In Bluebon Limited (in liquidation) v (1) Ageas (UK) Limited (formerly Fortis Insurance Limited) (2) Aviva Insurance Limited (3) Towergate Underwriting Group Limited [2017] EWHC 3301 (Comm), Mr Justice Bryan held that an electrical installation inspection warranty was a suspensive condition of the insurance policy, which covered various risks, including fire, and that any breach of such warranty would result in cover being suspended from the inception of the policy.
The insured had taken out a new building insurance policy to cover its hotel for a one-year period, from December 2009 to December 2010. The policy was, therefore, entered into prior to the coming into force of the Insurance Act 2015. The policy contained the following clause: “Electrical Installation Inspection Warranty: It is warranted that the electrical installation be inspected and tested every five years by a contractor approved by the National Inspection Council for Electrical Installation Contracting (NICEIC) and that any defects be remedied forthwith in accordance with the Regulations of the Institute of Electrical Engineers.“. The hotel was destroyed as a result of a fire during the policy term and a claim was subsequently made by the insured.
The insurers, however, declined coverage, asserting that there had been a breach of warranty due to there having been no electrical installation inspection within the five-year period preceding the inception of the policy, the last inspection being in September 2003. The insured contended, on the contrary, that it was not in breach of the warranty, as it interpreted the clause as requiring only that it carry out an inspection within five years of the policy inception, rather than five years from the date of the previous inspection.
Bryan J found in favour of the insurers. In so doing, he held that the ordinary and natural meaning of clause was that the five-year period was to be calculated from the date of the last inspection. If there had been no inspection within the preceding five year period then there was to be no cover until such time as the warranty had been satisfied – this being the only meaning that made commercial and business-like sense in the context of a one-year policy. It was held that the main purpose of the warranty was to minimise any risk of fire, which was an insured peril under the policy, and therefore, in the present case, this was “a powerful aid to construction and is itself a determinative factor”.
It was also held that the relevant term was a suspensive warranty, meaning that all cover was suspended from the date of the breach (in these circumstances that meant from the date of inception) until such time as the warranty was complied with, regardless of whether the non-compliance of the suspensive warranty was linked to the cause of the loss. This differed from a ‘true’ warranty in that, rather than discharging all liability under the policy, cover would instead be suspended until the terms of the suspensive warranty were met.
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