For better(ment) or for worse?

Allegations of “betterment” arise frequently in property claims, particularly where roofs, façades, cladding or other structural elements are ageing or incapable of repair on a strict like-for-like basis. Insurers often contend that replacement will leave the policyholder better off than before the loss, and that a deduction is therefore justified. That contention is not always well-founded.

In this article, Chloe Franklin of Fenchurch Law’s Property and Real Estate team considers how betterment issues commonly arise and, if so, how they should be addressed, with the answer turning on the policy wording, necessity, and evidence.

The legal starting point

Property policies are rooted in the principle of indemnity. This principle was neatly described by Popplewell LJ in the Court of Appeal judgment in Sky UK Limited & another v Riverstone Managing Agency Limited & Others; “A contract of insurance against damage to property is a contract of indemnity, which is often described as a contract to hold someone harmless… in the sense that the insurer promises that the assured will not suffer the insured damage”

However, many operate on a reinstatement (replacement cost) basis, under which the insurer agrees to meet the reasonable cost of repairing, reinstating or replacing insured property damaged by an insured peril.

Betterment sits at the intersection of those principles. The insurer is not required to fund improvements, but equally, indemnity does not require reinstatement to replicate the damaged property in age or condition.

The critical question is whether the proposed works result in a material enhancement beyond that reasonably required to restore the property to its pre-loss position.

What betterment means in practice?

In property claims, insurers typically invoke betterment where reinstatement works are said to:

  • increase value, durability, strength or useful life;
  • introduce a higher specification than existed pre-loss; or
  • go beyond what is required to reinstate the damaged property.

However, betterment is not established simply because:

  • the damaged element was old;
  • replacement produces something new; or
  • modern materials or methods are required.

Those features are often inherent in reinstatement and, without more, do not justify a deduction.

Policy wording: typical betterment provisions

Betterment is ordinarily addressed within the Basis of Settlement provisions. While wordings vary, three common formulations arise.

  • Reinstatement basis with “no betterment” proviso
    The insurer will pay the cost of repair, reinstatement or replacement, but not any amount representing improvement beyond the condition immediately prior to the loss.
  • Express betterment deduction clause
    A deduction may be made where reinstatement results in increased value, durability or useful life.
  • “Nearest equivalent” wording
    Where identical materials are unavailable, the insurer will fund replacement using the nearest equivalent necessary to restore the property to substantially the same condition.

These provisions must be read together. A prohibition on betterment is frequently qualified by an acceptance that modern or equivalent materials may need to be used where like-for-like reinstatement is not possible.

What betterment is not

Disputes framed as “betterment” often arise from a failure to distinguish between separate legal issues.

  • Pre-Existing Defects, Inherent Vice Or Deterioration

First, pre-existing defects, inherent vice or deterioration are matters of causation and scope of cover, not quantum. Where proposed works address deficiencies unrelated to the insured peril, those costs may fall outside cover. Where insured damage necessitates works which also address underlying defects, the correct approach is one of identification and, where possible, apportionment. It does not follow that the entire cost can be characterised as betterment.

  • Wear And Tear

Secondly, wear and tear exclusions operate at the coverage stage. They do not provide a mechanism for adjusting the measure of indemnity. Where an insured peril causes damage to property in a deteriorated state, the claim (if otherwise covered) proceeds on a reinstatement basis. Wear and tear cannot be reintroduced as a betterment deduction.

  • Unavoidable Replacement

Thirdly, unavoidable replacement does not constitute betterment. Where repair will not achieve a durable or functional reinstatement, replacement is the minimum necessary response. For example, where a flat roof is leaking and a simple repair would not resolve the issue, the only way to ensure the property is watertight is to replace the flat roof entirely. The fact that the insured receives a new asset with a longer remaining life is an inherent feature of reinstatement and does not, of itself, amount to a material enhancement.

  • Regulatory Compliance

Fourthly, compliance-driven works are often mischaracterised. Where compliance with current regulations is a necessary precondition to reinstatement, those costs form part of the reinstatement exercise (subject to policy wording). They are not elective improvements.

  • Modern Materials and Methods

Finally, modern materials and methods will often deliver improved performance relative to older systems. Where those materials represent the nearest reasonable equivalent, their use is contemplated by the policy and does not justify a deduction.

