Misrepresentation, Non-Disclosure and Breach ... - Law Commission

Conditions precedent to a claim
2.57 If the term is a condition precedent to a particular claim, a breach or failure to
comply with the condition will mean that the insurer is not obliged to pay the
claim, but other possible claims under the policies will not be affected. Such
conditions are most likely to be procedural, requiring (for example) notice of
claims within a particular period. 62
Descriptions of the risk
2.58 Clauses which are “descriptive of the risk” simply provide that the insurer will only
cover losses arising in particular circumstances, and if a loss arises in other
circumstances, the insurer is not liable. For example, in Farr v Motor Traders
Mutual Insurance the policyholder insured two taxi-cabs, stating that they were
only driven for one shift every 24 hours. 63 For a short time, one of the cabs was
driven for two shifts while the other was being repaired. The cab was then used
for one shift a day in the normal way and a couple of months later was damaged
in an accident. The Court of Appeal rejected the insurer’s argument that the
assured had breached a warranty. Instead the words were merely “descriptive of
the risk”. This meant that if the cab was driven for more than one shift per day,
the risk would no longer be covered, but as soon as the owner resumed one-shift
working, the insurer again became liable. 64
2.59 Such terms are sometimes called “suspensive” conditions, on the basis that they
merely suspend liability while a breach taking the risk outside the policy
continues. If a policyholder remedies the problem the insurer’s liability resumes.
2.60 A clause that describes the risk may be in positive terms (“You are covered for
accidents while skiing on-piste”) or in the form of an exception (“You are covered
for accidents while skiing except when off-piste”).
62 This category of term was recognised in Alfred McAlpine Plc v BAI (Run-Off) Ltd [2000] 1
Lloyd’s Rep 437, at para 27. Here Waller LJ cited Weir v Northern Counties of England Co
(1879) 4 LR IR as “an example of a term not being a condition precedent [to the policy as a
whole], but on its language being a term which, until it is complied with, entitles the insurer
not to meet the claim”. In K/s Merc-Scandia XXXXII v Certain Lloyd’s Underwriters (“The
Mercandian Continent”) [2001] 2 Lloyd’s Rep 563, Longmore LJ confirmed the existence of
“a further category of term” would give underwriters “the right to reject the claim without
having to accept the breach of contract as being a repudiation of the contract as a whole”
(para 14).
63
[1920] 3 KB 669. The case was approved in Provincial Insurance v Morgan [1933] AC 240.
For further examples of cases where courts have rejected insurers’ arguments that a term
is a warranty and have instead declared it to be descriptive of the risk: see Part 3 below.
64 Similarly, in Roberts v Anglo-Saxon Insurance Ltd (1927) 27 LI L Rep 313, Bankes LJ
argued that the phrase “warranted: used only for commercial travelling” did not create a
true warranty:
When persons insert clauses, whether described as warranties or whether
described as part of the description of the vehicle, indicating that the vehicle is to
be used in some restricted way, my opinion… would be that the parties had used
that language as words descriptive of the risk, and that, as a result, when the
vehicle is not being used in accordance with the description it is not covered; but
it does not follow at all that because it is used on some one occasion, or on more
than one occasion, for other than the described use, the policy is avoided. It
does not follow at all. (p 314).
This was approved by Lord Buckmaster in Provincial Insurance v Morgan [1933] AC 240,
247.
38