Making sure we know the difference – The Court of Appeal rules on representations and warranties under the Insurance Act 2015
The Court of Appeal (CoA) has handed down its decision in Lonham Group Ltd v Scotbeef Ltd and another company [2025] EWCA Civ 203, overturning the High Court’s decision in Scotbeef Ltd v D&S Storage Ltd (In Liquidation) [2024] EWHC 341 (TCC).
Background
The original claim was made by Scotbeef Ltd (“Scotbeef”), a meat producer and distributor, against D&S Storage Ltd (“D&S”), a refrigerator facilities provider. Scotbeef claimed approx. £400,000 for damage to 102 tonnes of meat while stored at D&S’s warehouses.
At the preliminary trial, D&S defended the claim on the basis that Food Storage & Distribution Federation Terms & Conditions (“the FSDF Terms”) had been incorporated into its contract with Scotbeef. The FSDF Terms provided for a limitation of liability of £250 per tonne and a 9-month time-bar on any claims. However, in favour of Scotbeef, the court ruled that the FSDF terms had not been incorporated and D&S had failed to provide reasonable notice that the terms had been incorporated. So the purported limitation of compensation did not apply.
High Court decision
D&S went into liquidation after the preliminary trial had started. Scotbeef continued its claim against D&S’s insurers – Lonham Group Ltd (“Lonham”). Lonham had provided warehousekeepers’ legal liability cover for D&S. The premium was a modest £1,975, which the CoA found was down to Lonham’s belief that D&S would routinely contract on FSDS Terms (or other common marketwide terms) with the significant limitation of liability to protect both D&S and also themselves in the event of a claim.
A second preliminary trial was held to determine if Scotbeef could benefit from D&S’s insurance, pursuant to Third Parties (Rights Against Insurers) Act 2010.
Lonham argued that it was entitled to avoid the policy because D&S had failed to comply with conditions precedent in three clauses of the policy by having contracted with Scotbeef on terms other than the declared and approved FSDF Terms. It was argued by Lonham that this had the same effect as a breach of warranty and, in practice, meant no liability to Scotbeef. The High Court ruled that the clauses constituted representations, rather than warranties, and so they fell to be considered under Part 2 of the Insurance Act 2015 (“IA2015”) and meant that Lonham was liable to Scotbeef since there had been no breach of warranty/condition precedent by D&S.
Lonham appealed, in particular on the ground that the judge had wrongly declared that all three clauses were representations when, on its view, at least the second and third were clearly warranties and therefore had to be considered under sections 9 and 10 of Part 3 of the IA 2015, which would mean no liability to Scotbeef.
Court of Appeal (CoA)
The CoA looked closely at the policy term in dispute:
“DUTY OF ASSURED CLAUSE
It is a condition precedent to the liability of Underwriters hereunder:-
(i) that the Assured makes a full declaration of all current trading conditions at inception of the policy period;
(ii) that during the currency of this policy the Assured continuously trades under the conditions declared and approved by Underwriters in writing;
(iii) that the Assured shall take all reasonable and practicable 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 same” (Emphasis added)
The CoA ruled that the High Court had erred in treating all three clauses (i)-(iii) as having the same status (i.e. that they were all representations rather than conditions precedent or warranties). The CoA’s view was that, collectively, the intention was that all D&S’s contracts would apply the standard trade terms declared by D&S to its insurer (or that D&S had at least tried to have such terms incorporated into each contract). However, when looked at correctly, clauses (i)-(ii) addressed the different permutations upon which D&S had traded and might trade in the past, currently and in the future and so each had to be considered separately.
It determined that, despite being labelled a condition precedent, clause (i) was in fact a representation since it deals with the provision of information upon which insurers make their underwriting decision and assessment of risk. As such, breach of it did not give Lonham the right to avoid liability because, instead, the remedy was governed by sections 2 and 3 (duty of fair presentation) in Part 2 of the IA2015.
As to clauses (ii) and (iii), it found that the trial judge had been wrong to treat these both as representations too. Instead, it held that these were both properly conditions precedent (treated as warranties under the IA2015) because they regulated the conduct of D&S during the policy. As a result of being considered warranties, clauses (ii) and (iii) were governed by sections 9-11 in Part 3 of the IA2015 which gave Lonham the right to avoid the policy and not have to pay Scotbeef’s claim.
The CoA went on to analyse section 10(2), which provides that the insurer has no liability for any loss occurring after a warranty has been breached but before the breach has been remedied, and found that it applied. The High Court had already found that the FSDF Terms had not been incorporated into the contract between Scotbeef and D&S, D&S was in breach of the warranties in clauses (ii) and/or (iii) and the breach had not been remedied. Therefore, Lonham could avoid liability in respect of the losses claimed by Scotbeef.
Conclusions
This case joins a (surprisingly) small group of authorities which consider the operation of the Insurance Act 2015 since it came into force in 2016 and how the law had developed from the previous position under the Marine Insurance Act 1906.
One of the original intentions of the IA2015 was to ‘level the playing field’ between insurers and insureds over warranties and conditions precedent because it was widely felt that the law derived from the MIA1906 gave insurers too much power to decline legitimate claims for breaches of unrelated warranties and conditions precedent.
However, they were not abolished completely, and this case is a reminder of that where a clause is properly a warranty or condition precedent then insurers can still legitimately avoid cover for breach of it (provided all the other relevant terms of the IA2015 are met). However, where the clause amounts to a representation instead, then different parts of the IA2015 apply and avoidance is generally not an available remedy.
It’s also a reminder that individual clauses have to be construed on their own merits – i.e. something is not necessarily a condition precedent/warranty even where the policy purports to say it is, nor does it necessarily have the same status as other sub-clauses of which it is part.
This judgment fundamentally underscores the importance of using clear language and characterising insurance terms properly to ensure that the insurer’s and insured’s rights and obligations are each properly set out.
Link to the judgment: Court of Appeal Judgment Template
Marina Soares Ingles
Solicitor at Elborne Mitchell LLP
