The overdue fire-suppression certificate
Kelso Engineering Ltd runs a small fabrication workshop. Its commercial combined policy with Halberd Insurance covers property damage and business interruption. Two terms matter. First, a warranty: 'The fire suppression system at the premises must be inspected and certified by a competent contractor at intervals not exceeding 90 days.' Second, a condition precedent: 'The insured must keep proper records of stock and produce them to the insurer within 14 days of a written request.' The last certificate before the fire was issued 121 days before the loss. The contractor had attended and serviced the system within the 90 days, but the certificate was not issued until after the fire. The system operated correctly when the fire started in a paint store and spread to the stock area. The stock records were held by Kelso's accountant and were produced on day 10. Halberd has reserved its position on the £480,000 claim. Kelso argues that the system was in good order and that the insurer has lost nothing through the paperwork.
1. Advise Halberd on the effect of the fire-suppression warranty. Does it matter that the system worked, and what is the position if certification is obtained next week?
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The term is a warranty. It is a promissory term going to the risk, not a mere representation. Section 9 of the Insurance Act 2015 prevents a representation of fact from being converted into a warranty by a 'basis of the contract' clause, but an express warranty in the policy itself still operates.
Effect of breach. Section 10 abolishes the old rule that breach of warranty discharges the insurer's liability. Instead, the insurer's liability is suspended during the period of breach. The fire occurred 121 days after certification, when the 90-day requirement had not been met, so the loss occurred during suspension and Halberd is not liable for it. Halberd does not need to avoid the policy or prove causation.
Does it matter that the system worked? No. A warranty is a condition, not a causation requirement. The insured promised a state of affairs; whether the breach caused the loss is irrelevant to the suspension. The position would be different only if the term were one 'not relevant to the actual loss' under s.11, which a fire-suppression warranty plainly is not.
If certification is obtained next week. Cover resumes automatically once the breach is remedied; Halberd does not need to 'reinstate' or waive. But the fire loss remains uncovered. The insured should be told this clearly, and Halberd should check whether any later losses occurred after certification.
2. Can Halberd rely on the stock-records condition to decline the claim? Explain the test in section 11 of the Insurance Act 2015 and apply it.
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The test. Section 11 applies where a term of the contract is not relevant to the actual loss. In that case, breach of the term does not give the insurer a defence unless the insurer can show that the breach prejudiced it. The purpose is to prevent insurers from escaping liability on technical 'claims handling' or record-keeping conditions that have nothing to do with the loss.
Is the term relevant to the actual loss? The stock-records term concerns proof and quantification of a claim after a loss. It does not affect the risk of fire or the extent of the fire. It is therefore a term not relevant to the actual loss, and s.11 applies.
Was there a breach? The records were produced on day 10, within the 14-day period. There is no breach at all. Even if production had been late, Halberd would need to show prejudice. The records were held by the accountant and could be verified against purchase invoices and stock systems; Halberd has not shown that the delay prevented it from investigating the claim.
Conclusion. Halberd cannot rely on the records condition. The condition-precedent label does not override s.11. Halberd should pay the claim, subject to quantum and the separate warranty point (which, on these facts, defeats the whole claim).
3. Suppose the policy had instead contained a warranty that 'the system has been inspected and certified within the 90 days before inception' and that statement was untrue. How, if at all, would the analysis change?
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A warranty of past fact. The term would be a warranty that something has been done. Section 10(2) provides that, where a warranty is that something has been done, the breach is remedied when the thing is done. So cover would be suspended from inception until the inspection and certification actually took place.
Consequences.
- If the fire occurred before the inspection and certification, the loss falls within the period of suspension and there is no cover.
- If the fire occurred after certification, cover would have resumed and the loss would be covered (subject to the rest of the policy).
- The insurer would not be able to rely on the old rule that breach discharges liability, and would not need to avoid the policy.
Section 9 point. Section 9 prevents a 'basis of the contract' declaration from turning the proposal answer into a warranty. But a separately expressed warranty in the policy wording can still operate as a warranty. The insurer should check whether the clause is a genuine warranty or merely a restatement of the proposal answer.
Misrepresentation. An untrue statement at inception may also be a qualifying misrepresentation under ss.7–8, giving the usual proportionate remedies. Halberd could choose between the warranty analysis and the misrepresentation analysis, but should apply the remedy that reflects the actual prejudice and should not double-count.