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IAI Actuarial Core Principles · Business Management · Implied terms, exclusion of liability, contractual remedies and damages

Under a services contract, a firm of actuaries promises to complete a valuation for a pension fund and warrants that all work will be reviewed by a Fellow of the Institute. A junior's work is signed off by an unqualified colleague, but the valuation turns out to be accurate. Which statement best describes the position if the review term is a warranty?

The fund can sue for damages for any loss the breach caused but cannot terminate on that ground alone. A warranty is a lesser term, so its breach gives a damages claim only, which may be nominal where the valuation proved accurate and no loss resulted.

  1. AThe fund may claim damages for loss caused by the breach but cannot terminate the contract on that ground aloneCorrect
  2. BThe fund may terminate and recover all fees paid regardless of the quality of work
  3. CThe breach has no legal consequence because the valuation was accurate, so nominal damages are also unavailable
  4. DThe contract becomes void for mistake
  5. The breach automatically converts the term into a condition

Explanation

A warranty breach entitles the innocent party to damages for any loss caused, but not to terminate. Where no financial loss is proved, damages may be nominal, yet the right to sue exists. The breach does not make the contract void or change the term's classification.

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