Businesses Must Comply with Insurance Conditions or Risk the Consequences

In the recent case of Milton Furniture Ltd v Brit Insurance Ltd [2014] the claimant was not entitled to an indemnity due to a breach of condition precedent in its commercial combined insurance policy.

The company lost out heavily following a fire on its premises because the intruder alarm was not monitored at the time of fire, leading to a failure in its claim against its insurers.

This case serves as a useful reminder to businesses about complying with conditions in insurance policies.

What Happened in the Case Milton Furniture Ltd v Brit Insurance Ltd [2014]?

Milton Furniture Ltd brought a High Court claim after its insurers refused to pay out following the burning down of its warehouse premises where its stock was stored.

An important fact in the case was that Milton had failed to pay the latest invoice from the burglar alarm monitors. Although the payment had been originally requested in July 2004, Milton had failed to make the necessary payment by the time the premises caught fire in April 2005. It was revealed that the burglar alarm company had stopped monitoring Milton’s alarm system from February 2005.

The court held that Milton’s behaviour was reckless as to a breach of (the latter part of) the following condition precedent:

“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at all times out of business hours or when the Insured's premises are left unattended and such protections shall not be withdrawn or varied to the detriment of the interests of Underwriters without their prior consent”.

Milton argued, however, that the following alarm warranty took precedence over the general condition:

“It is a condition precedent to the liability of the Underwriters in respect of loss or damage caused by Theft and/or attempted Theft, that the Burglar Alarm shall have been put into full and proper operation whenever the premises referred to in this Schedule are left unattended and that such alarm system shall have been maintained in good order throughout the currency of this insurance…”.

The question for the court was whether the two provisions should be read consistently with one another given that it was a fire and not a theft which engaged the provisions, or whether the latter provision took precedence over the former. It was noted the the alarm was designed to detect both.

Were the Conditions in the Policy Consistent?

The court held that it would make no commercial sense to rule that there would be no condition precedent as regards non-use on the burglar alarm unless the claim was for theft. It found that the warranty merely qualified the general condition.

The obligation was clear; to always set the burglar alarm if the premises were unattended.

Since the premises were attended at the time, it was only the latter part of the general condition, the withdrawal of protections without consent, which was breached. Milton was therefore held to be reckless as to its causing the variation in the protections, by failing to pay the burglar alarm company.

Comment

Commercial context played a large role in the decision: the purpose of the burglar alarm was to both protect against intruders and fire damage. Milton’s behaviour was causative of the damage and the policy did not entail an indemnity as the two provisions could be read consistently with one another.

For specialist advice regarding insurance litigation claims contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.