The Supreme Court has in a recent decision touched on the application of the doctrine of warranties in insurance contracts. The doctrine of warranties is an important subject in insurance contract law. It has, however, undergone significant modification in other jurisdictions in recent times. The decision by the Supreme Court in this case ultimately turned on the proper construction to be put on a term in an insurance contract. The relevant term that formed the basis of the dispute between the insurance company and its client was the so-called “Watchmen’s Clause”. The insurance company (the Respondent) repudiated liability for a claim on a “Combined All Risk Policy” issued to the Appellant (the insured). By a 3-2 majority decision, the Supreme Court held that the Appellant was not in breach of the “Watchmen’s Clause” and that the Respondent was liable for the claim. The majority decision of the Court was delivered by Prof. H.J.A.N. Mensa-Bonsu (Mrs.), JSC with a concurring opinion by Amadu Tanko, JSC and supported by Mariama Owusu (Ms.), JSC while Gabriel Pwamang, JSC and Anin Yeboah, CJ dissented with the dissenting opinion being delivered by Pwamang, JSC. This article provides a comment on this decision which was delivered by the apex court on 25 May 2022 and makes a case for a reform of the doctrine of warranties under Ghanaian insurance law. The case is analyzed in the context of the applicable principles in insurance law that informed the decision of the Court.

The Facts of the Case

The judgment will be better understood with a full appreciation of the relevant facts of the case. The facts are that the Plaintiff, Expom Ghana Limited, a limited liability company, took over the operations of another company known as Trusty Foods Ltd in 2008. At the time of the take-over, Trusty Foods Ltd had an insurance policy with the Defendant which covered all real and personal property of every kind and description of Trusty Foods Ltd. This policy was continued by the Plaintiff and renewed by the Plaintiff in the name of Expom Ghana Ltd from 2009 to 2010. The policy, a “Combined All Risk Policy” contained a clause known as a “Watchmen’s Clause” under which it was stated that the “policy is issued on the condition that a Night Watchman is continuously on the within mentioned premises at all timesbetween the hours of 6:00pm and 6:00am when the premises are closed against customers and/or callers”.

While the policy was in force, a fire broke out at the insured premises on 10 May 2010 at about 1:30am destroying the Plaintiff’s raw materials and goods. The Plaintiff had, however, earlier on the day before the fire incident, i.e. 9 May 2010, dismissed the regular security personnel numbering 11 who kept watch over the Plaintiff’s premises and replaced them with two other persons, a driver and a carpenter, owing to a theft incident which had occurred on that day. The Plaintiff promptly reported the fire incident to the Ghana National Fire Service, Tema Fire Station, which responded and put out the fire. The 11 security personnel who were earlier dismissed by the Plaintiff were brought back later that day the incident occurred. The GNFS conducted investigations into the fire incident and issued a report dated 27 May 2010 stating the cause of the fire as resulting from an electrical fault. The Plaintiff made a claim against the Defendant on their Combined All Risk Policy after they received the fire report from the GNFS. The Defendant suspected foul play and accused some staff of the Plaintiff of arson. The Defendant consequently rejected the fire report from the GNFS which was issued by the Tema Fire Service and more than a year after the fire incident had occurred, the Defendant petitioned the Headquarters of the GNFS to re-investigate the fire incident. The GNFS submitted a new report which was titled “Supplementary Investigations”, and which stated electrical fault or the introduction of naked light as the two possible causes of the fire. Based on the new report from the GNFS, the Defendant repudiated the Plaintiff’s claim.

Obviously being dissatisfied by the Defendant’s decision to repudiate liability, the Plaintiff sued the Defendant and the broker who arranged the policy for the Plaintiff. The claim against the broker was dismissed as it was determined that there was no cause of action against them. The Defendant’s claim was for the sum of EUR 4,942,311.53 being the value of the raw materials and the goods that were destroyed by the fire and an interest on this amount together with the expenses incurred for clearing the debris which was stated as EUR 400,000.

