to 0600 hours.‘ In fact, from the time the insurance commenced, no watchman had been stationed on the ship. The fact that there was no watchman on
262 eg Pawson v Watson (1778) 2 Cowp 785; Overseas Commodities Ltd v Style [1958] 1 Lloyd‘s Rep 546. 263 Mowie Fisheries Pty Ltd v Switzerland Insurance Australia Ltd (1996) 140 ALR 57; Switzerland Insurance
Australia Ltd v Mowie Fisheries Pty Ltd (1997) 144 ALR 234.
264 QCFO Submission to AG’s Dept — Reform of the law of marine insurance Marine Insurance Act 1909 1997; QCFO Consultation Brisbane 12 May 2000. A submission by the QCFO instigated the initial review of the MIA by the Attorney-General‘s Department in 1997. The QCFO will soon be replaced by the Queensland Seafood Industry Association Inc (QSIA).
265 QCFO Consultation Brisbane 12 May 2000.
266 C Giaschi ‗Warranties in marine insurance‘ Paper Association of Marine Underwriters of British Columbia Vancouver 10 April 1997.
board during the prescribed hours had no bearing on the loss of the vessel, which occurred in mid-afternoon.268 The Supreme Court of Canada found that the provision was not a warranty. Giaschi states that the Court ‗disregarded the plain words of the policy of insurance and the statute to do what it perceived as fair‘.269
5.17 The Bamcell II was applied by the British Columbia Supreme Court in Federal Business Development Bank v Commonwealth Insurance,270 where it found that the clause ‗Warranted vessel to be laid up at the north foot of Columbia Street‘ was not a warranty because the parties did not intend it to be strictly complied with. In Federal Business Development Bank v Reinsurance and Excess Managers Ltd271 the Court held that the clause ‗warranted that the vessel shall not otherwise tow or be towed‘ was not a true warranty because vessels of the same type as that insured were commonly used for towing. The insured tugboat had sunk while towing a jetboat. 5.18 In Shearwater Marine Ltd v Guardian Insurance Co272 a warranty that the vessel be inspected daily and pumped as necessary was found to be a suspensive condition; that is, one that suspends the policy following a breach until the breach is rectified. This approach is similar to that in some courts in the USA which have held that a breach of warranty in a marine insurance contract is suspensive. According to American case law, an insurer cannot avoid the policy if the breach is rectified prior to a loss.273
5.19 This reasoning is also used in some cases in United Kingdom courts. In Kler Knitwear Ltd v Lombard General Insurance Co Ltd274 the English High Court found a warranty to be a ‗suspensory condition‘ which, rather than cancelling the policy automatically on its breach, suspended the policy until the breach was rectified. This case is the latest in a line of cases where courts have been ‗reluctant to construe a clause as a warranty, even when so described, unless breach of the clause has serious consequences for the insurer‘.275
The court relied on the decision of the English Court of Appeal in Hussain v Brown276 in which Saville LJ said
268 [1984] 1 WWR 97, 104.
269 C Giaschi ‗Warranties in marine insurance‘ Paper Association of Marine Underwriters of British Columbia Vancouver 10 April 1997.
270 (1983) 2 CCLI 200. 271 (1979) 13 BCLR 376. 272 (1997) 29 BCLR (3d) 13.
273 Employer’s Ins v Trotter Towing Co 834 F 2d 1206, 1212 (5th Cir 1988); Graham v Milky Way Bargo Inc 824 F 2d 276, 383 (5th Cir 1987); P Griggs ‗Coverage, warranties, concealment, disclosure, exclusions, misrepresentations, and bad faith‘ (1991) 66 Tulane Law Review 423, 343; T Schoenbaum ‗Warranties in the law of marine insurance: Some suggestions for reform of English and American Law‘ (1999) 23 Tulane
Maritime Law Journal 267, 289.
274 [2000] 1 Lloyd's Law Reports Insurance and Reinsurance 47, discussed in J Miller ‗Continuing warranties — Court reviews nature of contract terms‘ 18 May 2000 Insurance Day 6.
275 J Miller ‗Continuing warranties — Court reviews nature of contract terms‘ 18 May 2000 Insurance Day 6. 276 [1996] 1 Lloyd‘s Rep 627.
‗It must be remembered that a continuing warranty is a draconian term. The breach of such a warranty produces an automatic cancellation of cover, and the fact that a loss may have no connection with that breach is irrelevant. If underwriters want such protection, it is up to them to stipulate for it in clear terms.‘277
5.20 As noted below, repealing s 40(2) of the MIA, which prevents an insured using the defence that the breach has been remedied and the warranty complied with before loss, would leave it more open for insureds to argue that warranties should be treated as suspensory in nature.