Properly analysed, betterment is a narrow concept, confined to cases where the insured obtains something materially beyond that required to reinstate the property to its pre-loss condition and function.

Practical guidance for Brokers & Policyholders

Early engagement is critical. Insurers should be required to articulate their position clearly and with reference to the policy wording, but that unfortunately doesn’t always happen.

In order to reduce the risk of betterment arguments being raised by insurers, it is key that policyholders ensure that:

  • pre-loss condition is evidenced through surveys, maintenance records and photographs;
  • replacement (as opposed to repair) is properly justified;
  • pricing distinguishes between core reinstatement and any enhanced specification; and
  • elective improvements are clearly separated from insured works.

Conclusion

Betterment is a legitimate but limited concept in property claims. It is not a default consequence of age, replacement or the use of modern materials.

The distinction between reinstatement and improvement is critical. Only the latter engages betterment, and it is for insurers to identify and evidence it with precision.

Properly approached, betterment should remain a focused issue of quantum, not an obstacle to effective reinstatement

Author

Chloe Franklin, Associate

 

by Chloe Franklin

Ten years on: has the Insurance Act 2015 actually delivered for policyholders?

The Insurance Act 2015 (“the IA 2015”) was introduced to level the playing field for insurers and policyholders, and to move away from outcomes that were perceived as outmoded.

As the IA 2015 approaches its 10-year anniversary, this article will examine whether it has achieved those objectives – with particular focus on property damage claims – as well as the areas where uncertainty remains.

Duty of fair presentation: a shift in framework, as well as insurer behaviour?

One of the central reforms introduced by the IA 2015 was the introduction of proportionate remedies for breaches of the duty of fair presentation, which replaced the previous draconian “all or nothing” regime. In principle, this marked a significant and welcome shift. In practice, however, disputes concerning fair presentation and remedies remain common, particularly in the context of property damage claims.

A common example arises where, for example, following a fire, insurers allege that the policyholder failed to disclose historic alterations to the property, deficiencies with electrical compliance, or that one of its directors had previously been involved with insolvent companies. Had these matters been disclosed, insurers may assert that they would have only agreed to insure the policyholder on different terms or, as is more often the case, that they would not have agreed to insure the policyholder at all.

Insurers have increasingly sought to characterise alleged breaches of this nature as deliberate or reckless, thereby entitling them to avoid the policy outright (as well as keep the premium and refuse all claims), whilst sidestepping a detailed analysis of what they would have done differently. The result is that, rather than reflecting a fundamental change in behaviour, some claims handling practices have adapted tactically to fit within the structure of the IA 2015.

As a matter of law, the evidential burden remains firmly on insurers. It is for them, not policyholders, to prove how the alleged non‑disclosure or misrepresentation influenced their underwriting. In practice, insurers are frequently reluctant to disclose the evidence said to support their position, such as contemporaneous underwriting guidelines, contemporaneous exchanges at the time of placement, or a witness statement from the underwriter involved. In those circumstances, policyholders are left with an invidious choice: they can either accept the insurer’s position at face value, or commence litigation without fully understanding the strength of the case they must meet. Neither outcome sits comfortably with the intended purpose of the IA 2015, particularly in high‑value property damage claims where the consequences of avoidance can be severe.

Section 11 – a causation test, or not?

Section 11 of the IA 2015 (“s.11”) was intended to prevent insurers from declining claims on the basis of technical breaches of policy terms that had no connection with the loss. In straightforward cases, its application is uncontroversial. A breach of a fire alarm warranty should not entitle an insurer to avoid liability for a flood loss, just as a failure to maintain a burglar alarm should not defeat a claim for storm damage.

More complex property damage claims, however, expose the underlying difficulty in applying s.11 ie., where the breach can be shown not to have caused the loss per se, but it is harder to say that compliance could not have reduced the risk of that loss in different circumstances. So, for example, a failure to comply with a condition to store combustible waste in a particular place might not have caused a fire, but it nonetheless could have done. This gives rise to a fundamental question: does s.11 require a strict causation test, or is it sufficient that compliance with the term could theoretically have reduced the risk of the loss occurring?

