Research On The Warranty System In Marine Insurance

The warranty system in marine insurance is established to ensure the uniqueness of marine activities. This system, which originated in Britain, was initially established in a series of cases."Marine Insurance Act 1906"(MIA 1906) firstly established the warranty system in the form of legislation. As the founder of this system, the British provision has been an international standard to be followed. So the first chapter introduces the warranty system mainly based on the British law.According to MIA 1906, "warranty" means a promissory warranty by which the insured undertakes that some particular thing will or will not be done or that some condition will be fulfilled, or affirms or negates the existence of particular facts. There is no concept of warranty in Chinese law and"special provision of policy"or"special term"is often used to replace it in marine insurance practice. The warranty term is the premise for underwriter to assume insurance liability. However, the nature of warranty in marine insurance is equal to condition differing from that in common contract. There are several classifications of warranty, including warranty in marine insurance and warranty in non-marine insurance, warranty for the past and present, warranty for the future and continuing warranty, affirmation warranty and promissory warranty, express warranty and implied warranty. The principle of utmost good faith is the theoretical foundation of the warranty system. The duties of warranty and disclosure are closely connected because they both derive from the principal of utmost good faith. But they differ from each other in form, authenticity, scope and legal consequence. The core of warranty is the principal of strict observance, that is whether the warranty is important to risk, we must abide by it. The strictness is too harsh for insured though it provides protection for underwriter. As a perfect system, the final design is the consequences of breach which is the principal of being free from obligation automatically in British. British law makes the consequences comparatively severe, in which case, there are two ways to relax the severe consequences: one is the legal exemption of warranty; the other is mitigation measures– renewal and wavier.In the second chapter, the author analyzes the current legislations of warranty system in several main countries, some of which belong to common law and others civil law. Being the unique system in common law countries, the warranty has been developing with the change of technologies and maritime practices. The British judicial system adopts relatively conservative attitude to reform. English Law Commission would propose to introduce the causality principal and the important standards. International Ship Insurance Terms, which is an important component of British marine insurance law, has also weakened the rigidity of the warranty and its consequences. The United States is more inclined to the balance of interests between the underwriter and insured, mainly embodied in the implementation principal. The Supreme Court has negated the principal of strict observance in Wilburn Boat in 1955, but the more usual approach is to introduce the principal of proximate cause or to require that the breach of warranty is concerned with risk, and as for the consequences of breach, the United State will follow the principal of suspension or revocation. The warranty system has been reformed in Canada, Australia and South Africa. There is no concept of warranty in civil law countries, which is replaced by other similar terms. The risk change system in German and Norway is similar to the warranty system in common law, but the legal consequences are much more modest. Belgian law provides that the parties could set terms equal to expressed warranty or termination terms in the contract. These provisions are intended to deal with the same matter as warranty. Sweden, Denmark, France and Italy also have the mandatory legislation of risk change.Either in common law countries or in civil law countries, the harsh of the consequences is questioned. The second chapter continues to expound several different viewpoints on the development trend for the warranty system in marine insurance. The first one is keeping the whole warranty system; the second one is abolishing the warranty system; the third one is improving the warranty in the exiting framework.The third chapter analyzes the Chinese provisions on warranty in marine insurance and gives some recommendations for improvement. The foreign scholars have been questioning whether there is warranty system in China. This is a misunderstanding due to our too simple provision on warranty. At present, the only provision on warranty is the Article 235 of the"CMC"which only involves the consequences of breach, not including the concept and nature of warranty, not distinguishing express warranty from implied warranty, etc. This paper analyzes the Article 235 of the"CMC"from the practice of the rescission right, the effect of canceling contract and the coverage. On the elimination of the severity of the legal consequences, we should follow the example of the new International Ship Insurance Terms. Finally, the recommendations to improve the warranty system are given. Firstly, it should express the nature of the warranty in the"CMC". Secondly, it is not necessary to introduce the implied warranty in our country. Thirdly, we should establish the importance standards and the causality principal, define the practice way of the rescission right and make the effect of canceling contract more reasonable. Finally, the underwriter could give up the rescission right.The trend of the warranty system is to reserve it and improve it. We have been aware of this trend and begun to solve this problem. A perfect warranty system in marine insurance will soon be established in China.