The High Court found the Defendant liable. The Court found that the Defendant failed to prove that the fire was caused by arson and that there was “overwhelming evidence that the cause of the fire was electrical”. The Defendant was ordered by the trial court to pay the Plaintiff the sum of EUR 4,942,311.53 which was the claim for the value of the raw materials and other goods that were destroyed by the fire. The Defendant was further ordered to pay to the Plaintiff an amount of EUR 400,000.00 being the cost of clearing the debris and additionally, the Defendant was slapped with a hefty cost of EUR 500,000.

The Defendant immediately appealed the decision. Fortunately for the Defendant, the appeal was successful. The Court of Appeal overturned the decision of the trial High Court. The Defendant had argued at the Court of Appeal that the trial court failed to consider that the Defendant was in breach of the “Watchmen’s Clause” which was stated as a warranty in the insurance policy. The most interesting part of the Court of Appeal’s decision was that the appellate court relied heavily not on the “Watchmen’s Clause” but on another clause titled “Security Warranty” which stated that “It is warranted during the currency of this policy that security personnel will be on duty continuously at all times between the hours of 6:00pm and 6:00am when the premises are closed to the public”. It is interesting because this “Security Warranty” clause never came up during the trial and so was not pleaded but still strangely found its way into the record of appeal. It nonetheless proved significant as the Court of Appeal eventually made its decision based not on the “Watchmen’s Clause” but on the “Security Warranty” clause that was later discovered in the record of appeal by the appellate court. In pronouncing its judgment, the Court of Appeal discussed the law of warranties in insurance and based on the authority of the leading case of Bank of Nova Scotia v Hellenic Mutual War Risk Association (The Good Luck) (1991) 1 A.C. 233 found that the Defendant was in breach of this “Security Warranty” clause and being in the nature of a warranty, the appellant was found to be in breach of a warranty in the insurance contract which entitled the respondent insurer to repudiate liability. The entire claim against the insurer was accordingly dismissed by the Court of Appeal.

The Plaintiff’s case having been turned on its head by the Court of Appeal, they appealed to the Supreme Court on three grounds:

1. The Court of Appeal erred in its interpretation of the warranty in the Watchmen’s Clause in the insurance contract to mean a detachment of security personnel instead of the ordinary meaning of “security personnel”.
2. The Honourable Court’s conclusion that there was a breach of warranty of the Watchmen’s Clause on the sole grounds that the persons who watched the property on the night of the fire had other professions e.g. driver and carpenter is unjustifiable.
3. The judgment is against the weight of the evidence.

The Plaintiff’s case was upheld by the Supreme Court in a narrow 3-2 split decision which highlights the highly contentious nature of the case. The Supreme Court restored the judgment of the trial High Court except the order for costs of EUR 500,000 which the court found to be without merit. The Plaintiff was therefore awarded the full amount of the claim which was EUR 4,942,311.53 and an interest on this amount to be calculated using the prevailing commercial rate from 11 May 2010 till date of final payment. The Defendant was further held liable for the cost of the clearing of debris which was EUR 400,000. The evidence (or the lack of it) presented by the Defendant as proof of its allegation that the fire was caused by arson and not through electrical fault was heavily analyzed by the Supreme Court. The majority found that the defence put up by the Defendant was based on suspicions rather than credible evidence which was not enough to discharge the Defendant of the burden they had of proving their allegations against the Plaintiff. On this point, Mensa-Bonsu, JSC poetically stated that the Defendant “used suspicion plus supposition plus speculation to arrive at the answer it started out with to mount his defence”. The matter of the evidence led at the trial is in the realm of the law of evidence and is thus beyond the focus of this analysis.

What is of interest in this analysis are the first two grounds of the Plaintiff’s appeal to the Supreme Court which relates to the interpretation of a warranty in an insurance contract and the consequences of a breach of a warranty when so construed.

Legal Analysis of the Supreme Court’s Decision

Insurance contracts are unique. Unlike other contracts, they are governed not just by the terms stipulated in the contract but also by certain well-established and accepted legal principles that provide the support system for the effective operation of the insurance mechanism as a method for the management of risks of individuals and corporations. Some of the rules in insurance law differ dramatically from similar rules in ‘ordinary’ contracts. One such rule is the distinction between the effect of conditions and warranties in insurance contracts. Another point of distinction is the manner of interpretation of insurance contracts. All these came together in this very case which therefore makes the case very relevant to the insurance industry in Ghana.

