Warranty and Representation
Prof. Bill Long 1/19/05
Solving a Legal Dilemma
In the first case in our casebook, Vlastos, the focus was on the applicability and meaning of the warranty provision in a property insurance policy: "Warranted that the 3rd floor is occupied as a Janitor's residence." The court went through an extensive analysis before concluding that the aforementioned "warranty" was indeed a warranty, rather than a representation, but that it contained an ambiguity that should be construed against the drafter (contra proferentem). Because the warranty/representation distinction is not clear and seems to be quite crucial, I decided to spend some time researching the history. What I discovered is not really pretty, but I want to tell you about it. It is a story of, to use the words of Roscoe Pound criticizing CC Langdell, a triumph of "conceptions" over "legal realities." This and the next two mini-essays will lay out the issue.*
[*A 1911 law review article in 20 YLJ 523 got me started.]
A Primer on Insurance History
Insurance as we know it today arose in 18th century England, when England ruled the seven seas, and it emerged specifically in the context of shipping. Shipping/trading was an extremely lucrative, but risky, business, and shipowners wanted to devise a method whereby they could insure the continuation of their business even if they lost a ship or two. As the story goes, shipowners and insurers would meet at Lloyd's Coffee House in London (the origin of "Lloyds of London"), where the owners would hand out papers precisely describing the ship, the cargo, the route and the time of year the ship would sail. If an insurer wanted to "cover" part of the risk, such as insuring the boat or a portion of the cargo, he would write his name and the amount insured under the item. Hence, the origin of the term underwriter.
By virtue of customs that grew up in the industry, then, every contract of marine insurance consisted of four kinds of assurances: (1) sea-worthiness of vessel; (2) voyage would be commenced directly without deviation; (3) insured had communicated to underwriter all material facts relating to the risk assumed; and (4) material facts communicated were true. These were sometimes stated in the agreement itself but were normally implied and understood as a custom of the trade.
Law Enters In
As we know, life is risky. So, ships sail to the Indies laden with cargo. Most of the time things work out without a hitch. But, often there are problems with the ships. Some are blown off course. Some are boarded by pirates. Some run into storms. Some never make it for mysterious reasons. People lose things. They are disappointed, chagrined, ruined. They go to court. The judge who articulated the theory of warranty/representation that then tied up the English-speaking world for the next 150 years was Lord Mansfield, Chief Justice of King's Bench (one of the three central courts in common law England) since 1756. In the late 1770s he articulated what would become a most formalistic and rather unreasonable distinction.
The first important case (Pawson v. Watson, 1778) had to do with a ship destroyed where the assurance was that the ship mounted 12 guns and had 20 men on board. As a matter of fact, there were only 10 guns (with but 9 swivels), 16 men and 11 boys. Testimony was introduced at trial to the effect that the actual resources on board would assure greater safety of the cargo and ship than under the original contract (I don't know exactly what happened to the boat, but we can assume a catastrophic loss). In this first case Mansfield upheld coverage and wrote as follows:
"There is no distinction better known to those who are at all conversant in the law of insurance than that which exists between a warranty or condition which makes part of a written policy, and a representation of the state of the case."*
[*By the way, this distinction was news to the attorneys on both sides....]
Mansfield went on:
"Where it is a part of the written policy, it must be performed, as if there be a warranty of convoy, there it must be a convoy..." "So there cannot be a clearer distinction than that which exists between a warranty which makes part of the written policy, and a collateral representation, which, if false, in a point of materiality, makes the policy void; but if not material, it can hardly ever be fraudulent."*
[*It is not entirely clear why Mansfield upheld coverage in this instance. I think at this stage his understanding was still congealing, and since the actual situation looked as good as the situation envisioned in the policy, he considered it equivalent, and thereby held for the insured.]
I normally think that when a person emphasizes the clarity or ease of what he is saying, that he is either hiding something or trying to pull wool over people's eyes. To show that the lawyers were absolutely confused by Mansfield's distinction, they sent a question for clarification to him next Monday morning, asking whether it was the court's opinion that to make a warranty binding, the instructions had to be inserted in the policy [since Mansfield had hinted at the fact above that a representation is only 'collateral' to the policy]. Mansfield responded that they were precisely right. If it is a condition of the policy (hence written in it) it must be strictly complied with.
The Problem in Full
Thus, we seem to have isolated the problem. Rather than the distinction being something that is based on the nature of the language or the "magic words" used, it seems that the "clear" distinction is only a matter of the placement of the document where the evidence of the condition resides. If the document is "in" the policy, it is a warranty. If it is "collateral" (such as in someone's oral testimony or in another sheet of paper lying around) it is a representation.
This seems strange (does it to you?) and would be an example of a formalistic distinction that has little relationship to business practice or sound reason. Well, let's look at a few other cases to see how Mansfield "refined" his thought.
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