Good News: Well Drafted Warranties Do Work

Amlin Corporate Member Limited and Others v. Oriental Assurance Corporation [2013] EWHC 2380 (Comm) A dispute between London reinsurers and their Philippine reinsured arose from the sinking of a ferry, the “Princess of the Stars,” in the Philippines on June 21, 2008.  The loss occurred because the master of the ship sailed into the midst of typhoon “Frank,” despite public storm warnings having been issued by the Philippine authorities the previous day.  It seemed that the master of the ship had intended to take a different route had the weather become really bad.  However, it turned out that he decided to follow the usual route to Cebu.  The catastrophe caused the loss of more than 500 lives. Oriental, the vessel’s shipowner’s cargo liability insurer, was reinsured under a facultative reinsurance agreement by London reinsurers for the period December 31, 2007 to December 31, 2008.  The reinsurance, which was subject to English law and jurisdiction, contained a Typhoon Warranty clause. The reinsurers commenced proceedings in England against Oriental seeking declarations that the reinsurers were not liable because there was a breach of the Typhoon Warranty.

The Decision The court held that the Typhoon Warranty consisted of two limbs where limb 1 contemplated a scheduled vessel sailing out of a sheltered port when there was a typhoon or storm warning at that port, and limb 2 contemplated a scheduled vessel sailing out of a sheltered point when her destination or intended route might have been within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point.

In light of the above and taking into account the facts of the case, the court sided with the reinsurers and declared that the Typhoon Warranty was clearly and simply drafted.  It was undisputed that on June 20, 2008 the “Princess of the Stars” sailed out of Manila bound for Cebu at a time when there was a “Public Storm Warning Signal” at Manila.  Therefore, limb 1 of the Typhoon Warranty had clearly been breached.  Because limb 1 had been breached there was no point in considering whether limb 2 had also been breached.  Nevertheless, the Court held that, in the circumstances, a route intended to be taken subject only to the possibility of a change of course if the weather was going to be bad was the intended route for the purposes of limb 2.  As such, limb 2 of the Typhoon Warranty was also breached.  Therefore, reinsurers were entitled to their declarations. This case shows that English courts will usually uphold unambiguous and clearly drafted warranties.  Warranties, as this matter confirms, can be efficient tools to protect (re)insurers from liabilities arising from certain circumstances, in this case, the liability arising from typhoons.  Having said that, the reforms proposed by the UK Law Commission are seeking to alter the effects of warranties and are scheduled to come into place sometime in late 2013, early 2014.  Reinsurers ought to prepare for the new regime.

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