WILLIS REAL ESTATE PRACTICE
NON-INVALIDATION CLAUSE, BREACH OF
WARRANTY AND AVOIDANCE OF TERMS
SEPTEMBER 2012
A recent court case has highlighted the
increasing trend by Courts to limit or
exclude the detrimental effects of a breach
of warranty or misrepresentation in an
insurance policy. This highlights the need
for clarity of intent in any policy, and the
importance of an appropriately worded
Non-invalidation clause.
THE SEASHELL OF LISSON
GROVE LTD & ORS VS AVIVA
INSURANCE LTD & ORS
The case follows claims brought by two Policyholders
(a restauranteur and their landlord) following a fire.
Insurers sought to avoid both claims by alleging breach of
warranty and non-disclosure. The claimants sought to rely
on two clauses within the restauranter’s and a third in the
landlords’ policy to avoid the consequences of a breach of
warranty, misrepresentation and non-disclosure.
Clause A: Stipulated that a failure to comply with
any Warranty shall invalidate any claim which is
wholly or partly due to or affected by the failure
to comply.
Under Common Law a breach of warranty discharges
an Insurer from liability from the date of the breach
regardless of materiality. The Insurers argued that as
long as there is a link between the breach of warranty
and ‘at least some’ of the loss, then the breach of
warranty discharges them from liability.
The Court was not persuaded by the Insurers’ argument
and held that the clause meant that the loss which was
NOT wholly or partly due to or affected by a breach of
warranty would still be covered by the policy. The result
was that Insurers were obliged to settle the loss for any
damage caused which was NOT wholly or partly due to
the breach.
Clause B: A form of Non-invalidation clause,
the intention of which was to ensure that cover
would not be invalidated by any act or omission
or alteration either unknown to the Insured or
beyond their control.
Assuming that this clause limited the effect of a breach
of warranty, the Court had to decide whether Seashell
was in breach of warranty and if so whether it knew
of the breach and/or it was beyond their control.
The Court held that the words ‘act or omission’
were capable of applying to a breach of warranty
where damage was caused before the Insured learned
of the ‘act or omission’, rather than just in circumstances
where there is an increase in risk of damage.
In this case the Court decided that the Non-invalidation
clause did limit the effect of a breach of warranty, and
Insurers were NOT allowed to refuse indemnity.
However, it was also noted that if an Insured knew of the
‘act or omission’ and failed to inform Insurers before
damage was caused, they would lose the benefit of the
Non-invalidation clause.
Clause C: The Non-invalidation clause under the
landlords policy stipulated that the policy shall
not be invalidated by any act, omission or by
any alteration unknown to or beyond the control of
the Insured.
The Court had to decide if the Insured could rely on the
clause to prevent Insurers avoiding the Property policy.
The outcome was that the Court decided that the
Non-invalidation clause would apply where there is an
increase in risk of damage beyond the control of the
Insured, provided that the Insured gave immediate notice
of the increased risk as soon as it became apparent.
CONCLUSION
The outcome of this particular case is that Insurers can only refuse to
provide an indemnity where there is causal connection between the damage
and the breach of warranty. They could not exclude the entire claim. As long as the
Insured adheres to the provisos of the Non-invalidation clause, and such clause is suitably
worded and not limited in scope, then cover is provided.
Clearly this case does not overturn wholesale the effects of insurance warranties nor
does it remove Insurers’ right to full disclosure of all material facts upon which to base its
terms for the insurance provided as it has been decided on the precise wording of three
clauses contained in the Insurers policies. What it does do is demonstrate that Courts will
set aside terms that are detrimental to policyholders in circumstances where competing
but advantageous terms (in this instance Non-invalidation clauses) that alleviate the
effects of such terms, exist.
This case underlines the importance property owners and their funders should attach both to the avoidance of
warranties and the inclusion of suitably worded Non-invalidation clauses. A properly drafted policy wording will
greatly limit the insurers’ ability to avoid claims.
Real Estate Practice
Willis Limited, Level 11, The Willis Building, 51 Lime Street
London, EC3M 7DQ, United Kingdom.
For further information or advice, please contact your usual Willis Real Estate Practice representative or any of the following contacts:
John Dilley
Managing Director
Tel: +44 (0)20 3124 6233
Email: [email protected]
Matthew Hellyer
Business Development Executive
Tel: +44 (0)20 3124 8354
Email: [email protected]
Paul Turnbull
Client Service Director
Tel: +44 (0)20 3124 6253
Email: [email protected]
Mark Landau
Business Development Executive
Tel: +44 (0)20 3124 6204
Email: [email protected]
Ian Kennett
Director of Sales
Tel: +44 (0)20 3124 6330
Email: [email protected]
Stephen Roberts
Account Director
Tel: +44 (0)14 1306 1812
Dean Perkin
Email: [email protected] Account Director
Tel: +44 (0)20 3124 8739
Email: [email protected]
CONSTRUCTION
Mike Carolan
Construction Director
Tel: +44 (0)20 3124 6229
Email: [email protected]
LEGAL INDEMNITY/RIGHT OF LIGHT
Fraser Pratt
Business Development Executive
Tel: +44 (0)20 3124 8778
Email: [email protected]
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FP1328/10573/07/12