Download PDF

Court of Appeal Judgment on Representations and Warranties under the Insurance Act 2015

March 2025

In an important decision in relation to the Insurance Act 2015 the Court of Appeal has reversed the High Court judgment in Scotbeef Limited v (1) D&S Storage Limited (In Liquidation) and (2) Lonham Group Ltd [2024] EWHC 341 (TCC). This is the first Court of Appeal judgment dealing with aspects of the Insurance Act 2015: the proper categorisation of representations and warranties and the application of the transparency requirements.

Background 

The Claimant, a meat producer, had a contract with D&S Storage Limited (“D&S”) to freeze and store meat. In April 2020 a batch of meat stored by D&S was found to be unfit for consumption. In July 2020 the Claimant made a claim against D&S. There was a dispute as to whether the contract was subject to the Food Storage & Distribution Federation (“the FSDF”) standard terms and conditions which included a limit of liability of £250 per tonne. Following a preliminary hearing to determine if the FSDF terms were incorporated into the contract, it was decided in a 2022 judgment that the FSDF terms were not, and had never been, incorporated into the contract; although this had been the intention and belief of D&S. The FSDF terms were relevant not only because they contained a cap on liability but also because they excluded liability for claims not made within 9 months of the event giving rise to the claim.

Following the Judgment, by which time D&S was in liquidation, the Claimant made a claim to recover its losses from Lonham Group Ltd who were D&S’s Insurers (“Insurers”) pursuant to the Third Parties (Rights Against Insurers) Act 2010. The Insurers had provided insurance to D&S on an annual basis since June 2016.

Policy Terms

The Policy contained various references to the terms on which D&S contracted with its clients but of particular relevance to this claim were the following terms which were found in a section headed “General Conditions”:

“DUTY OF ASSURED CLAUSE 

It is a condition precedent to the liability of Underwriters hereunder:-

• that the Assured makes a full declaration of all current trading conditions at inception of the policy period;
• that during the currency of this policy the Assured continuously trades under the conditions declared and approved by Underwriters in writing;
• that the Assured shall take all reasonable and practical steps to ensure that their trading conditions are incorporated in all contracts entered into by the Assured. Reasonable steps are considered by Underwriters to be the following but not limited to the same:

 ….  

If a claim arises in respect of a contract into which the Assured have failed to incorporate the above mentioned conditions the Assured’s right to be indemnified under this policy in respect of such a claim shall not be prejudiced providing that the Assured has taken all reasonable and practical steps to incorporate the above conditions into contracts;

• … 

 IMPORTANT INSTRUCTIONS IN THE EVENT OF A CLAIM …

…

The effect of a breach of a condition precedent is that the Underwriters are entitled to avoid the claim in its entirety.”

1^st Instance Judgment

In a second preliminary issue judgment in February 2024 the Judge determined that sub-clauses (i) to (iii) referred to above had to be read together and that on this basis all three of them had to be either representations or warranties. The Judge decided that they were representations and that as such Insurers were only entitled to the remedies for breach of representation referred to in the Insurance Act. As she had held that the breaches were not deliberate or reckless and as she did not accept the Insurers’ evidence that they would not have entered into the contract on any terms but for the breach, she held that the Claimant was entitled to an indemnity under the Policy. She also held that the terms breached the transparency requirements set out in Section 17 of the Act.

Court of Appeal Judgment

1. Representations or Warranties

The Court of Appeal held that the Judge below had erred in reading sub-clauses (i) to (iii) together. It held that they were separate clauses dealing with different things. Sub-clause (i) was a pre-policy representation which sought to regulate pre-policy disclosure by D&S. Sub-clause (ii) was a warranty and a condition precedent in relation to the D&S operations in the future, in so far as existing customers were concerned. Sub-clause (iii) was also a warranty and a condition precedent in relation to the D&S operations in the future, as far as new customers were concerned.

D&S was in breach of one or both of the warranties in sub-clauses (ii) and (iii) and because they were warranties, rather than representations, Section 10(2) of the Insurance Act applied. Section 10(2) states that an insurer shall have no liability under a contract of insurance in respect of any loss occurring, or attributable to something happening, after a warranty (express or implied) has been breached but before the breach has been remedied. Here, the loss arose after the breach of warranty and before it had been remedied. The Insurer was therefore entitled to refuse an indemnity for the claim.

2. Transparency

The Court of Appeal also disagreed with the decision of the Judge below on the application of the transparency provisions. Section 16 of the Act restricts an insurer’s ability to contract out of the provisions of the Act. Section 16(1) is a strict prohibition on any attempt to convert a representation into a warranty by virtue of any provision in the insurance contract. However, as clauses (ii) and (iii) were held to be warranties rather than representations, this prohibition was not relevant.

Section 16(2) of the Act prevents an insurer from contracting out of any other terms that put an insured in a worse position than it would be under the Act unless the insurer has satisfied the transparency requirements in section 17 of the Act. In broad terms, these require the insurer to take sufficient steps to draw the disadvantageous term to the insured’s attention and the disadvantageous term must be clear and unambiguous as to its effect.

The Court of Appeal held that the terms of the insurance policy did not seek to contract out of the legal effect of the Insurance Act and hence the transparency requirements were of no relevance. They gave two reasons for this. Firstly, the Insurer had no liability to provide an indemnity because Section 10(2) of the Act stated that the insurer shall have no liability for any loss occurring after a warranty had been breached but before the breach had been remedied, and not because there had been any attempt to contract out of any term of the Act. Secondly, because sub-clauses (ii) and (iii) did not put D&S in any worse position than it would have been in anyway.

The Court of Appeal did not therefore need to consider whether, as a matter of fact, clauses (ii) and (iii) of the Policy (assuming that they had been disadvantageous to D&S) were (1) clear and unambiguous as to their effect and (2) the Insurer had taken steps to draw them to the attention of D&S.

Comment

The judgment is welcome news for Insurers and provides a useful reminder of the need for a proper analysis of whether terms in an insurance contract are representations or warranties because this will impact upon which provisions of the Insurance Act will be applicable. In this case it followed from the Court of Appeal decision that the relevant clauses were warranties rather than representations and that the remedies for a breach of duty of good faith and the transparency requirements (which are set out in the Act) were not applicable.

The earlier judgment of the High Court however remains a warning of the difficulties that can sometimes be faced in persuading a court that (1) an insured’s breach of duty to give to fair presentation of the risk has induced the underwriter to offer terms in circumstances where, had a fair presentation of the risk been given, no terms would have been offered, and (2) the terms of an insurance contract are clear and unambiguous as to their effect and that the insurer has taken steps to draw them to the attention of the insured.

 

Lonham Group Limited v Scotbeef Limited, D&S Storage Limited (In Liquidation) [2025] EWCA Civ 203

 

 

Download PDF