DMC Category Rating: Confirmed

Facts
The owners and mortgagees of the ship ‘Aegeon’ claimed for a total loss following a fire on board on 19^th February 1996 while the vessel was moored at Drapetsona undergoing conversion from a roll-on roll-off car ferry to a passenger cruise ship. Upholstered seating being stored in the forward part of the garage deck was set on fire by sparks from hot work being carried out nearby. The Port Authority ordered the vessel to be towed from the berth and beached out of the port area. During this manoeuvre the vessel struck a wreck and ruptured her plating. She subsequently capsized and sank. It was common ground that the vessel was lost by an insured peril, but the underwriters relied on section 33 of the Marine Insurance Act 1906 (‘MIA’) and declined liability on the ground that the owners were in breach of one or more of the policy warranties mentioned in the Summary above.

Section 33 of the MIA reads as follows:
"1. A warranty, in the following sections relating to warranties, means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.
2. A warranty may be express or implied.
3 A warranty , as above defined, is a condition which must be exactly complied with , whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date."

The original insurance was for 6 months from 9^th August 1995 including the following term: "Warranted LSA (London Salvage Association) approval of location, fire fighting and mooring arrangements and all recommendations complied with. Warranted no hot work". In October, the vessel moved to the lay-up anchorage at Eleusis. Underwriters were informed and agreed to maintain cover, subject to an endorsement reading: "Warranted LSA appointed surveyor to approve mooring and fire fighting arrangements within 14 days". The LSA surveyor issued a new certificate on 14^th December 1995, valid for 6 months, including the recommendations that any alteration in the lay-up or mooring arrangements be notified to the LSA, so that a further survey may be held, no hot work be carried out and no open flame devices be used on board.

On 9^th January 1996 the vessel was towed back to Drapetsona and the underwriters agreed to maintain cover, endorsing the policy on 12^th January with the terms: "Hot work on deck is due to commence soon. Underwriters agree to cover such work hereunder. Warranted LSA certificate updated and all recommendations complied with prior commencement of hot work. All other terms, clauses and conditions remain unaltered".

The LSA surveyor was notified by the owners on 30^th January to carry out a survey in order to give a new mooring approval and a certificate for the vessel at Drapetsona. It was common ground that both the owners and the surveyor agreed that bilge alarms needed to be fitted and the vessel’s fire extinguishers refilled, serviced and tested, before an approval for hot work could be given.

On 6^th February the underwriters agreed to extend cover for two months, the endorsement reading: "Warranted LSA certificate updated"

By 10^th February bilge alarms had been fitted and all the fire extinguishers had been filled, tested and returned to the vessel. However, the surveyor did not visit the vessel again prior to the casualty. What was discussed between the surveyor and the owners about the surveyor’s approval prior to hot work was a matter of debate and the surveyor’s evidence was considered to be more reliable.

Judgment
By section 33 of the MIA 1906, the underwriter is discharged from liability as from the date of a breach of the warranty, because fulfilment of the warranty is a condition precedent to the liability of the insurer (The ‘Good Luck’ [1992] 1 AC 233.

The first issue was the construction of the word "updated" in the warranty of 6 February. Owners’ counsel submitted that it meant either a promise prospectively, in that the Salvage Association’s approval for hot work would be obtained by the time of the inception of the extension of cover on 9^th February, or a promise that it would be obtained within a reasonable time thereafter. The judge rejected both such submissions, although he regarded the first as plausible. In the light of the circumstances of the whole policy, he preferred to give it a more restricted construction. He held that the updating of the certificate ought to have been obtained when the underwriters agreed to extend the cover on 6^th February, otherwise, lack of it could have led them to refuse to extend cover. Since the owners had not obtained an updated certificate by that time, the claim failed on that ground.

In case he was wrong on the construction, the judge was satisfied that the owners did not obtain an updated certificate prior to 12^th February, which was the date, as they themselves admitted, upon which they commenced hot work, or indeed at any time prior to the casualty.

In any event, upon witnesses evidence the judge accepted the version of the surveyor that he did not give his approval on the telephone, as the owners alleged, for hot work to commence before he inspected the vessel. The judge was satisfied that the owners did not obtain Salvage Association approval of the vessel’s arrangements in any form before hot work commenced, and that the existing certificate had not been updated; therefore the warranty was broken and the claim failed for breach of section 33 of the MIA 1906. There was no proof of any waiver on the part of the underwriters of any breaches of the policy’s warranties since the underwriters were not aware of such breaches.

Comment for risk management
It is strongly advised that the owners keep records of any telephone conversations or communications they have with Salvage Association surveyors, as in this case the issue of what was discussed was determined on the basis of who was a more convincing witness.