Managing moral hazard in English Marine insurance law – The implied warranty of seaworthiness


Theories of moral hazard hold that once a policyholder has obtained insurance his incentive to take care in order to avoid a particular loss diminishes. Moreover, he may even cause losses on purpose in order to receive insurance payment. In general, moral hazard on the part of the policyholder represents a big problem for underwriters of all insurance types and Marine insurance is not an exception. This begs the question of how insurers deal with the issue of moral hazard in the Marine insurance bargain. One of the methods that insurers and law makers use to deal with the possible moral hazard problem is by conditioning payment under the Marine insurance policy with particular risk delimiting terms, such as warranties. In the context of Marine insurance, it is presumed that the most effective warranty used against the possible effects of moral hazard is the warranty of seaworthiness which is set in Section 39 of the Marine insurance Act (MIA) 1906. Therefore, in this paper the author will explain why section 39 of the MIA 1906 represents an appropriate protective technique in relation to the management of moral hazard on the part of the policyholder in Marine insurance contract law.