The Good, the Bad & the Ugly: #25 The Good turned Ugly: Lonham Group Ltd v Scotbeef Ltd & DS Storage Ltd (in liquidation) [2025] EWCA Civ 203
Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
In our view, some cases are bad for policyholders, wrongly decided and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
#25 The Good turned Ugly: Lonham Group Limited v Scotbeef Limited & DS Storage Limited (in liquidation)
Introduction
In a highly anticipated appeal concerning the Insurance Act 2015 (“the Act”), the Court of Appeal has offered the first guidance on the operation of Parts 2 and 3, and the characterisation of representations, warranties and conditions precedent.
Background
D&S Storage Limited (“D&S”) provided refrigeration and transport services to Scotbeef Limited (“Scotbeef”), who are producers and distributors of meat. In October 2019, D&S transferred six pallets of mould contaminated meat to Scotbeef. The meat was unfit for consumption by humans and/or animals and was consequently destroyed, leading Scotbeef to issue a claim against D&S for £395,588.
Initially, D&S sought to limit its liability to £25,000 on the basis that the Food Storage and Distribution Federation terms (“FSDF Terms”) (which included a £250 per tonne liability limit for defective meat) had been incorporated into its contract with Scotbeef. The Court disagreed, finding that the FSDF Terms were not incorporated into the contract, and that Scotbeef’s claim was not limited in value.
The first instance decision triggered D&S’ insolvency, and Scotbeef sought to pursue the claim directly against D&S’ insurer, Lonham Group Limited (“the Insurer”) pursuant to the Third Parties (Rights Against Insurers) Act 2010.
The Insurer defended the claim on the basis that D&S had failed to comply with a condition precedent in the Policy by not incorporating the FSDF Terms into the contract.
The Policy
The Policy contained a “Duty of Assured” clause that read:
"Conditions
General Conditions, Exclusions, and Observance…
DUTY OF ASSURED CLAUSE
It is a condition precedent to liability of [the Insurer] hereunder:-
(i) that [D&S] makes a full declaration of all current trading conditions at inception of the policy period;
(ii) that during the currency of this policy [D&S] continuously trades under the conditions declared and approved by [the Insurer] in writing;
(iii) that [D&S] shall take all reasonable and practicable steps to ensure that their trading conditions are incorporated in all contracts entered into by [it]. Reasonable steps are considered by [the Insurer] to be the following but not limited to… [various examples relating to incorporation of terms and conditions were set out]…"
(Our emphasis)
The following term was also included elsewhere in the Policy:
"The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety.”
The High Court decision
Section 9 of the Act expressly prohibits an Insurer from converting a representation into a warranty or a condition precedent, whether by declaring the representation to form the basis of the contract or otherwise.
The High Court found that although sub-clause (i) was expressed as a condition precedent, it was in fact a representation about the insured’s trading position at the inception of the Policy. As such, it fell to be considered under Part 2 of the Act, which deals with the fair presentation of the risk.
As the Insurer had not based their defence on a breach of the duty of fair presentation and had not claimed any of the Section 8 proportionate remedies (such as part reduction in the claim), they could not rely on sub-clause (i) to repudiate liability.
Adopting a pro-policyholder interpretation, the Court held that each of the sub-clauses in the Duty of Assured clause had to be read together, meaning that sub-clauses (ii) and (iii) could not be relied upon either.
The Insurer appealed.
The Court of Appeal decision
Whilst the Court of Appeal agreed that sub-clause (i) was a pre-contractual representation dealing with existing contracts at policy inception, they disagreed that sub-clauses (ii) and (iii) had to be classified in the same way, stating that “the way they are grouped together in the policy does not justify… the “all or nothing” collective approach that was adopted by the judge."
That being the case, the heart of the appeal went to the characterisation of sub-clauses (ii) and (iii), and whether they were warranties and/or conditions precedent.
