Marine insurance warranties under Australian law: Lost at sea?

The Marine Insurance Act 1909 (Cth) (AMIA) has governed Australia’s marine insurance law for over a century. However, as the global maritime industry evolves, there have been repeated calls for reform.

The AMIA’s framework for promissory warranties (which help protect the risk an insured agrees to accept from alteration during the policy period) is of particular concern. It is no longer aligned with modern insurance practice or with other marine jurisdictions such as the United Kingdom and New Zealand.

A key criticism of the AMIA’s warranty regime is the unforgiving remedy that applies for breach of warranty where there is a subsequent claim, even if the breach was not causally relevant. That remedy framework has seen some courts resolve warranty disputes in ways that can be difficult to reconcile with the Act itself and create uncertainty. Such uncertainty, both legally and commercially, could well hinder Australia’s role as a market for placing marine insurance. At the same time, underwriters are understandably losing confidence in the use of warranties for their original purpose. The time has come to embrace reform – not just for the benefit of policyholders and insurers, but for the future of Australia’s maritime industry as a whole.

Whitepaper and road to reform

To promote open discussion on this important issue, Kennedys and Liberty Specialty Markets have partnered to co-author the whitepaper: Marine insurance warranties under Australian law: Lost at sea? The paper provides a comprehensive overview of the role, historic purpose and current issues arising from the framework for promissory warranties established by the ageing AMIA, as well as a review of recent case examples from common law courts.

By contrasting the historic approach to warranty disputes with that of more recent years, the paper suggests that certainty has often been sacrificed in aid of outcomes that are perceived to be more in keeping with prevailing notions of fairness. That uncertainty may result in more palatable outcomes in specific cases but does little to assist insurers or insureds at large. In addition to offering cautious guidance to those who draft and negotiate warranties under Australia’s current legislation, the paper also carefully examines various options for much needed reform. The approaches taken in the United Kingdom and New Zealand are examined, as is the treatment of remedies under Australia’s Insurance Contracts Act 1984 (Cth) (ICA).

The paper concludes by recommending that there be greater harmony between the AMIA and the ICA. However, certain acts or omissions by an insured can materially alter the risk profile accepted and priced by an insurer, including in circumstances where no claim results. If underwriters are to price risk confidently and sustainably, that issue should be acknowledged in any amendment to the remedy framework.

This paper will interest marine insurers, insureds, brokers and lawyers. It will also benefit and help to guide those who want to better understand the need and options for reform. If you would like to discuss any of the information provided please contact us.