An insurance contract is fundamentally a product that is packaged and sold by the insurance company to its customers. Just as consumers of products do not get to determine what ingredients are used in manufacturing a product, so it is with insurance. The insurance company designs the policy, stipulates the terms of coverage and determines the circumstances under which it would accept liability for any claim that comes up during the insurance policy. The insured has no role to play in this. There is no room for negotiation of the terms except in rare cases involving special risks or policies with large values, especially when handled by a broker. But the majority of cases are typified in this scenario: the insurance company tells the consumer, ‘This is my policy, and these are my terms, take it or leave it.’ Thus, because of this special character of insurance contracts, the courts are mindful of the imbalanced weight of the bargaining powers of the parties to the insurance contract which is heavily in favour of the insurance company. The courts are therefore minded to protectconsumers when an issue of coverage arises in court in cases where the terms of the insurance contract are unclear or even where they are clear, their application would be deemed unfair to the consumer. This is the background upon which the analysis of the instant case would be situated. With this in mind, we will proceed to examine the key legal issues bordering on insurance law from the judgment of the respected judges of the apex court.

The first to be considered is the issue of warranties in insurance contracts. In relying on the discredited “Security Warranty” clause that mysteriously found its way to the record of appeal, the Court of Appeal applied The Good Luckcase and having held that the Security Warranty” clause was indeed a warranty, found the insurer to be in breach of the warranty and on that basis upheld the Defendant’s appeal. The Good Luck is a case which was decided under a marine insurance contract. The court in that case applied section 33(3) of the Marine Insurance Act 1906 which defined a warranty as “…a condition which must be exactly complied with, whether it is material to the risk or not. If it be not so complied with then … the insurer is discharged from liability as from the date of the breach of warranty”.  On this, the Court of Appeal stated that “Strictly speaking, The Good Luck is a marine insurance authority, the principle of automatic cessation has been held to apply to non-marine policy. It is now clear that The Good Luck applies to non-marine insurance contracts as much as it does to marine insurance contracts.” The principle established in The Good Luck based on the application of section 33(3) of the Marine Insurance Act 1906 was that a breach of a warranty in an insurance contract has the effect of automatically discharging the insurer from liability from the moment of the breach. The Supreme Court did not go as far as determining whether the Night Watchmen clause constituted a warranty. The apex court however faulted the Court of Appeal for relying on The Good Luck principle as though it was a binding authority. The apex court was in effect saying that even if the “Security Personnel Warranty” was to be admitted, it was wrong for the Court of Appeal to have treated that clause as having the same effect as the principle in The Good Luck and making it appear as though the principle was binding on the court when in fact it is only of persuasive effect. The Court seemed rather concerned that such an application of the principle in a developing economy such as Ghana’s was unsuitable for the growth of the insurance industry and ended on this point by stating that the adoption of the principle established in The Good Luck is “insufficiently grounded in everyday realities of life in Ghana”. It is obvious that the Court disapproved the drastic application of the principle, but it fell short of clearly stating the position of the law on the effect of warranties in insurance contracts issued by insurance companies in Ghana. By saying that the principle is problematic if extended from marine insurance to cover non-marine insurance policies, is the Supreme Court saying here that there is no problem when the principle is applied to marine insurance contracts, but harsh and therefore inappropriate when applied to non-marine insurance contracts? If the former is the case, which is that the principle is applicable to marine insurance contracts in Ghana, then it is noteworthy that the Marine Insurance Act 1906 based on which the principle in The Good Luck was established is a foreign statute which is not applicable in Ghana. The House of Lords applied the literal meaning of section 33(3) of the Marine Insurance Act 1906. Strictly speaking, thus, the principle in The Good Luck may not be so applicable in Ghana even to marine insurance contracts, if the argument is stretched that far. This is a great source of confusion indeed. What can we then say is the true position of the law regarding the effect of warranties in insurance contracts under Ghanaian insurance law?

