Obiter dicta, (a comment by way of aside) the express term was a "delimiting" warranty (delimiting or describing the risk) not a "promissory" warranty (breach of which entitles the insurer to terminate the risk)

DMC Category Rating: Developed

This case note was prepared by Jim Leighton, BSc (Hons) (University of Plymouth), LLM (Maritime Law) (University of Southampton) and Claims Consultant

Background
The Claimant was a company engaged in the business of insurance and reinsurance.

By a contract of insurance, the Claimant insured a US$3 million motor yacht ("the vessel") with effect from 5 November 2003 up to either 4 or 5 May 2004. The contract, which incorporated the Institute Time Clauses Hulls Port Risks including Limited Navigation (20/7/87) CL.312, included the express term "Warranted vessel fully crewed at all times" and was governed by English law.

The Defendant was initially the mortgagee of the vessel, later becoming the legal and beneficial owner of the vessel following a judicial sale.

The following facts were agreed:

• The vessel was severely damaged by fire;
• At the time of the fire the vessel was laid up alongside a berth in the marina at Fort Lauderdale, USA;
• The cause of the fire was the overheating of the vessel’s starboard side John Deere generator;
• No crew members were aboard the vessel at the time of the fire - the master was at home, some 15 miles and (ordinarily) 30 minutes away.

The following facts were not agreed:
The true factual position with regard to the crewing of the vessel at any particular time.

The trial was to decide the following preliminary issues:
(1) On the proper construction of the contract of marine insurance, does the express warranty "Warranted vessel fully crewed at all times" oblige the insured to keep at least one crew member on board the vessel the whole time, as opposed to intermittently or at intervals?

(2) On the proper construction of the contract of insurance, do the words "at all times" in the warranty mean 24 hours per day, and, if not, what do they mean?

(3) On the proper construction of the contract of insurance, what was required in order to comply with the warranty "Warranted vessel fully crewed at all times" when the yacht was laid up alongside a berth with the generator running?

Judgment
Natural and Ordinary Meaning
A vessel was "crewed" by the crew (whatever its number) performing such duties as were required on board. That was, naturally and ordinarily, how a vessel was crewed. Except particular crewing duties performed other than on board the vessel and any other necessary departures or emergencies, a vessel was not crewed if the crew were elsewhere. No implication was needed to come to this conclusion; it flowed from the natural and ordinary meaning of the word "crewed" – it did not benefit from elaboration.

Whether a vessel was "fully crewed" or not depended upon what she was doing; a vessel undertaking an ocean voyage would have different crewing requirements to a vessel laid up alongside a berth. Accordingly, "fully crewed" meant at least one crew member on board the vessel, whatever she was doing.

To be "fully crewed at all times" while laid up alongside a berth, there needed to be at least one crew member on board the vessel 24 hours a day; "at all times" meant what it said – the whole time, not some of the time.

The judge deemed this to be the correct interpretation of the warranty as a matter of first impression. However, questions of context and practicalities required careful reflection and some qualification.

Context and Practicalities
The context powerfully reinforced the impression, based on language alone, that the warranty ordinarily required the presence of at least one crew member on board the vessel. As a valuable yacht, it could be understood that the presence of a crew member on board afforded some protection against risks, such as vandalism, fire, pollution, the onset of bad weather and theft, and was in no way surprising. The context served to explain the need for an on board "watchman", a fortiori (all the more so) if and when machinery was running, even though human presence could increase some risks to a vessel (cf The Moonacre [1992] 2 Lloyd’s Rep 501, 507).

The judge’s considerations of commercial commonsense also pointed to the need for some qualification of the literal meaning of the wording "at all times":
(i) Emergencies might necessitate the evacuation of the vessel or the area, such as a bomb scare. The parties could not be understood as intending a crew absence during such a period to be a breach of warranty.
(ii) Certain crew duties were to be performed ashore, such as adjusting moorings, working on a fouled propeller or painting the hull. Accepting that a one-man crew would be sufficient while the vessel was alongside a berth, it would not be sensible to say that a crew absence while performing such duties would be a breach of warranty.
(iii) On the one-man crew premise, other contexts told against certain other situations resulting in a breach of warranty, considering factors such as the purchase of food or other supplies for the vessel. The parties could not realistically have intended such circumstances to amount to a breach of warranty.

On this basis, it could not realistically make all the difference to insurance cover if the chandlery was in one part of the marina or another. The judge was inclined to focus on the purpose of the departure, rather than the distance travelled from the vessel, as the critical factor.

The judge dismissed the Defendant’s ‘employment of sufficient crew’ approach. To confine the warranty to matters of employment, rather than the location of the crew, would be unreal – this did not begin to meet the commercial purpose of the crewing warranty. The construction (outlined above) made good practical sense, whether the vessel was laid up alongside a berth or undertaking the other limited activities contemplated by the contract of insurance. It was also difficult to see how the vessel could be "fully crewed at all times" when at sea if the crew were anywhere other than on board the vessel.

Remaining Considerations
Firstly, the judge considered that expert evidence was neither required nor relevant to the task of answering the preliminary issues, though he acknowledged that this was not the case in which to decide whether the warranty had been breached.

Secondly, as to the issue of the nature of the warranty, the judge indicated that it was not necessary to decide whether the express term was a "delimiting" or "promissory" warranty. With reference to Arnould’s Law of Marine Insurance and Average (vol II, 16th ed, para 680), the judge indicated that he would be inclined to hold that the warranty was "delimiting" (delimiting or describing the risk) not "promissory" (breach of which entitles the insurer to terminate the risk). The delimiting interpretation met with the commercial purpose of the warranty, as the insurer would be off-risk in the event that a casualty occurred at a time of non-compliance with the warranty.

Conclusions
The judge held that the true construction of the express term "Warranted vessel fully crewed at all times" obliged the insured to keep at least one crew member on board the vessel 24 hours a day, subject to (i) emergencies rendering crew departure necessary or (ii) necessary temporary departures for the purposes of performing crewing duties or other related activities. The preliminary questions would be answered accordingly.

Comment
The judgment takes good account of the clear choice of words used in the warranty and the commercial purpose of the contract of insurance juxtaposed with the contextual and practical realities of tending and managing a luxury yacht.

Although not necessary for the purposes of deciding the case, the indication that the judge would have found the warranty to be of a "delimiting" nature, rather than of a "promissory" nature, continues the judicial trend (pioneered by the Canadian Court in The Bamcell II [1986] 2 Lloyd’s Rep 528) of limiting otherwise draconian insurance warranties with a dash of commonsense, where the wording of the warranty does not clearly define its own nature or effect: cf Hussain v Brown [1996] 1 Lloyd’s Rep 627 (CA) and Kler Knitwear Ltd v Lombard General Insurance Co Ltd [2000] Lloyd’s Rep IR 47 (Comm Ct).