ABSTRACT
The required number of films was not made, and the reinsurers refused to indemnify the insurers on the basis that this term amounted to a warranty, breach of which brought the risk under the direct policies to an end, so that the insurers could not be under any liability to make payment to the assured and, accordingly, the reinsurers could be under no liability to provide an indemnity. Affirming the judgment of the trial judge, David Steel J, 6 the Court of Appeal held that the term was a warranty. Rix LJ listed three possible tests that can be used to determine whether a term is a warranty: (a) if it goes to the root of the contract; (b) if it is descriptive of the risk or bears materially on the risk of loss; and (c) if damages would be an inadequate or unsatisfactory remedy for breach. 7
2.3 While two of these tests, namely (a) and (c), determine new yardsticks that a term alleged to be a warranty should be tested against, it has traditionally been the case that any statement of fact bearing upon the risk undertaken is, if introduced into the written policy, to be construed as a warranty. In Baring v Clagett , 8 for example, a policy was effected on goods that were qualified with the words “on board The Mount Vernon , an American ship”. It was held that this description of the vessel contained a warranty that the goods were carried on board an American ship. 9
determining the legal status of terms in dispute in other cases. In Paul Toomey of Syndicate 2021 v Banco Vitalicio de Espana SA de Suguros y Reaseguros , 10 the insurers agreed to insure a Spanish football club in respect of the economic loss that might arise from the team being relegated from the First Division of the Spanish Football League. They then turned to the London market for reinsurance where they obtained cover for 32% of their liability. Even though the underlying policy issued by the insurers to the assured was a valued policy as a matter of Spanish law, in the reinsurance slip policy it was defined as an indemnity policy. The consequence of the underlying policy being a valued policy is that the reinsurers would be liable for their proportion of the 2.9 billion pesetas, irrespective of the possibility that the actual loss suffered by the club would be less.
