Technical bulletin

professional information for CILA members

TB 16 August 2003

The following article appeared in Herbert Smith's Insurance Update Newsletter (May 2003) and they have kindly given permission for it to be circulated to CILA members.

Policy conditions: legal classification and consequences of breach

On at least three occasions last year the Court of Appeal considered the issue of the interpretation and status of conditions where insurers were seeking to rely upon terms to obtain a declaration of non liability for a particular claim. In any policy, determining the status of a contractual term is vital to establishing the insurer's rights upon breach of that term. Depending upon its status the remedies can range from a right to terminate the policy, refuse a claim or simply seek damages. The normal area for debate is whether or not a "condition" has been unambiguously expressed in the policy to be a condition precedent.

Breach of a condition precedent

If a condition is found to be a condition precedent as to the validity of the policy or the attachment of risk, then breach of that condition by an assured will allow the insurer to refuse to indemnify for any loss arising under the policy before that condition has been satisfied.

If a term is stated to be a condition precedent as to liability, then breach of that condition will nearly always give rise to the insurer being able to refuse a claim. Claims procedure conditions are often stated to be conditions precedent to an insurer's liability, for example conditions providing for notification of a claim within a specified period. Unlike the conditions precedent as to the validity of the policy and attachment of risk, breach of a condition precedent as to liability does not mean that the insurer can reject all other past and future claims.