The Law Commission appeared to favour a non‑causation approach ie., they said that the test is whether compliance could realistically have affected the loss that actually occurred, rather than requiring a strict causation analysis. However, the wording of s.11 focusses on whether the breach “could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred”. That language strongly suggests that there is, in fact, an element of causation, because the emphasis is on the way in which a particular loss occurs. In practice, this shifts the inquiry toward a counterfactual assessment of whether compliance with the relevant term could have made a difference. So, in the context of an alleged breach of a requirement to carry out a 30‑minute fire watch following hot work, it would be open to a policyholder to assert that the breach could not have made any difference if fire did not break out until three or four hours later.

The High Court’s decision in Mok Petro Energy Ltd v Argo (No.2) [2024] EWHC 1935 (Comm) is the first decision on s.11. However, the provision was dealt with only briefly, and no more than a few paragraphs. The court’s observation – that the correct question is whether compliance with the term as a whole could have reduced the risk of the loss – was obiter, and not central to the outcome of the case. While the comments are nonetheless of interest (and are now frequently relied upon by insurers to reject a causation analysis), they fall short of providing definitive guidance. As a result, considerable uncertainty remains.

Damages for late payment: the theory and the reality

Section 13A of the IA 2015 (“s.13A”) introduced a statutory right for policyholders to recover damages for the late payment of insurance claims. For example, following a major fire loss, an insurer may decline cover and take many months to investigate and maintain that position, during which time the policyholder is unable to fund reinstatement and suffers continuing business interruption losses. If it is later established that the insurer had no reasonable basis for its declinature, s.13A would, in principle, entitle the policyholder to claim damages for losses flowing from that delay, such as additional loss of profits, or increased reinstatement costs.

In theory, s.13A represents a significant shift in the balance between insurers and policyholders, with the aim of discouraging unreasonable delays. In practice, however, its impact has been limited so far.

The threshold for a successful claim under s.13A is a demanding one. It is not enough for a policyholder to establish that an insurer was wrong to deny or delay payment of a claim; the policyholder must also prove that the insurer acted unreasonably. Where an insurer can demonstrate that it had “reasonable grounds” for disputing the claim, liability under s.13A will not arise, even if the coverage position is later shown to be wrong. This creates something of an asymmetry: a relatively low bar for insurers to resist liability, and a correspondingly high bar for policyholders seeking to recover losses caused by delay.

That imbalance is particularly acute in property damage claims. Following fires, or escapes of water, insurers often rely on extended investigations into causation, compliance with policy terms, or alleged non‑disclosure as giving rise to “reasonable grounds” to investigate a claim. While some degree of investigation is plainly required, the availability of “reasonable grounds” as a defence under s.13A offers insurers considerable latitude to justify prolonged delay.

There are also significant practical constraints. Claims for s.13A damages are evidence‑heavy, requiring detailed scrutiny of the insurer’s decision‑making process and the reasonableness of the time taken. Policyholders must also continue to comply with their duty to mitigate loss, which can be particularly challenging where reinstatement cannot happen without funding. As a result, the remedy is costly to pursue and, in many cases, commercially unattractive. It also raises the question as to whether well-resourced policyholders, who might be able to mitigate more easily, are able to establish claims for s.13A damages at all.

The case law reflects these difficulties. For example, in Quadra Commodities SA v XL Insurance Co SE [2022] EWHC 431 (Comm), the court suggested that a period of “not more than about a year” was reasonable for a complex claim. While that is helpful in principle (particularly as a benchmark against which delay in straightforward claims might be assessed), the policyholder ultimately lost its s.13A claim because the insurer was found to have had reasonable grounds for disputing coverage.

To date, there have been no successful reported claims under s.13A, and its effectiveness in future claims will depend, amongst other things, on the courts’ willingness to draw firmer lines around what constitutes an unacceptable delay. Until then, damages for late payment claims are likely to remain more of a strategic lever than a routinely deployed remedy.

A developing framework

While there has been meaningful case law in relation to the duty of fair presentation, other aspects of the IA 2015 remain comparatively underdeveloped. In particular, further authoritative case law on s.11 is needed to resolve the continuing uncertainty as to its proper application, especially in complex property damage claims where issues of causation and risk frequently overlap.

