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Superyacht insurance warranties

Most owners would not dream of cutting spending on obvious safety equipment, but compliance with obscure flag state regulations and local laws can sometimes seem like unnecessary expense. Yet if an owner is to remain protected by their insurance in the event of an accident, spending more money on detailed compliance may be money well spent.
What is a warranty?

Confusingly, the word ‘warranty’ is often used in the superyacht sector to mean a guarantee under a contract to build a new yacht – hence the phrase ‘warranty work’ to mean the work putting things right after launching.

In the context of insurance, however, it means a promise, by an insured party, to do or not to do something, or a statement regarding an aspect of the risk.

The promise or statement must relate to circumstances which, in the event of a breach, the law will allow an underwriter to repudiate the contract altogether – and walk away without paying in the event of a claim.

How can warranties be recognised?

With such serious consequences flowing from a breach of warranty, it is vital to be able to identify what warranties apply to a policy. The trouble is that warranties can be expressed in the contract, but not actually described as a warranty. More worryingly, they can be implied automatically by law, without even having to be agreed upon.

Thankfully, express warranties must be included in the policy, or must at least be contained in some document referred to in the policy. So in the event of a claim it wouldn’t be good enough for an underwriter to simply dust-off some previously unknown ‘standard’ terms and refuse to pay. Express warranties are normally added as a deliberate and obvious fundamental stipulation of the contract.

While implied warranties cannot be found in policies, they are easy to ascertain from the UK’s Marine Insurance Act 1906, and we’ll consider the more important ones below.

While it may seem narrow-minded just to look at English law, it’s worth considering that most of the world’s risks are insured on the London market, and most countries model their own insurance laws on this Act – sometimes word-for-word.

Whereas express warranties tend to be specific, implied warranties can be overarching and vague; so there can be overlaps between them. But an express warranty will not exclude an implied warranty on a related matter, unless directly inconsistent with it.

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