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13th
March 2010
The difference
between a condition and a warranty
The
definitions of a condition and a warranty are
very specific in the context of insurance law.
A warranty can be a condition but a condition
may not be a warranty.
Generally, a condition is an essential part
of a contract, and if breached, the party that
has been deprived is permitted to claim damages
and even terminate the contract because the
breach has in effect repudiated the contract.
On the other hand, a warranty would not be considered
a vital part of the contract. In the event that
one of the parties to the contract is found
to be in breach of the contract, he or she is
at liberty to make a claim in damages but this
does not mean that the party who did not breach
the contract could terminate the contract. The
meaning of these terms is reversed in insurance
law.
Warranties play a greater part in insurance
law than conditions. A warranty is a term of
insurance contract that if the insured has breached,
the insurer is no longer held to be liable as
of the date of the breach. So a breach of a
warranty would invalidate the insurance claim.
Warranties include promises, warranties of opinion
and promissory warranties. Warranties as promises
relates to facts that the insured agree to do
or not do. Warranties of opinion are given based
on information that the insured believes to
be true to the best of his or her knowledge
and belief. A breach of this warranty would
occur if the insured knowingly gave false information
to the insurer. Promissory warranties are based
on future promises or continuing promises from
completed proposal forms or within the body
of the insurance policy.
Some conditions can be warranties but warranties
may not always be conditions. The nature of
conditions is quite complicated in insurance
law; and includes condition precedents, mere
conditions, promises and conditions precedent.
The heading ‘Conditions’ is prominent
in most insurance policies. In most cases, this
term does not relate to the statements of fact
or the risk covered within the insurance policy.
They could in fact be warranties, collateral
promises or stipulations.
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It is important to distinguish
between warranties and conditions for many
reasons. For example, a typical condition
of an insurance policy is that the insured
must provide the insurer will all pertinent
information about himself or herself. If the
insured has failed to do so, the insured is
in breach of his or her policy but the insurer
is likely not to make a claim if the insurance
company acquired this information from another
source. On the other hand, warranties must
be more strictly complied with for the policy
to be valid.
Broadly speaking, there are two types of collateral
terms which are considered conditions: promises
or obligations imposed on the insured in relation
to the claims procedure which are not considered
fundamental to the validity of the contract;
and conditions conferring rights on the insurer,
which emphasis or reiterate the rights of
the general law.
Lord Saville in the case, Hussain v. Brown
(1996) made a useful observation about defining
conditions and warranties:-
“In my judgment…there is no special
principle of insurance law requiring answers
in proposal forms to be read, prima facie
or otherwise, as importing promises to the
future. Whether or not they do depends on
ordinary rules of construction, namely consideration
of the words of the parties have used in the
light of the context in which they have used
them and ( where the words admit of more meaning)
selection of that meaning which seems most
closely to correspond with the presumed intentions
of the parties.”
Warranties and conditions in insurance law
are subject to interpretation of the language
used, and the intention of the parties. When
there has been a breach of a condition or
warranty, the onus of proof is on the insurer
to demonstrate that the breach has occurred
and who is at fault.
Ms. Trudy O. Glasgow is a practising attorney
at the law firm Gordon, Gordon & Co.,
(and has also taught law at University level
in the UK)*.
This column is for general use only, for advice
specifically for your case, please see your
lawyer.
Next week: Motor vehicle insurance is compulsory
Discuss
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