Answering that question, the Court ruled that the wording was clear, and that on a proper construction, sub-clauses (ii) and (iii) were warranties and conditions precedent to liability covering D&S’ future business operations, because:
- They were included under the heading “General Conditions, Exclusions and Observance”.
- The heading of the clause included the word “duty”, synonymous with an ongoing responsibility, obligation or burden.
- It was stated, in no uncertain terms, that the clause was “a condition precedent to liability”.
- The Policy contained, elsewhere, the following wording: “The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety”.
Their categorisation as warranties meant that rather than being governed by the provisions of Part 2 of the Act, sub-clauses (ii) and (iii) fell to be considered under Part 3 of the Act, section 10(2), which provides that an insurer has no liability for any loss after a warranty has been breached but before it has been remedied. Since it had been established that the FSDF Terms were never incorporated into the contract between Scotbeef and D&S, D&S was in breach of the warranties and conditions precedent contained in sub-clauses (ii) and/or (iii), and the Insurer was absolved of any liability.
The Court of Appeal disagreed with the High Court’s interpretation that the Duty of Assured clause was an attempt to contract out of the Act because:
- The Duty of Assured Clause stated that it was subject to and incorporated the Act, which was “directly contrary to the type of wording that would be necessary to achieve any contracting out”; and
- Sub-clauses (ii) and (iii) did not place D&S in a worse position than it would have been in under the Act given that, under section 10(2) the Insurer is entitled to decline indemnity for breach of a warranty which has not been remedied.
Key takeaways for policyholders
The Court of Appeal decision highlights some of the difficulties policyholders may have in distinguishing between conditions precedent, warranties and pre-contractual representations in policies.
It is clear in a post-Insurance Act 2015 world that, although the ability of insurers to rely on conditions precedent and warranties has been limited, they are still of considerable use to insurers when properly applied. This decision confirms that underwriters are able to control the nature and extent of the risks they undertake through the use of appropriately worded duty of assured clauses, and warranties more generally, without contravening the provisions of the Act regarding the duty of fair presentation of risk (which the judgment of the lower court placed in doubt).
This decision is a salutary reminder for policyholders to ensure compliance with policy terms, and to seek support in identifying any conditions precedent to liability in order to ensure that an indemnity is available when needed.
Most importantly, for policyholders in the logistics and warehousing industry, where the value of goods stored or carried can be difficult to quantify and insurers manage their liability by requiring insureds to trade on industry terms, insurers will rely heavily on policy terms which require the incorporation of those terms, which limit liability and impose time bars on claims.
Abigail Smith is an Associate at Fenchurch Law
Neurodiversity Celebration Week – Ayo Babatunde
As part of our continued support of Neurodiversity Celebration Week (NCW), we asked associate Ayo Babatunde to share his personal experiences with dyslexia and dyspraxia. NCW is a global initiative aimed at challenging stereotypes and misconceptions about neurological differences.
Hello, my name is Ayo. I am an associate solicitor at Fenchurch Law, and I am dyslexic and dyspraxic.
If you are not familiar with dyspraxia, it’s a disability that affects movement, co-ordination and working memory. Our Deputy Managing Partner, Dan Robin, also has it, and has spoken about it as part of Neurodiversity Week (Q&A with Daniel Robin).
I was diagnosed with dyslexic and dyspraxic when I was 19. One of the things I have found hardest is acknowledging that my brain processes information differently. Part of my journey has been figuring out how my brain works to allow me to do my best in university and more recently the workplace.
I have put in a lot of time and effort (much through trial and error!) into understanding what specific techniques work for me. I’ve discovered that I really like mindmaps, tables and schedules, as they neatly organise information in a way that I can always refer back to (sort of like a crib sheet).
Part of managing my neurodiversity has been putting in place processes and frameworks to help me. For example, I love my regular walks around the City on my lunchbreak, as this gives time for my brain to reset (sort of like a brain-break!) which in turn allows me to be more productive.
