Pratt v Aigaion Insurance Company SA

A continuing warranty in an insurance policy must be construed in the context of the policy as a whole and its commercial circumstances. Literal wording may require qualification where it produces a result inconsistent with the evident purpose of the warranty.

If the extent of that qualification remains ambiguous, the warranty is construed against the insurer. An insurer seeking continuous supervision of an insured vessel must stipulate clearly when, and in what circumstances, the required persons must remain on board.

The owner of a fishing trawler claimed under a marine insurance policy after the vessel caught fire while securely moored. The owner and crew had temporarily gone ashore, intending to return to sleep on board and fish the following day.

The Admiralty Court dismissed the claim because a typed warranty required the owner or experienced skipper to be on board and in charge “at all times”, together with one experienced crew member. The owner appealed. The central issue was whether the warranty applied while the vessel was safely moored and the crew were reasonably ashore.

1. Appeal allowed. The insurer had not established a breach of warranty. The owner was entitled to recover under the policy. Sir Anthony Clarke MR delivered the leading judgment. Maurice Kay and Stanley Burnton LJJ agreed.
2. A contractual clause must be construed within the contract as a whole and against the relevant factual matrix. Language remains the primary source of meaning, but a literal construction may yield where it conflicts with business common sense. The court must nevertheless avoid forcing words to bear a meaning that substitutes a different bargain for the one made: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897, BCCI v Ali [2001] UKHL 8, Sirius Insurance Co v FAI Insurance [2004] UKHL 54 and Charter Reinsurance v Fagan [1997] AC 313 considered.
3. A continuing insurance warranty must receive a reasonable and businesslike construction. If its protection is extensive or draconian, the insurer must stipulate for that protection in clear terms. An ambiguity is construed against the insurer under the contra proferentem principle.
4. The disputed warranty could not be read literally. The requirement for both an experienced skipper and an experienced crew member indicated that its primary purpose was protection against risks arising when their presence would appropriately be required, particularly during navigation or manoeuvring and possibly while landing a catch. It did not clearly require them to remain continuously aboard a safely moored vessel.
5. The policy’s standard trawler wording reinforced that conclusion. It contemplated cover while the vessel was aground, stored ashore, dismantled or undergoing major repairs, when continuous crewing would be inappropriate or impossible. Its separate two-person manning requirement for navigation indicated that the typed warranty placed a gloss on that navigational condition.
6. The extent of the necessary qualification to “at all times” was unclear. The warranty was therefore construed against the insurer. If the insurer intended the skipper and crew member to remain aboard whenever the vessel or its generator was left running, it had to say so clearly.
7. The Milasan [2000] 2 Lloyd’s Rep 458 and The Newfoundland Explorer [2006] EWHC 429 (Admlty) concerned materially different warranties and vessels. Their conclusions did not govern the present wording.

1. Court of Appeal (Civil Division): The appeal was allowed unanimously. The owner was held entitled to recover under the marine insurance contract: [2008] EWCA Civ 1314.
2. Admiralty Court: His Honour Judge Mackie QC dismissed the insurance claim on 14 March 2008, holding that the owner had failed to comply with the warranty. He refused permission to appeal, which Sir Paul Kennedy subsequently granted.