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Losses of a particular kind or at a particular time or place

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Milton Furniture v Brit Insurance concerned a fire in April 2005, which destroyed most of the furniture in the Claimant’s warehouse.

The Claimant submitted a claim under its Commercial Combined Insurance policy. The policy contained two terms that came under particular scrutiny: Protection Warranty 1 (PW1) and General Condition 7 (GC7). 

PW1 provided:

"It is a condition precedent to the liability of the Underwriters in respect of loss caused by Theftand/or attempted Theft that the Burglar Alarm shall have been put into full and proper operation whenever the premises...are left unattended and that such alarm system shall have been maintained in good order throughout the currency of this insurance policy under a maintenance contract with a member of NACOSS” 

GC7 stated:

"The whole of the protections including any Burglar Alarm provided for the safety of the premises shall be in use at all times out of business hours or when the Insured’s premises are left unattended and such protections shall not be withdrawn or varied to the detriment of the interests of Underwriters without their prior consent” 

On the night of the fire, two individuals were sleeping at the premises. The burglar alarm, which had been monitored by SECOM until February 2005 when monitoring ceased due to non-payment of invoices, was not set. Insurers denied the claim on the basis that the Claimant had failed to comply with GC7, which insurers claimed was a condition precedent. 

The Claimant argued that PW1 was an individually agreed special condition and, as such, GC7, which was a standard policy term, must be subordinate to it. Further, PW1 itself did not apply to the loss as the damage in question was not caused by "Theft and/or attempted Theft". Accordingly, it was said, neither PW1 nor GC7 was relevant.

The decision

The Court of Appeal confirmed that when there are two contractual provisions which cover similar ground, the task of the court is to give effect to each, save insofar as they are actually inconsistent. The burglar alarm served two purposes: to reduce the risk of theft and also to protect against the risk of an intruder who could damage the property by fire. Since the loss was caused by fire and not theft, it was clear that the requirements of GC7 applied.  

The Court held that the Claimant was in breach of both requirements in GC7. Business hours ended at 20.30 on the evening of the fire but the fire alarm was not set in the part of the complex that suffered the fire. The fact that two people were sleeping in different, but linked, parts of the complex did not prevent the Claimant from setting the alarm in the part where the fire occurred, as was its duty under the policy and as it had done in the past.

The Court went on to hold that although two people were sleeping at the premises, the premises were in fact “unattended”. It held that “attended” was akin to “under observation” and thus the two sleepers could not in any meaningful sense be held to be “attending” at the building.

The Claimant was also held to be in breach of the second limb of GC7. By failing to pay SECOM’s invoices and permitting the monitoring service to end, Milton was in breach of a strict obligation to avoid the withdrawal or variation of a protection that benefitted underwriters.

How the case might have been decided under the Insurance Act 2015

We do not think that the case would have been decided any differently under the new Act. Section 11 of the Act prevents an insurer from relying on the insured’s breach of any contractual provision (including conditions precedent) which is intended to reduce the risk of a loss of a particular kind or at a particular time or place if the insured can prove that its breach could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.

In this case, the Claimant may well have sought to argue that its breaches of the burglar alarm warranty could not have increased the risk of loss by fire. In response, the insurers would no doubt have argued that (a) as the Court of Appeal pointed out, the burglar alarm warranty also protected against the risk of loss by fire started by an arsonist; accordingly, the breach of the burglar alarm condition precedent could have increased the risk of the loss; and (b) depending on the precise system, the fire may have been detected earlier if the burglar alarm had been working. This latter point in particular highlights some of the likely practical difficulties of implementing Section 11.  

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