First decision on s11 Insurance Act (causation test for breach of warranty)

Ever since the introduction of the Insurance Act 2015, there has been debate about how causation works in the context of section 11 and in particular the provision in sub-section 11(3) whereby the policyholder is excused from the usual consequences of a breach of warranty if it can show that its “non-compliance with the [warranty] could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.”

Policyholders had thus argued, despite the Law Commission having said this was not what it had intended, that this introduced a strict causation test.  For example,  where the policyholder had warranted that it had a burglar alarm but it failed to set it, it would (it argued) be open to it to show that this particular burglary was undertaken by thieves so sophisticated that setting the alarm would have made no difference – even if setting the alarm would decrease the risk of burglary in general.

Likewise, a policyholder would wish to argue that, on the actual facts of its loss, a warranty had been breached in only a minor respect, which made no difference, even if a more serious non-compliance would unquestionably have affected the likelihood of that particular loss.

This argument has now been considered, and rejected, by Mrs Justice Dias in her decision on 26 July in Mok Petro v Argo.  This was a highly complex case concerning contaminated commodities, and the breach of warranty issue features only briefly at the end of the judgment.  On that issue, the Judge said as follows:

“There is nothing in the wording of the section to suggest that where a term can be breached in more than one way, it is only the particular breach which must be looked at. On the contrary, it seems to me that section 11 is directed at the effect of compliance with the entire term  and not with the consequences of the specific breach. …  I therefore conclude that [Counsel for the Insurers] is right about this. There was no serious dispute that compliance with the warranty as a whole was capable of minimising the risk of water contamination … and that therefore non-compliance could have increased the risk of the loss which actually occurred.”

The full judgment is here: https://www.bailii.org/ew/cases/EWHC/Comm/2024/1555.pdf

Jonathan Corman is a Partner at Fenchurch Law.