Subject to survey: was the risk ever bound?

The label 'subject to' is not decisive. English law looks at the commercial purpose and the precise words. A 'subject to' provision can operate in three different ways:

• as a condition precedent to the formation of the contract;
• as a condition precedent to attachment or liability, so the contract exists but the insurer is not on risk until the condition is met; or
• as a condition subsequent, allowing the insurer to cancel if the condition is not met.

Applying that here: 'subject to satisfactory sprinkler survey' in a property slip normally means the insurer is not on risk until a satisfactory survey has been received and accepted. The natural reading is that the survey is a condition precedent to attachment, not a formality. The fire occurred on 4 April; the survey was not received until 6 April. On that reading the 15% insurer never attached and is not liable.

Counter-arguments for the broker: the survey was commissioned before binding, which may suggest the parties expected cover to attach subject to later confirmation; the slip may contain a 'held covered' or 'cover note' provision; or the insurer may have waived the condition by not chasing the survey before inception. Waiver requires knowledge and a clear indication, and is difficult to establish if the insurer simply waited.

'Subject to reinsurance' is a separate open condition and reinforces the conclusion that the contract was not complete on 28 March.

Conclusion: the 15% insurer has the stronger argument on the wording, but the broker's case is not hopeless if the full slip shows a contrary intention.

Contract certainty means that the contract is complete and unambiguous at inception, with no open terms that could later change the bargain. The Lloyd's, IUA and LIIBA Contract Certainty Code of Practice expects the broker and insurers to agree the wording and all conditions before cover starts, and to resolve 'subject to' provisions or draft them with precision.

On these facts the contract was not certain. Two conditions remained open at inception: the sprinkler survey and the reinsurance. The broker's description of the slip as 'signed and binding' does not cure that; the question is what the slip actually says, not what the broker intended.

What the broker should have done:

• Completed the survey before binding, or bound on a clearly drafted condition precedent with a stated deadline.
• If time pressure prevented that, used an express 'held covered' or 'cover note' clause with defined terms and a cancellation right.
• Recorded each insurer's agreement to the condition in the placing file.
• Issued a formal policy promptly after binding.

Legal effect: the Code is not legislation and does not itself invalidate the contract. But it is relevant evidence of market practice and of what a reasonable insurer and broker should have done, and it may feature in a complaint or in Lloyd's oversight of the managing agent. Contract certainty is a conduct and governance issue, not a substitute for construing the slip.

Duty of fair presentation. The insured is a commercial insured, so the Insurance Act 2015 applies. The impaired sprinkler system at a distribution centre is plainly material to a property insurer: it affects the risk and the rating. If the insured knew, or ought to have known, of the impairment and did not disclose it, it breached the duty.

Remedy depends on culpability:

• If the breach was deliberate or reckless, the insurer may avoid the policy and keep the premium.
• If it was not deliberate or reckless, the remedy is proportionate: the insurer may avoid if it would not have written the risk at all, or reduce the claim if it would have written on different terms.

But the survey complicates the analysis. The survey was commissioned by the insurer and its findings would have been known to the insurer once received. If the survey had been received before binding, the insurer could not rely on non-disclosure of what its own surveyor found. Because it arrived after the fire, the insurer can rely on the insured's own knowledge.

Warranty and condition issues: the policy may contain a sprinkler warranty or a protection and maintenance condition. Under the 2015 Act, breach of a warranty suspends cover but does not automatically discharge liability, and the breach must be remedied. If the sprinkler was impaired and the insured knew, there may be a separate coverage defence independent of non-disclosure.

At renewal: the insured must disclose the impairment and the fire. The insurer should re-underwrite the risk, impose conditions and consider a risk improvement requirement.