To begin, warranties are just one of the different kinds of terms that may be found in an insurance policy. A term in an insurance contract may be a condition, a condition precedent, a warranty or a term merely descriptive of the risk otherwise known as suspensive conditions. We are concerned here with a warranty as a term of an insurance contract, but it is perhaps safe to state here that a warranty itself is a condition precedent, but a condition precedent in an insurance policy per se does not constitute a warranty. A warranty signifies that the insurer would only accept liability for a loss when the obligation contained in the relevant term has been fulfilled by the insured. It has the same effect as a condition in general contracts – a fundamental or major term in a contract which goes to the root of the contract; it constitutes the essence of a contract, a breach of which is regarded as a fundamental breach and entitles the injured party to discharge herself from the contract. A warranty is therefore a major term in an insurance contract whereas in general contracts, the same term is confined to mean a term of minor importance which does not entitle an injured party to repudiate the contract but only entitles her to an action for damages for breach of contract. The fundamental distinction between warranties and conditions in insurance contracts as opposed to general contracts has been modified by the decision in The Good Luck. The modification is now to the effect that a breach of a warranty in an insurance contract does not entitle the insurer to discharge itself of the insurance contract but has the effect of automatically discharging the insured from liability effective from the date of the breach. The contract still stands despite the breach, but the insurance company would not accept liability for any loss that arises after the breach of warranty. The Supreme Court, per Mensa-Bonsu (Mrs.), JSC appears to have watered down the effect of warranties in insurance contracts in Ghana a bit further by disapproving of its drastic effect but without more in the Expom case.

Warranties commonly appear in property insurance contracts of various kinds but may also be found in life insurance contracts. Warranties therefore are not restricted to marine insurance contracts even though the law developed from the Marine Insurance Act 1906 of England. It was provided in section 33(3) of the Act that warranties should be exactlycomplied with irrespective of whether it is material to the risk or not. When a warranty was breached, it could not be remedied (section 34(2)) but would automatically discharge an insurer from liability from the date of the breach. The problematic aspect of the law jumps at the reader straightaway. Why should a warranty operate to discharge an insurer from liability even though the warranty is not material to the risk in question? Again, why should it still matter if a warranty is remedied even before a loss occurs but after the breach? The unfair and unjust manner of the application of warranties has long been noticed in England and attempts to modify the law on warranties started as far back as 1980. It is unjust and unfair for a policyholder to be denied recovery on his insurance policy when the loss that has occurred has no bearing on a warranty that may have been breached. In view of this stark reality about the unfairness of the law on warranties as provided under the Marine Insurance Act, the law on warranties in England has since been significantly reformed by the Insurance Act 2015. The rule on automatic discharge has been abolished by section 10(1) of the Insurance Act 2015 which goes further to provide under section 10(2) that insurers would be liable only in respect of any loss occurring, or attributable to something happening, after a warranty has been breached but before the breach has been remedied. This means that once a breach of a warranty has been remedied, any loss that occurs after the breach ought to be admitted by the insurer. The insurer cannot rely on a breach that has occurred prior to the occurrence of the loss to deny liability but which has been remedied. Even still, an insurer would not be discharged from liability in situations where (a) because of a change in circumstances, the warranty ceases to be applicable to the circumstances of the contract; (b) compliance of the warranty is rendered unlawful by any subsequent law; or (c) if the insurer waives the breach. This substantial modification of the law of warranties in an insurance contract has rendered the principle of automatic discharge or cessation in The Good Luck no longer good law. The Supreme Court’s posturing on the application of warranties in insurance contracts in Ghana is therefore hardly surprising. Its repudiation of the Court of Appeal’s reasons for the judgment which was based on The Good Luck is therefore appropriate even though it was not situated in the context of the law no longer being applicable in England.

There is therefore a more urgent case to be made for reforms to the law in this area in Ghana. However, considering how slow we are to legislative reform, it appears that the best possible route for a reform of insured-unfriendly insurance laws such as warranties is through judicial intervention. But how should the courts go about this? How does the court ensure fairness when an insurance contract clearly stipulates a term in the contract as constituting a warranty? Can such terms be ignored by the court and if they do, would that not amount to re-writing the terms of the insurance policy? Would the court not be substituting its intention for that of the parties? Answers to these questions will depend on the approach the court may adopt in the interpretation of the terms of the insurance contract in question.

