Interpretation of Warranties

The case of Ward & Sons -v- Catlin referred to in our previous article is interesting also because it applied a decision of the Court of Appeal in 2008; Pratt v Aigaion Insurance.

Often a warranty in an insurance policy will appear to give insurers a right to refuse payment if the warranty is construed literally.  In the Pratt case a fishing trawler was destroyed by fire when it was moored in North Shields, near Newcastle.  The Captain and crew of the trawler had just returned from sea, where they had been fishing for prawns, and adjourned to a pub some 200 yards from the trawler for a quick beer, intending to return to the trawler to sleep.  Unfortunately, whilst they were in the pub the trawler was destroyed by fire, possibly caused by a malfunction in a deep fat fryer.

Unfortunately for the owners of the trawler the insurance policy contained a warranty which stated “Warranted owner and/or owner’s experienced skipper on board and in charge at all times and one experienced crew member”.  Insurers refused to pay on the basis that nobody was aboard the boat at the time when the fire started.  Insurers’ arguments succeeded before the High Court in London where the judge decided that the warranty should be construed literally and that since nobody was on board at the time of the fire insurers were not obliged to pay. 

However, the owner of the trawler appealed to the Court of Appeal, who allowed the appeal and ordered the insurance company to make payment in full.  The Court of Appeal said “The meaning which a document would convey to a reasonable man is not the same thing as the meaning of its words.  The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean”.  Having considered the background the Court of Appeal concluded that the purpose of the warranty was to ensure that there should be an experienced skipper on board in order to protect the vessel against navigational hazards, and not for any other reason.  Therefore the warranty only applied when the vessel was being navigated or manoeuvred and did not apply when the vessel was moored. 

Accordingly the Court of Appeal allowed the trawler owner’s claim, even though the literal meaning of the warranty appeared to justify a refusal by insurers.