For people with neurodiversity who have just been diagnosed, I would offer the advice that it’s important to understand what specifically works for you. We are all very different, even people with the same neurodiverse disability, so it is about putting in the time to figure out what best helps you individually. As alluded to above, this is unlikely to be a hole-in-one, but through trial and error you’ll get there. When you do, it is very rewarding.
Since joining Fenchurch Law, the conversation around neurodiversity is has been really honest and I’ve felt that I can be vulnerable about how my disabilities affect me in my day-to-day life. Through having a great support network at work and my own coping mechanisms, I have the confidence that I can achieve whatever I put mind to.
Thanks for reading!
Ayo Babatunde is an Associate at Fenchurch Law
Neurodiversity Celebration Week – Q&A with Daniel Robin
Neurodiversity Celebration Week (NCW) is a global initiative aimed at challenging stereotypes and misconceptions about neurological differences. As part of NCW, Deputy Managing Partner Dan Robin takes part in an open and insightful Q&A with Associate Dru Corfield, sharing his personal experiences and perspectives.
Dru: Hi Dan, thank you for agreeing to speak about your neurodiversity as part of neurodiversity week. It is an important conversation and something that the firm is big on supporting. I suppose the obvious first question is in what way are you neurodiverse?
Dan: I have dyspraxia.
Dru: And what does that mean to a layman? How does your dyspraxia manifest?
Dan: It affects my co-ordination, particularly hand-eye as my wife found out when we went (or tried to go) motorbike riding when we first met in Australia. Workwise it makes organisation challenging and has in the past affected my ability to write. It has also occasionally had an adverse effect on my time management.
Dru: How old were you when you were diagnosed, and what gave the game away?
Dan: 12. I think my parents sought a diagnosis based on issues with coordination and how disorganised I was with schoolwork.
Dru: What was the most difficult part of being dyspraxic as a teenager?
Dan: Back when I was in teenager in the late 90’s/early 00’s (don’t let the hairline fool you, I’m only 38) there was a real lack of awareness about dyspraxia, and at school the perception was that I was lazy and sloppy rather than ascertaining whether there was another reason behind it. It was also a challenge when first learning to drive, I started to learn on a manual car but quickly learnt that was not going to happen.
Dru: And how has public awareness of neurodiversity improved since you were diagnosed / a teenager?
Dan: It’s come on loads in the last 20 years. I think the biggest change is that neurodiversity has gone from being seeing as detrimental, to being accepted, to being seen in some circumstances as an asset.
Dru: How can being neurodiverse be an asset?
Dan: Where you have to work on certain things that don’t come naturally, it can make you better at then than those to whom it came naturally. As a Spurs fan (unfortunately), I will use Harry Kane as an analogy, had he not had setbacks and had to work on parts of his performance, he would not be the best striker in the world that he is today. There are also some neurological differences that lend themselves to the skills needed for professional services, running business etc.
Dru: How has it affected you rise at Fenchurch Law from an Associate in 2018 to the Deputy Managing Partner in 2024?
Dan: I think having to work on organisation skills and other elements of the roles I have had puts me in a unique position to help others / young members of staff – because simply put there were areas of my role which I wasn’t good at it but had to improve in order to develop. I would like to think that I am a good example of the fact that there are no barriers to progression if you are neurodiverse.
Dru: How have Fenchurch been with your neurodiversity?
Dan: The support has always been incredible; I was open from start and they immediately tried to put measures in to help me. I felt comfortable being able to tell the firm and they didn’t take it as a negative, because even 7 years ago the way neurodiversity was viewed in wider society was different to how it is seen today.
Dru: And finally, what advice would you give to neurotypical people when dealing with people with dyspraxia?
Dan: Take the time to understand. Particularly because it can manifest in a way that can be misinterpreted as someone having a lack of care, attention to detail or even laziness. There are measures in place to help with nearly all aspects needed for a professional services role, and it’s about working with the individual to work out what support they require. For example, with a junior lawyer, it may be accepting that they struggle with note taking in meetings, and finding a way to work with that, or they require instructions to them in a certain way.
