Kendal Wholesale: the alarm maintenance contract that lapsed
Kendal Wholesale Supplies Ltd holds stock worth about £400,000 in a leased warehouse and trades from a trade counter. Its commercial combined policy, running 1 January to 31 December 2024, insures stock, contents and business interruption, with a £1,000 excess.
The policy carries this endorsement: 'It is a condition of this policy that the intruder alarm at the premises be maintained under a maintenance contract with an NSI-approved installer and be set whenever the premises are unoccupied.' The proposal stated that an annual maintenance contract was in force.
In March 2024 the company stopped paying the maintenance contractor as a cost-cutting measure. The contract lapsed. The alarm remained set every night.
In September 2024 thieves forced the rear roller shutter. The alarm sounded but the telephone signalling to the alarm receiving centre failed, and the panel's backup battery was flat - a fault an annual service would have detected. Stock and till losses total £86,000. The directors say the alarm was set and that a lapsed service contract had nothing to do with the break-in.
1. Is the endorsement a warranty, and what is the effect of breach under the Insurance Act 2015 compared with the previous law?
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The label used does not decide the question. A warranty is a term by which the insured undertakes that something will be done or not done, or that a state of affairs exists, and which goes to the root of the contract. 'It is a condition of this policy that the alarm be maintained under an NSI contract and set when the premises are unoccupied' is a classic promissory warranty: it describes continuing conduct, not merely a state of affairs at inception.
Under the old law (Bank of Nova Scotia v Hellenic Mutual, The Good Luck) breach of a warranty automatically discharged the insurer from liability from the date of breach, even for a later loss of an entirely different kind, and the insurer was not liable for subsequent losses unless the policy provided for reinstatement. The result could be wildly disproportionate.
Section 10 of the Insurance Act 2015 replaced discharge with suspension. Breach does not end the insurer's liability; it suspends cover for the duration of the breach, and cover revives automatically once the breach is remedied, with no need for reinstatement. Losses occurring outside the period of breach are unaffected.
The practical task is therefore to fix the period precisely. The maintenance limb was breached from March 2024, when the contract lapsed, and continued until a compliant contract was restored. The 'set when unoccupied' limb appears to have been observed throughout. The September theft falls squarely inside the suspension period.
2. Can the insurer decline the £86,000 theft claim? Address s.11, causation and any constraints on the insurer.
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Under s.10 the question is not whether the breach caused the loss but whether the loss occurred while cover was suspended. It did. That is not, however, the end of the analysis.
Section 11. Where a term (other than one defining the risk as a whole) is designed to reduce the risk of loss of a particular kind, at a particular location, or at a particular time, the insurer cannot rely on its breach to refuse a claim for a loss of a different kind. This endorsement is aimed squarely at theft risk, and the loss is theft. Section 11 gives the insured nothing here.
Causation. It is not required, but it helps the insurer. The panel battery had failed and the annual service would have found it. The insured will argue the alarm was set; the answer is that the very purpose of the maintenance covenant was to ensure the system would actually work when triggered. On these facts the insurer has a strong case that the loss occurred during suspension.
Constraints. Four matter. First, the wording must be clear and unambiguous; ambiguity is construed against the insurer. Second, if the insurer or its broker encouraged the company to defer servicing, s.10 provides a defence to the insured. Third, the warranty must have been drawn to the insured's attention at inception - a term buried in an endorsement schedule may not bite. Fourth, check whether the lapsed contract was disclosed at renewal or at any mid-term adjustment; if it was, the insurer may be taken to have accepted the position.
Outcome: decline, but with a realistic reserve for the transparency and inducement arguments.
3. Would your answer differ if the September incident had been a burst pipe causing £86,000 of water damage rather than a theft?
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Yes, materially.
Section 11 would then prevent the insurer from relying on the breach. The alarm and maintenance term is designed to reduce the risk of loss by theft, not the risk of water damage. The loss would be of a different kind from the loss the term was designed to prevent, so the insurer could not use the suspension to refuse the claim.
The insurer would have to pay, subject to the excess and to any separate water-damage terms. That is true even if the breach was continuing at the date of loss - s.11 operates independently of s.10.
This is the point candidates most often miss: s.10 asks whether cover was suspended at the relevant time, while s.11 asks whether the insurer is entitled to rely on that suspension at all, given the type of loss. The two questions must be asked in that order.