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Insurance policies and absolute and relative warranties

15 April 2021 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

In South African insurance law a warranty is usually a condition precedent to inception or continuation of cover or payment of a claim. The consequence of breach or non-fulfilment is that there is no obligation on the insurer to indemnify the insured.

Warranties may be absolute or relative.

An obligation requiring that a certain state of affairs must exist is an absolute warranty. For example, “The insured warrants compliance with all air transportation, air navigation and air worthiness enactments, regulations, rules, orders and requirements issued by any competent authority affecting the safe operation of the aircraft.”

An obligation requiring the insurer to try, using a level of effort defined in the agreement, for example taking reasonable precautions or steps to bring about a state of affairs, is a relative warranty.

In the latter case the desired state of affairs may not be achieved but the warranty is fulfilled if the required reasonable steps were taken.

In the former whether or not the warranty has been fulfilled depends on the state of affairs existing in fact at the relevant time referred to in the warranty. The extent of the insured’s efforts to bring about that state of affairs, whether reasonable or otherwise, is irrelevant.

The categorisation of a warranty as absolute or relative is determined by its extent and content. That is a matter of interpretation of the words of the warranty used in the context and applying the principles of interpretation of insurance contracts.

First published by: Financial Institutions Legal Snapshot

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