Dru: Thanks very much for sharing, Dan.
Daniel Robin is the Deputy Managing Partner at Fenchurch Law.
Climate Risks Series, Part 4: California Wildfires - Insurance Insights
Fenchurch Law firmly believes that an outstanding approach to claims payment is fundamental to the health of any insurance market. In fact, Lloyd’s of London’s modern reputation for excellence owes much to its response to the San Francisco earthquake in 1906, when leading underwriter Cuthbert Heath famously instructed his local agent to “pay all of our policyholders in full, irrespective of the terms of their policies”.
With extreme weather events including earthquakes, hurricanes and storms on the rise, the most recent wildfires in Los Angeles present a number of challenges, and also opportunities, for California’s insurance market.
Background
The fires originated in the canyons above the Hollywood Hills and were swept into residential areas by notoriously strong Santa Ana winds. Although the areas affected are known to be at risk of wildfires, it is unusual for them to occur in the winter months. This year, however, a combination of drought and abundant vegetation (the result of above average rainfall in the previous two years) resulted in there being ample fuel for the fires to spread.
Evidently, climate change is increasing the risk of wildfires in the area, with a study from Stanford University predicting that the frequency and potency of these fires will only continue to escalate in the future.
Now contained, the most significant fires were located in the Pacific Palisades and Eaton, primarily upscale residential areas surrounding the Hollywood Hills. The Pacific Palisades, in particular, is home to a wealth of high-value residential property, with average sale prices above $3 million. The impact of this is that insured losses are set to be the highest in California’s wildfire history, with JP Morgan’s most recent estimates at $20 billion. For context, California's most expensive wildfire to date, the 2018 Camp Fire, resulted in insured losses of around $10 billion.
Beyond their initial response to claims payment, insurers will need to reconsider their approach to wildfire risk and implement resilience measures in order to continue to do business in the area, while maintaining adequate capital reserves and managing cumulative exposures.
A fragile home insurance market
In recent years, several leading insurers, including AIG and Chubb, have stopped issuing new home insurance policies in the state of California due to persistent losses against a backdrop of rising construction costs and property prices, with one deciding to reduce cover for 72,000 homes in the Pacific Palisades area. Underinsurance is a widespread problem.
At the end of last year, the California Department of Insurance sought to entice insurers back into the market by allowing them to use sophisticated catastrophe modelling and artificial intelligence to evaluate risk in fire-prone areas. That risk, together with the cost of any reinsurance, could then be factored into premiums. Unfortunately, the effect was that premiums soared, and it became increasingly difficult to obtain adequate cover at an affordable price.
In response, many homeowners opted to take out policies with the State-backed insurer of last resort, Fair Plan. Fair Plan distributes losses among a number of insurers based on their respective market share. If insufficient funds are available to cover its losses, Fair Plan can issue assessments requiring insurers in the voluntary market to contribute. If that happens, the Plan will impose a special assessment on home insurance policyholders across the State.
It is estimated that Fair Plan’s exposure in the Pacific Palisades alone is almost $6 billion, with luxury property specialists Allstate, Travelers and Chubb the most exposed. Post-Covid-19 construction prices could further increase final payouts, in addition to living expenses claims, typically capped at 30% of a property’s value. It has already been reported that regulators are allowing Fair Plan to collect $1 billion from private insurers to cover its recent losses.
The future
Following initial focus on the safe evacuation of residents, the State’s Insurance Commissioner has taken steps to mitigate the impact on California’s already fragile home insurance landscape, by issuing a moratorium preventing insurance companies from cancelling or not renewing policies in the affected areas for the next year. The Commissioner has also issued a notice to insurers urging them to go beyond their legal obligation and pay policyholders 100% of their personal property coverage limits without requiring them to itemize everything that has been lost.
The insurance industry has, historically, supported risk management in the aftermath of catastrophic events. It was the London market that established the first organised firefighting services when insurers hired their own firefighters to protect policyholder properties during the Great Fire of London in 1666, and it was Hurricane Andrew that changed the way insurers looked at hurricanes, and at natural catastrophes in general.
