1.4. In terms of the law of insurance contract, warranties refer to: A. a provision that has the effect of reducing a claim payment where under-insurance exists B. where insurance company has the legal right to claim compensation from any other party that caused the accident. C. Where the prospective insured affirms or undertakes that the statement made is true and the breach thereof may enable the insurer to rescind the contract and avoid all the liabilities. D. a principle whereby two or more insurers covering the same risk contribute proportionately to any losses and it is applicable to indemnity insurance.

In the realm of insurance contracts, warranties play a pivotal role by ensuring that the statements made by the insured are truthful and accurate. If a warranty is breached, the insurer has the right to rescind the contract, which means they can back out of their obligations. This emphasizes the importance of honesty in the underwriting process, as any falsehoods can lead to significant consequences for the insured. In real-world scenarios, misunderstanding warranties can lead to costly mistakes. For example, if a business owner claims their fire alarm system is up-to-date and it's later found to be defective, the insurer could deny a claim related to fire damage. Thus, it's crucial to carefully review all warranty statements and ensure they accurately reflect the situation, as any discrepancies can impact your coverage and claims.