In interpretating a warranty clause, the court would first have to determine whether the clause in question constitutes a warranty or not. A warranty in the law of insurance has been defined in Reid v Hardware Mutual Insurance Co 252 339 (1969) as “a statement, description, or undertaking on the part of the insured, appearing in the policy of insurance or in another instrument properly incorporated in the policy, relating contractually to the risk insured against.” This definition is, however, insufficient in properly describing the implications of a clause as a warranty in an insurance contract. It is the nature and extent of the effect of the statement, description, or undertaking by the insured that makes it a warranty or not and not necessarily how the term is phrased. It has thus been held in Roberts v Anglo-Saxon Insurance Association Ltd (1926) 26 Ll L Rep 154 per MacKinnon J that “because a phrase begins with the word “warranted” in a policy it does not by any means mean that that is a condition.” The use of the word ‘condition’ here should be understood in the ordinary sense of the word in the law of contract. It therefore means that warranties do not necessarily carry a tag that easily identifies a term as warranty and as seen in MacKinnon J’s dictum in Roberts v Anglo-Saxon Insurance Association Ltd, a warranty is not created by simply labelling a term as a warranty. In other words, the fact that a term in an insurance policy carries the heading “warranty” or contains the word “warranted” does not conclusively clothe that term as a fundamental term in the insurance contract which when breached entitles an insurer to repudiate liability. Warranties have the same effect as a condition precedent to liability. Once a term is deemed to be fundamental to the insurance contract, it would rightly constitute a warranty regardless of how the term has been phrased or titled. Thus, in Wood v The Hartford Fire Insurance Co 13 Conn 533, 35 Am Dec (1840), the learned Sherman J stated that “if a house is insured against fire, and is described in the policy as being “copper roofed”, it is as express a warranty, as if the language had been, “warranted to be copper roofed”; and its truth is as essential to the obligation of the policy, in one case as in the other.”  If the court, however, determines that a particular phrase or term constitutes a warranty, that phrase or term must be given its full effect regardless of the consequences it holds for the insured. This finds support in the dictum of Morland J in Kler Knitwear Ltd v Lombard General Insurance Co Ltd [2000] Lloyds where the learned Judge stated thus: “If, on a proper construction of a clause, the intention of the parties was that the clause should be a warranty, the Court must uphold that intention by giving effect to the warranty however harsh and unfair the consequences to the insured may be”.

Warranties do not only exist by way of a specific clause denoting it as a warranty. The Law Commission Report No 104 (1980) titled “Non-Disclosure and Breach of Warranty” stated six-different ways by which warranties may be created, and they are:

1. using the word “warranty”, for example, “the insured warrants…”;
2. by an express provision for strict compliance and the right to repudiate for breach;
3. using a phrase such as “condition precedent” from which the court can infer that the parties intended strict compliance and the right to repudiate for breach;
4. using any other words such that the court concludes that, on the true construction of the whole document containing the term, the parties intended the term to possess the attributes of a warranty;
5. using a “basis of the contract” clause.

Examples (b) and (d) may be explained with an illustration from motor insurance. A comprehensive motor insurance policy would typically list a number of circumstances under which the insurer would not pay for any loss or damage to the insured vehicle. None of these clauses contains the terms or phrases such as “warranty”, “it is warranted that…”, “condition precedent” that immediately suggests that a warranty is present but the effect of a breach of any of those terms may constitute a valid ground for the repudiation of a claim which turns each of those terms into warranties.

In the context of the Expom case, the full text of the Watchmen’s Clause is reproduced below for analysis to determine whether it could have been truly construed as a warranty or not.

“WATCHMEN’S CLAUSE

It is hereby declared and agreed that this policy is issued on the condition that a Night watchman is continuously on the within mentioned premises at all times between the hours of 6:00pm and 6:00am when the premises are closed against consumers and/or callers.”