Following the 2018 Camp Fire, the Californian town of Paradise implemented a number of measures to build resilience to future fires, such as burying all power lines underground to reduce the risk of electrical sparks causing fires, requiring residents to remove vegetation in close proximity to their homes, and making grants available to homeowners willing to use fire-resistant materials in their rebuilding efforts.
At a property resilience level, the Insurance Institute for Business & Home Safety (IBHS) provides science-backed mitigation measures for homeowners to reduce the risk of wildfires igniting in their homes. The IBHS is an independent body, supported by the insurance industry to advance building science in order to reduce risk from natural hazards.
It remains to be seen whether the local insurance market will step up to deliver on the Commissioner’s request to pay out full policy limits without requiring proof of loss for every individual item, and how far mitigation measures will be implemented to respond to the difficulties that policyholders are likely to face in the coming months.
Given the impact of climate change, losses resulting from wildfires and other natural perils are likely to increase in severity in the future, highlighting the critical importance of a strategic approach to consumer protection and insurance market sustainability.
Abigail Smith is an Associate at Fenchurch Law
Climate Risk Series:
Part 1: Climate litigation and severe weather fuelling insurance coverage disputes
Part 2: Flood and Storm Risk – Keeping Policyholders Afloat
Part 3: Aloha v AIG – Liability Cover for Reckless Environmental Harm
The Good, the Bad & the Ugly: #25 The Good turned Ugly: Lonham Group Ltd v Scotbeef Ltd & DS Storage Ltd (in liquidation) [2025] EWCA Civ 203
Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
In our view, some cases are bad for policyholders, wrongly decided and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
#25 The Good turned Ugly: Lonham Group Limited v Scotbeef Limited & DS Storage Limited (in liquidation)
Introduction
In a highly anticipated appeal concerning the Insurance Act 2015 (“the Act”), the Court of Appeal has offered the first guidance on the operation of Parts 2 and 3, and the characterisation of representations, warranties and conditions precedent.
Background
D&S Storage Limited (“D&S”) provided refrigeration and transport services to Scotbeef Limited (“Scotbeef”), who are producers and distributors of meat. In October 2019, D&S transferred six pallets of mould contaminated meat to Scotbeef. The meat was unfit for consumption by humans and/or animals and was consequently destroyed, leading Scotbeef to issue a claim against D&S for £395,588.
Initially, D&S sought to limit its liability to £25,000 on the basis that the Food Storage and Distribution Federation terms (“FSDF Terms”) (which included a £250 per tonne liability limit for defective meat) had been incorporated into its contract with Scotbeef. The Court disagreed, finding that the FSDF Terms were not incorporated into the contract, and that Scotbeef’s claim was not limited in value.
The first instance decision triggered D&S’ insolvency, and Scotbeef sought to pursue the claim directly against D&S’ insurer, Lonham Group Limited (“the Insurer”) pursuant to the Third Parties (Rights Against Insurers) Act 2010.
The Insurer defended the claim on the basis that D&S had failed to comply with a condition precedent in the Policy by not incorporating the FSDF Terms into the contract.
The Policy
The Policy contained a “Duty of Assured” clause that read:
"Conditions
General Conditions, Exclusions, and Observance…
DUTY OF ASSURED CLAUSE
It is a condition precedent to liability of [the Insurer] hereunder:-
(i) that [D&S] makes a full declaration of all current trading conditions at inception of the policy period;
(ii) that during the currency of this policy [D&S] continuously trades under the conditions declared and approved by [the Insurer] in writing;
(iii) that [D&S] shall take all reasonable and practicable steps to ensure that their trading conditions are incorporated in all contracts entered into by [it]. Reasonable steps are considered by [the Insurer] to be the following but not limited to… [various examples relating to incorporation of terms and conditions were set out]…"
(Our emphasis)
The following term was also included elsewhere in the Policy:
"The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety.”