Similar uncertainty surrounds s.13A, and in particular the threshold for what constitutes “unreasonable” grounds for refusing or delaying payment of a claim. Absent any successful reported claims under s.13A, its true potential as a remedy for policyholders remains to be seen.

A decade on from its introduction, the IA 2015 has unquestionably reshaped the legal framework governing commercial insurance disputes. However, it has not eliminated all of the underlying tensions between insurers and policyholders. Further case law, particularly in relation to s.11 and s.13A, will be critical in determining how the IA 2015 operates in practice over the next decade.

Author

Alex Rosenfield, Partner

 

by Alex Rosenfield

Levelling the Playing Field?: the Impact of Section 13A, almost a decade on

Despite having been introduced almost nine years ago, the impact of section 13A remains to be seen. In this article, we consider whether it has achieved its purpose of levelling the playing field for policyholders, or whether it has fallen short of the reform that was originally promised.

A (brief) history

Section 13A of the Insurance Act 2015 (the “Act”) was enacted by section 28(1) of the Enterprise Act 2016 and came into force on 4 May 2017. It introduced an implied term into every contract of insurance that the insurer must pay claims within a reasonable time (including time to investigate and assess the claim) and marked a significant development in UK insurance law.

To date however, there have been only two section 13A claims heard by the courts, both of which have failed: in Quadra Commodities S.A v XL Insurance Co SE and Others [2022] because the insurer succeeded in presenting a “reasonable grounds” defence, and in Delos Shipholding SA & Ors v Allianz Global Corporate and Specialty SE & Ors [2024] because the insured had failed to establish its loss.

You can read our analysis of Quadra here – Better late than never: the first reported case on damages for late payment - Fenchurch Law.

While limited inferences can be drawn from the outcomes of only two claims, there are some obvious challenges to policyholders wanting to pursue these claims.

We consider those challenges below.

What is a “reasonable time” in which a claim should be paid?

The first issue is that the burden of proof is on the insured to demonstrate that the insurer failed to pay within a reasonable time.

The Law Commission Report, and the Explanatory Notes to the Enterprise Act, make it explicit that a reasonable time will always include a reasonable time for investigating and assessing a claim, that claims under business interruption policies will usually take longer to value than claims for property damage, and that larger more complicated claims will take longer to assess than straightforward claims.

In Quadra the Commercial Court commented that assessing what was a reasonable time was “not an easy one to decide”. The facts involved transport and storage operations across different jurisdictions and there were a number of factors outside of the insurers’ control including the destruction of evidence and the fact that legal proceedings had been issued in another jurisdiction three years prior.

The good news for policyholders was that, even in what the Court termed “complicated circumstances”, it was found that a reasonable time was not more than about a year from notification: the inference being that more straightforward losses should be paid in a number of months.

However, the challenge remains that, in circumstances where the insurer has reasonable grounds for defending the claim (in respect of liability and/or quantum), a section 13A claim may not succeed even in circumstances where an insurer has failed to pay the claim within that period.

When is an insurer both wrong and unreasonably wrong?

It was on that basis that, in Quadra, insurers successfully defended the insured’s section 13A claim, despite the insured’s coverage claim succeeding at trial.

The Commercial Court found that insurers had reasonable grounds for disputing the claim and that their arguments on policy coverage were not unreasonable merely by virtue of being mistaken.

Whilst the court can take into account insurer’s conduct in handling the claim, Quadra makes clear that slow claims handling, unnecessary investigations and improper construction / application of the policy terms will not be enough to deprive an insurer of the “reasonable grounds” defence.

So what kind of conduct would operate to deprive an insurer of a defence?

In Quadra, the Court found that insurers had instructed a loss adjuster, and sought legal advice, within the “reasonable time” for paying the claim, which suggests that not to have done so would be unreasonable. In addition, the Explanatory Notes to the Enterprise Act tell us that it will be unreasonable if an insurer is slow to change its position when further information confirming the validity of the claim comes to light.

Importantly, it is also necessary for the insured to highlight the insurer’s unreasonableness: in Quadra, the Court commented that the insured had not attempted to rebut the insurer’s argument that it had reasonable grounds to defend the claim.

Establishing loss – do pecunious policyholders have poorer prospects of succeeding under s13A?

