Comply with your insurance policy, or else!
Hazel Eccles explains how the court decision in Bluebon Ltd v Ageas (UK) Ltd reminds us that the terms of an insurance policy must be followed or the insurer may not pay out for loss.
In 2009 the insurers, Ageas, issued a policy for a term of one year to Bluebon Limited (“Bluebon”), via an insurance broker, in respect of a Hotel that Bluebon owned. The insurance covered a number of risks, including fire. However, the policy was subject to an “electrical installation inspection warranty” requiring the Hotel’s “electrical installation be inspected and tested every five years”. The policy continued to be renewed each year.
The Hotel had its electrics inspected in 2003, but there was no evidence that any further inspections and testing had taken place. The Hotel was subsequently destroyed by a fire in 2010. Bluebon submitted a claim for just under £1.75 million to the insurer for its losses. Ageas refused to pay out, on the basis that Bluebon was in breach of the electrical testing warranty.
The Court held that Bluebon had breached the warranty and so the insurer was not liable to indemnify Bluebon in respect of its losses and sums claimed arising from the fire.
The warranty was considered to be a “suspensive warranty”. This means that all insurance cover was suspended from the date of the breach, until the date that the warranty condition has been complied with.
It is interesting to note that whilst the Insurance Act 2015 did not apply in this case, because it does not apply retrospectively, it is arguable that the insurer would still have won.
The Insurance Act provides that where there is non-compliance with a term designed to reduce the risk of loss, insurers will not be able to rely on that non-compliance where the policyholder can show that the non-compliance “could not potentially have increased the risk of the loss which actually occurred in the circumstances in which it occurred”. On the facts of this case, however, non-compliance with the warranty did affect the loss incurred.
- Be aware of the obligations and conditions that apply in your insurance policies
- Do an insurance audit
- Make diary reminders of key dates and obligations
- Appoint a person with appropriate levels of seniority to ensure that they are complied with
Otherwise, you may find that an insurer will wriggle out of liability and not pay up.