We regularly hear from our insurance clients that they have great difficulty in getting their freight operator insureds to contract appropriately with their customers to protect against liability.

It is almost always our advice that the policy must ensure that the transporter has in place appropriate standard trading conditions that are binding or has appropriate bespoke agreements with their clients.

These contracts will at the very least identify the parties, establish who is obliged to insure the goods, whether the freight operator has liability insurance in place, and the extent of the freight operator’s liability.

We also recommend that the requirement that an appropriate standard or bespoke contract must be in place is warranted by the insured, so that the breach would entitle the underwriter to reject any claim.

The question of warranties under English law was addressed in the judgment of Lonham Group Ltd v. Scotbeef Ltd [2025] EWCA Civ 203, out of the UK Court of Appeal. Whilst it deals with the UK’s Insurance Act, 2015, the approach taken by the court in recognising that certain of the contractual provisions were warranties, is instructive.

The insured, D&S, a warehousekeeper, had lodged a claim with its underwriter, which the underwriter wished to reject on the basis that warranties were breached.

The insured’s policy with the underwriter provided cover for D&S’s legal liability. The policy contained a ‘Duty of Assured Clause’, which included the following “conditions precedent to liability”:

•           Sub-clause (i): D&S would make a full declaration of all trading terms on inception of the policy. The declared terms were stated in the policy to be the FSDF Terms, which are industry approved terms.

•           Sub-clause (ii): During the currency of the policy, D&S would continuously trade under the conditions declared by D&S and approved by Lonham.

•           Sub-clause (iii): D&S was required to take all reasonable and practicable steps to ensure that their trading conditions were incorporated in all contracts entered into. This clause further stated that if a claim arose in respect of a contract into which D&S had failed to incorporate the above terms and conditions, D&S’ right to be indemnified would not be prejudiced if it had taken all reasonable and practicable steps to achieve incorporation.

The underwriter argued that D&S failed to comply with certain of these clauses (in particular, sub-clause (ii)).

The court found that there had not been compliance with the clauses, and the heart of the issue was the nature of the clauses – that is, whether they were warranties entitling the underwriter to reject D&S’s claim.

The court held that, while the insured had the power to contract on whatever terms it wished, in order for such a contract to be covered under the policy, it was required to comply with the above Sub-clauses which dealt with the basis on which the insured might trade.

Because the first sub-clause contained a pre-policy representation (i.e. the trading terms were disclosed on inception), it fell within the scope of s9 of the 2015 Act, which precludes such representations from being considered warranties.

The court, however, held that the remaining sub-clauses should not be read cohesively with sub-clause (i), as these were plainly future warranties (in South African law, promissory warranties) and conditions precedent (as they were stated to be in the policy). They were not pre-policy representations. Section 9 had no applicability to these sub-clauses, and they could therefore stand as warranties.

In terms of s10(2) of the UK Act, an insurer has no liability for any loss after a warranty has been breached but before it has been remedied.

The underwriter therefore had no liability toward the insured because the two warranties (ii) and (iii) were breached and not remedied.

Not only is this an instructive judgment on the scope of warranties under English law, (which often applies in marine insurance policies) but it is an important reminder that appropriate warranties in a policy are necessary to protect underwriters, particularly where insureds frequently contract on less-than-ideal terms.

A policy under South African law can be worded so that the required terms are material and a breach will deny coverage.