It would be realized that the wording of the clause does not contain any of the descriptive words denoting a warranty such as ‘warranty”, “warranted”, “condition precedent”, etc. There is also no provision specifically requiring strict compliance and the consequences that would attend any breach of the term. What is clear, however, is that the term was a condition in the contract. Standing alone, it has the effect of a warranty as understood in the general law of contract i.e. a minor term, and not a warranty as understood in insurance law, which is that it is a major term in the contract. Indeed, Pwamang JSC in his dissenting opinion interpreted the clause according to the general common law classification of the terms of a contract into conditions and warranties and not in accordance with the classification of the terms in insurance law. He stated thus:

“Clearly, from the words used in the clause, the term is a condition. So, if we interpret it using the common law classification of conditions as against warranties, then the breach of it entitles the innocent party to repudiate liability. This would be the classification of the term notwithstanding that it comes under the sub-title of “Warranties” …The words of this particular clause on watchmen are plain as to its classification and cannot be affected by the fact that it comes under the general name, warranties”. The respected Justice was clearly under a misapprehension that conditions and warranties mean the same thing in insurance as they do in general contracts. Since what was before the Court was a contract of insurance, it is the specific rules of insurance law that ought to apply and not the general rules in the law of contract. The fact that the clause includes the words “on the condition that…” does not automatically transform it into a condition that entitles the insurer to repudiate liability when such a clause is deemed to be breached. The clause must state the consequences of a breach of a condition before it can be properly classified as either a warranty or a mere condition. In the circumstances of this case, however, it is difficult to suggest that the clause in its isolated form is a condition precedent to liability which then strips it of the colour of a warranty. However, to properly understand and give effect to a term in an insurance contract, which is a contract for all intents and purposes, that term cannot be read in isolation but must be read together with the rest of the document to determine the true intent of the parties. The ascertainment of the intention of parties to a contract is a key consideration in the interpretation of a contract, and this intention must be ascertained from the four corners of the written contract as held in Biney v Biney [1974] 1 GLR 318, CA. To achieve this, it is important to construe the contract as a whole (Boateng v Volta Aluminium Co. Ltd [1984-86] GLRD 85), in seeking the purpose of the contract. As was discovered by Pwamang, JSC in his dissenting opinion, the insurance contract contained another clause in the policy which had the effect of converting every obligation so far as was to be performed by the insured into a condition precedent to liability. This omnibus condition in the policy provided as follows:

“Provided always that the due observance and fulfilment of the terms, conditions, provisions, exclusions and endorsements of this policy in so far as they relate to anything to be done or complied with by the insured shall be condition precedent to the right of the insured to recover hereunder.”

By this provision, the insurer expects strict compliance with any obligation that is imposed on the insured before the insurer would be liable for any claim, and that certainly included the “Watchmen’s Clause”. A further implication of this is that every term in the insurance policy so long as it imposed an obligation on the insured was to be regarded as a major term in the contract the breach of which entitled the insurer to repudiate liability. Thus, in construing the “Watchmen’s Clause” in the context of this broad provision which converts all of the insured’s obligations into condition precedents, the “Watchmen’s Clause” being of a promissory nature could rightly be construed as a warranty.

