Types of Warranties in Insurance Policies

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Express Warranty

Express warranties relate to the present or past existence of particular facts relating to the risk upon the truth of which, the validity of the contract depends. [California Insurance Code § 440.]

A statement of fact becomes an express warranty when the insurer and the insured comply with California Insurance Code section 443. Section 443 provides:

Every express warranty made at or before the execution of a policy shall be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy, as making a part of it.

Some examples of express warranties include the following statements:

“My business is a partnership.”
“My building is reinforced brick.”
“I have never been canceled by any insurer.”
“I am 45 years old and have never smoked cigarettes.”

The California Insurance Code further explains the concept of the express warranty by saying:

A statement in a policy of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof. [California Insurance Code § 441].

The violation of an express warranty will void a policy in its entirety. [ See Aguirre v. Citizens Cas. Co. of N.Y., 441 F.2d 141 (5th Cir. 1971); Saskatchewan Gov’t Ins. Office v. Spot Pack, Inc., 242 F.2d 385, 388 (5th Cir.1957).] In the British case, A C Ward & Sons Ltd v. Catlin (Five) Ltd & Ors [2009] Commercial Court, the insurers attempted to avoid coverage on the failure of an alarm system, warranted by the insured to work. The court concluded that the warranty was not limited to the particular “protections” specified in the proposal form, nor was the Alarm Warranty confined to such alarm systems as might have been identified in the schedule.

As a matter of commercial common sense, the warranties referred to whatever protections or alarms actually existed, whether identified in the policy documentation or not. As to knowledge, the court adopted the view that a breach of warranty could occur only in the event of a defect of which the insured was, or should reasonably have been, aware, and which it had then failed to remedy promptly. However, even though the alarm warranty was not effective the insured also promised that theft coverage for cigarettes & tobacco in a warehouse was not operative outside of business hours unless the stock was kept within the special secure store on the ground floor. Since they were not on the first floor the insured was not allowed to recover.

Federal admiralty law requires strict construction of express warranties in maritime insurance contracts. [Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters, LLC, 396 F.Supp.3d 1170 (S.D. Fla. 2019)]

Admiralty law requires the strict construction of express warranties in marine insurance contracts; breach of the express warranty by the insured releases the insurance company from liability. [Lexington Ins. Co. v. Cooke’s Seafood, 835 F.2d 1364, 1367-38 (11th Cir. 1988) that affirmed a judgment in favor of the insurer based on breach of a navigational warranty).

Affirmative Warranty

An affirmative warranty asserts an existing fact or condition which appears on the face of the policy or “is attached thereto and made a part thereof.” It is limited in time to the moment of the application. The following statements are examples of an existing fact or condition:

“The property is protected by a fire sprinkler system.”
“The roof is composition tile.”
“There is a silent, central station burglar alarm system.”
“I have been treated for high blood pressure.”
“There is a watchman on duty at all times the business is closed.”
“All business records are kept, when not in use, in a fireproof iron safe.”

When an insurance policy’s full-time work eligibility requirement is an “affirmative warranty.’“ a breach of an affirmative warranty cannot be a ground for rescission of the policy unless the insurer relies on the affirmative warranty and the affirmative warranty is either material or made with the intent to deceive; or, the fact falsely warranted contributes to the loss. Plaintiff states that Wisconsin law limits an insurance company’s ability to void coverage and argued that undisputed facts do not satisfy these limits. [Stanczyk v. Prudential Ins. Co. of Am. (N.D. Iowa, 2017)]An affirmative warranty is one which asserts the existence of a fact at the time the policy is entered into, and appears on the face of said policy, or is attached thereto and made a part thereof. [Hicks v. Mennonite Mut. Ins. Co., 2011 Ohio 499 (Ohio App. 2011)]

In Reid v. Hardware Mut. Ins. Co. of Carolinas (1969), 252 S.C. 339, 166 S.E.2d 317, which held that designating a residence as “owner-occupied” is an affirmative warranty, rather than a continuing warranty, and does not preclude the named insured from recovering under the policy after the premises is sold to another party. Because the insurance contract contained a description of the dwelling insured as being “owner occupied” the provision was an affirmative warranty, not a continuing warranty that the dwelling was so occupied by him at the time the contract of insurance was made. [Hicks v. Mennonite Mut. Ins. Co., 2011 Ohio 499 (Ohio App., 2011)]

Fulfillment of insurance warranties by those insured or by the insurer are important to every insurance claim investigation. It is important that every claims person or insurance coverage lawyer understand the effect of warranties and establish that every warranty made was fulfilled at the time of inception or at the time of the loss.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com, the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4