Breach of Warranty Clause
Published: October 24, 2026 · Last reviewed: October 24, 2026 · Est. reading time 4 minutes
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In plain language: A breach of warranty clause keeps the lender paid when the owner breaks a policy rule and loses their own insurance coverage.
Technical definition: A breach of warranty clause (BOW) is a lienholder's or lessor's interest endorsement. The insurance policy keeps protecting that lender's financial interest even when the insured breaches a condition, and loss recoveries go only to the lender.
Breach of Warranty Clause at a Glance
The table below summarizes the BOW clause as lender protection.
| Attribute | Detail |
|---|---|
| Also known as | BOW clause, lienholder extended coverage |
| Lines of business | Aircraft insurance, auto physical damage |
| Also interacts with | Declared value, policy limits |
Key Takeaways
- The BOW clause protects the lender, not the owner, after a breach.
- Aircraft lenders and lessors commonly require the endorsement.
- Owners often assume the clause saves their own claim.
- Agencies should confirm the endorsement survives every renewal.
What Is Breach of Warranty Clause in Insurance?
A breach of warranty clause is the lender's own coverage promise inside the policy. Lenders cannot control who flies a financed plane, so the endorsement is a risk transfer tool for ownership of assets. For example, a bank financing a $400,000 jet stays protected even if the owner hires an unrated pilot. Courts may weigh insurer prejudice or cure provisions for the owner, but the lender's protection does not depend on them.
How Does Breach of Warranty Clause Work?
- The breach. An unapproved pilot flies the aircraft.
- The loss. Property damage occurs, and the insurance carrier finds the breach.
- The split outcome. Owner coverage is void, while the lender collects. Property mortgage clauses work the same way when an owner breaks a condition such as keeping alarm systems working.
- The recovery. Policy language may let the insurer pursue the owner, so payment is no automatic discharge of the loan.
Claim Examples Involving Breach of Warranty Clause
Breach of warranty on a financed aircraft
A plane crashes with an unqualified pilot. The insurer can deny coverage to the owner but pays the bank its loan balance, not the full hull value.
Lessor loss after a breach of warranty endorsement lapsed
In Aviation One of Florida v. Airborne Insurance Consultants (11th Cir. 2018), a renewal dropped the endorsement, and the carrier rejected the lessor's claim.
Breach of Warranty Clause vs. Mortgagee Clause: What Is the Difference?
The BOW clause and the mortgagee clause both offer lenders financial protection under the policy terms.
| Comparison area | BOW clause | Mortgagee clause |
|---|---|---|
| Primary use case | Aviation insurance, vehicles | Buildings |
What Are the Most Common Mistakes With Breach of Warranty?
- Skipping renewal reviews. Missing endorsements spark insurance disputes.
- Overpromising. Insurance providers still void coverage for insured parties who breach.
- Mixing up warranty clauses. Product warranties carry different legal consequences.
- Confusing it with M&A cover. Representations and warranties insurance, sometimes called breach of warranty insurance, covers breach of warranty claims in mergers and acquisitions, often in place of seller indemnification, not lender interests.
Sources and References
- International Risk Management Institute (IRMI). Breach of warranty clause (BOW).
- Marsh (MarshWings). 7 key insurance contract provisions every private pilot should know.
- Benesch. Aircraft Lessor Lesson Learned: Is Your Aircraft Properly Insured?.