Having determined that the “Watchmen’s Clause” is a warranty in the context of the policy document, the next pertinent question was: giving regard to the facts of the case, could the Plaintiff have been in breach of this warranty? If indeed there was a breach, should it have had the effect of automatically discharging the insurer from liability? The learned Justices adequately explored these in their judgment and came to different conclusions. The view of the majority as expressed by Mensa-Bonsu (Mrs.), JSC seems to have been that since the clause only required “a night watchman” without providing what specific qualifications this night watchman was to possess, it was wrong for the Court of Appeal to conclude that the presence of the driver and the carpenter who kept watch at the premises on the night of the fire did not satisfy the “Watchmen’s Clause”. The learned and respected Justice even went further to query why the insurer had been at length to define and exclude coverage for “damage by nuclear radiation” but could not specify who would qualify as a “a night watchman” under the clause. This view was concurred by Amadu JSC in his concurring opinion when he stated that “[t]he question which arises is whether the insurance contract made provision for any particular quality or expertise of watchmen”. He went further to state that “[a]n insurance contract being one of strict responsibility, the respondent needed to point to the specific provision in the relevant watchmen’s clause embodied in the insurance contract between the parties which defined the qualification or expertise of a watchman and whether or not the contract provided for the appellant to report to the respondent any change in personnel”. Thus, the learned Justice therefore held the view that there being no such qualification for a night watchman stipulated in the policy, “a watchman is simply a watchman”. In coming to this view, he further stated that “if the parties contemplated a particular expertise in the person or persons in terms of qualification or a person of a particular relevant training or orientation, the necessary provision ought to have made express and unambiguous in the insurance contract”. Thus, by having two persons on the premises to keep watch on the fateful night of the fire incident, the insured had discharged their obligations under the “Watchmen’s Clause” and so were not in breach of the clause. Thus, even if the clause was construed as a warranty, in the opinion of the venerable Justices, there was no breach and thus the insurer was liable for the claim.

Pwamang JSC however reached a dramatically different conclusion from his colleague Justices who were in the majority. He chose not to give the clause a literal interpretation as was done by the majority but rather adopted a contextual and purposive analysis of the “Watchmen’s Clause” to mean that even though the clause stated that there should be “a night watchman” on the premises continuously between 6:00pm and 6:00am, there was a presumed course of dealing between the parties which required that at every material time within the stipulated hours of 6:00pm and 6:00am there should be eleven security personnel on the premises. He argued that “though the specific words used in the clause in contention are “a Night watchman is continuously on the within mentioned premises at all times between the hours of 6:00pm and 6:00am…”, it does not necessarily mean that the parties intended that only one person was to be maintained from 6:00pm to 6:00am to guard all facilities on the whole factory premises and the large quantity of materials as the evidence shows.” His Lordship formed the view that based on this established course of dealing as he had found, it meant that the term “required the Plaintiff to have on the factory premises eleven professional security guards from expert security personnel”. This interpretation begs the question whether the Plaintiff would have been in breach of this term if there were less or more than eleven security personnel on the premises at any material time. If there were eight or ten security personnel on the premises, would this have materially affected the risk? How about if there were 12 or 13 security personnel available? It may certainly be argued that if there were more than 11 security personnel on the premises, this would cause no problems since it would only enhance the Plaintiff’s security arrangements on the premises, but such strict construction may lead to an absurd result and unnecessary controversy if it is not strictly complied with. Therefore, with respect, His Lordship’s reasoning and conclusion on this point are quite extravagant and would easily fail to give effect to the reasonable expectations of the parties to the insurance contract. His interpretation also contradict the well-established principle in the interpretation of insurance contracts which requires that (1) being primarily a contract, the words in the contract must be given their ordinary, literal  meaning except where the words have a technical meaning in which case the technical meaning would prevail over the ordinary meaning; and (2) in the event of an ambiguity, the insurance policy has to be construed contra proferentem, that is, against the party who drafted the contract in favour of the other party. Thus, in Jason v Batten (1930) Ltd [1969] 1 Lloyd’s Rep 281, Fisher J succinctly laid out the rules for the interpretation of insurance contracts as follows:

“A policy of insurance is subject to the same rules of construction as any other written contract. The words used in it must be given their plain, ordinary meaning in the context of the policy looked at as a whole, subject to any special definitions contained in the policy. In case of ambiguity the contra proferentem rule will apply but apart from this there is no rule of law which requires me to strain the language of the policy in favour of or against the insured person. It is a bargain by which, in consideration of a relatively small premium, the insurance company agrees to make substantial payments in certain events, and it would be no less of an injustice to compel payment in events not falling within the ordinary meaning of the words used in the policy than to deny payment in events falling within such meaning”.

This statement by Fisher J encapsulates the cardinal rules for the construction of insurance contracts. His words are quite clear and unambiguous and thus require no further elucidation. It is, perhaps, even more instructive that His Lordships and Her Ladyship found no need to refer to these rules because the words used in the “Watchmen’s Clause” are so plain that it admits of no reasonable controversy. And this is what, in my humble view, should have exercised and agitated the esteemed mind of the respected Pwamang JSC when interpreting the “Watchmen’s Clause”.

