The Court of Appeal case of Pratt v Aigaion Insurance  EWCA 1314 concerned the construction of a warranty in an insurance policy. While the judge at first instance found that the clause meant exactly what it said, the Court of Appeal held that the literal meaning could not have been intended by the parties.
The relevant clause read "Warranted Owner and/or Owner's experienced skipper on board and in charge at all times." A fishing trawler with a crew of four was insured under the policy. One evening, the owner and all the crew left the vessel alongside the quay, and a fire broke out, seriously damaging it.
The insurer argued, and the first instance judge agreed, that because neither the owner nor his skipper was on board the trawler when the fire broke out, the insurer was not liable to pay the owner's claim due to the insured's breach of warranty. However, the Court of Appeal found that it was impossible to give the warranty its "ordinary and natural (or literal) meaning," as, for example, it could not have been intended for the trawler to be crewed while it was in storage ashore.
As the warranty had to be subject to some qualification to make sense, and as the extent of the qualification was not specified, the clause was found to be ambiguous. The court looked to the purpose of the warranty, which was held to be to ensure that the vessel was properly crewed "in circumstances in which at least two members of the crew […] could be expected to be on board." Because the clause was ambiguous, it was construed contra proferentem, meaning that the clause was construed in favour of the trawler's owner as the insured.
The court concluded that the warranty should (if it were to have the effect the insurer argued for) have specified more precisely that the trawler was to be manned even when left alongside the quay. As it had not done so, the warranty had not been breached, and so the insurer was liable to indemnify the owner for his loss. Warranties are an extremely powerful weapon in the hands of (re)insurers as breach results in insurers being automatically discharged from liability from the moment of the breach. This case is an example of the court disregarding the literal meaning of a warranty in order to achieve justice between the parties.