The High Court decision
Section 9 of the Act expressly prohibits an Insurer from converting a representation into a warranty or a condition precedent, whether by declaring the representation to form the basis of the contract or otherwise.
The High Court found that although sub-clause (i) was expressed as a condition precedent, it was in fact a representation about the insured’s trading position at the inception of the Policy. As such, it fell to be considered under Part 2 of the Act, which deals with the fair presentation of the risk.
As the Insurer had not based their defence on a breach of the duty of fair presentation and had not claimed any of the Section 8 proportionate remedies (such as part reduction in the claim), they could not rely on sub-clause (i) to repudiate liability.
Adopting a pro-policyholder interpretation, the Court held that each of the sub-clauses in the Duty of Assured clause had to be read together, meaning that sub-clauses (ii) and (iii) could not be relied upon either.
The Insurer appealed.
The Court of Appeal decision
Whilst the Court of Appeal agreed that sub-clause (i) was a pre-contractual representation dealing with existing contracts at policy inception, they disagreed that sub-clauses (ii) and (iii) had to be classified in the same way, stating that “the way they are grouped together in the policy does not justify… the “all or nothing” collective approach that was adopted by the judge."
That being the case, the heart of the appeal went to the characterisation of sub-clauses (ii) and (iii), and whether they were warranties and/or conditions precedent.
Answering that question, the Court ruled that the wording was clear, and that on a proper construction, sub-clauses (ii) and (iii) were warranties and conditions precedent to liability covering D&S’ future business operations, because:
- They were included under the heading “General Conditions, Exclusions and Observance”.
- The heading of the clause included the word “duty”, synonymous with an ongoing responsibility, obligation or burden.
- It was stated, in no uncertain terms, that the clause was “a condition precedent to liability”.
- The Policy contained, elsewhere, the following wording: “The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety”.
Their categorisation as warranties meant that rather than being governed by the provisions of Part 2 of the Act, sub-clauses (ii) and (iii) fell to be considered under Part 3 of the Act, section 10(2), which provides that an insurer has no liability for any loss after a warranty has been breached but before it has been remedied. Since it had been established that the FSDF Terms were never incorporated into the contract between Scotbeef and D&S, D&S was in breach of the warranties and conditions precedent contained in sub-clauses (ii) and/or (iii), and the Insurer was absolved of any liability.
The Court of Appeal disagreed with the High Court’s interpretation that the Duty of Assured clause was an attempt to contract out of the Act because:
- The Duty of Assured Clause stated that it was subject to and incorporated the Act, which was “directly contrary to the type of wording that would be necessary to achieve any contracting out”; and
- Sub-clauses (ii) and (iii) did not place D&S in a worse position than it would have been in under the Act given that, under section 10(2) the Insurer is entitled to decline indemnity for breach of a warranty which has not been remedied.
Key takeaways for policyholders
The Court of Appeal decision highlights some of the difficulties policyholders may have in distinguishing between conditions precedent, warranties and pre-contractual representations in policies.
It is clear in a post-Insurance Act 2015 world that, although the ability of insurers to rely on conditions precedent and warranties has been limited, they are still of considerable use to insurers when properly applied. This decision confirms that underwriters are able to control the nature and extent of the risks they undertake through the use of appropriately worded duty of assured clauses, and warranties more generally, without contravening the provisions of the Act regarding the duty of fair presentation of risk (which the judgment of the lower court placed in doubt).
This decision is a salutary reminder for policyholders to ensure compliance with policy terms, and to seek support in identifying any conditions precedent to liability in order to ensure that an indemnity is available when needed.
Most importantly, for policyholders in the logistics and warehousing industry, where the value of goods stored or carried can be difficult to quantify and insurers manage their liability by requiring insureds to trade on industry terms, insurers will rely heavily on policy terms which require the incorporation of those terms, which limit liability and impose time bars on claims.
Abigail Smith is an Associate at Fenchurch Law