Regarding the second question of what the effect of a breach of a warranty should be, it is suggested and as advocated by Mensa-Bonsu (Mrs.), JSC that the doctrine of automatic cessation under the doctrine of warranties should be discarded and that the effect of a breach of a warranty in an insurance contract should be confined to situations where the breach is material to the risk and any loss that occurs must be attributable to the breach. This is exactly what happened in the Canadian case of Century Insurance Company of Canada v Case Existological Laboratories Ltd. (“The Bamcell II”) [1984] 1 WWR 97. In that case, the owners of The Bamcell II, a converted barge, obtained an insurance policy which contained the following term:

“Warranted that a watchman is stationed on board the BAMCELL II each night from 2200 hours to 0600 hours with instructions for shutting down all equipment in an emergency.”

There was in fact never any watchmen on board the converted barge because there were no problems during the night. The barge was, however, lost during one midafternoon and there was therefore no connection between the loss and the breach. Richie J held that “[t]he clause would only have been effective if the loss had occurred between 2200 hours and 0600 hours, and it was proved that there was no watchman stationed aboard during those hours. To this extent the condition contained in the clause constituted a limitation of the risk insured against, but it was not a warranty.” The court’s decision in the Bamcell II follows the direction the English courts seemed to have taken even before the amendment on the law of warranties in the Insurance Act 2015. This is evident in the words of Lord Hobhouse in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd and others (The Star Sea) [2001]1 All ER 743 when he stated that “It is a striking feature of this branch of the law that other legal systems are increasingly discarding the more extreme features of English law which allow an insurer to avoid liability on grounds which do not relate to the occurrence of the loss”. It is therefore quite clear that there is little willingness on the part of the common law courts to permit a breach of a warranty in an insurance contract to have the effect of automatically relieving an insurance company from liability even where the loss that may have occurred has no bearing on the breach of a warranty. Such an approach nullifies the unfairness which a strict application of warranties in insurance contracts can occasion in certain circumstances.

Concluding Comments

This case illustrates the extreme importance of diligent underwriting by insurance companies. Nothing can be taken for granted when drafting an insurance policy including any endorsements that are subsequently made to the policy. Insurers must be able to stipulate in clear and unambiguous terms what they wish to cover and what they do not want to cover. Insurers must leave no room for sloppiness in the underwriting process. We have seen in this case how a simple but usual clause in fire insurance contracts and other property insurance contracts of a similar nature has become very relevant and rather immensely costly for the insurer. The case further highlights the significance of warranties in insurance contracts. The Supreme Court per the majority appear to have signaled their disapproval of the draconian effects of warranties in insurance contracts. Due recognition must be given to the fact that the law on warranties has been significantly reformed in England by the introduction of the Insurance Act 2015 to reduce the harsh effects of the application of the doctrine. Warranties continue to remain an important part of insurance law, but its interpretation and application must be reasonable, and must effectuate the reasonable expectations of the parties to the insurance contract rather than defeat it. And as rightly observed by Her Ladyship Mensa-Bonsu (Mrs.), JSC the adoption of the draconian effects of warranties harms the development of the insurance industry if insurers are made to repudiate a claim based on a breach of a warranty which may not be related to the risk in question or a loss that may have occurred especially recognizing that the industry still suffers a great deal of skepticism and suspicion. There is a clear need for reform in this area of Ghanaian insurance law which continues to be heavily reliant on foreign case law and other authorities that have undergone reforms in other countries. Any reforms in this direction must have the objective of providing greater protection to policyholders which would hopefully improve the negative perception the Ghanaian public has about insurance, rightly or wrongly. The biggest beneficiaries of improved public confidence in insurance companies would be the insurance companies themselves. Insurance companies therefore have a critical role to play in enhancing public confidence in the insurance industry by making every effort to promptly honour the legitimate claims of their policyholders.

Felix Kofi Boakye Afrifa

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