In Delos, the claimant, who was the registered owner of a detained bulk-carrier, argued that it had suffered a loss of opportunity as a result of the insurer’s failure to pay the claim within a reasonable time, because the insurance funds would have been used to purchase a replacement vessel, which could have been traded at a profit.

The Court noted that no evidence had been adduced to show that the Claimant had been serious about pursuing that opportunity (by way of correspondence or a business plan, for example) and therefore it had not established its loss.

Controversially, Mrs Justice Dias commented that there was force in the argument that, because the Claimant was a profitable group and could have purchased a vessel without the benefit of the insurance proceeds, it had not incurred a loss as a result of the insurer’s alleged failure to pay the claim within a reasonable time.

That begs a further question: do policyholders with deeper pockets (for example, blue-chip companies) have poorer prospects of succeeding under section 13A, because of their ability to mitigate their own loss?

Arguably, yes, although there are no reported decisions on this issue. In Quadra, the Commercial Court emphasised that s13A damages are not automatic and must satisfy strict causation and mitigation standards, meaning that a claimant cannot recover loss which it could reasonably have avoided.

In other words, section 13A may operate most effectively where late payment renders a claimant impecunious, because causation and mitigation is easier to establish in such cases.

Suitability of Section 13A claims for preliminary hearings

Recently in The Members of The Probitas Syndicate 1942 at Lloyd’s -v- Pro 2 Care Limited [2025], the Commercial Court refused to consider a Claimant’s section 13A claim at a preliminary hearing, advising that evidence is crucial to assessing the period of the delay, and any loss.

In presenting its claim under section 13A, the Claimant, a care home business, argued that it had taken about 19 months for the insurer to pay its property damage claim, which was unreasonable by about 11 months (8 months having been sufficient to investigate and assess the claim), causing losses in excess of £2 million. It argued that, had the claim been paid sooner, repair works would have commenced and completed, and revenue would have been earned. In contrast, the insurer argued that the Claimant had not set out the basis for unreasonable delay, and relied on the fact that it had made staged interim payments as and when elements of the claim had been evidenced and accepted by its loss adjuster.

At a summary judgment hearing, the judge commented that, although the Claimant’s claim under section 13A was “clearly arguable”, claims under section 13A are a paradigm example of factual disputes which require evidence, and cannot be resolved summarily.

We query whether arguably this might present a further hurdle for policyholders if it can be inferred from the fact that the case has gone to trial that the insurer must have a reasonable basis to defend the claim, even if that defence ultimately fails, as otherwise the claim would likely have settled.

Conclusion

Almost nine years on, it is hard to see that section 13A has – yet – succeeded in levelling the playing field for policyholders.

Nevertheless, the optimistic view is that, in different circumstances, the path has been laid for section 13A claims to succeed. If the precedent set by Quadra is that even complicated claims should be paid within a period of 12 months, the real challenge lies in contesting an insurer’s “reasonable grounds” defence.

Despite the apparent hurdles, section 13A claims remain a powerful negotiating tool for policyholders in disputes with insurers. No insurer wishes to be the first to be subject to a successful damages claim for late payment, or to risk establishing a precedent which is unfavourable to the market.

For that reason, even almost a decade on, the jury is out; and only time will tell.

Author

Abigail Smith, Associate

 

by Abigail Smith

The Iran War: Property and Business Interruption Insurance Implications for Policyholders

The ongoing Middle East conflict has significant implications for many insurance issues facing policyholders. In the first of a two-part series, our partners Julian Teoh and Chris Wilkes highlight areas of concern for downstream policyholders outside of the conflict zone, and what these potentially affected policyholders should be looking out for.

Physical Damage Insurance

The effective closure of the Strait of Hormuz and Iranian attacks on energy infrastructure across the Middle East has resulted in a shortage of oil and gas and a spike in energy and related prices.

Energy price spikes are already translating into significant increases in the costs of reinstatement and rebuilding property which has been damaged.

  • Petroleum-based materials such as waterproof membranes, paint and sealants have become more expensive as oil prices surge.
  • Increased costs of insurance and shipping (due to increased fuel costs and the need to take longer routes to avoid the warzone) will also be baked into the end price of building materials.
  • Large cranes consume large amounts of fuel. Coupled with labour shortages, crane hire rates have increased significantly since the start of the conflict.
  • Energy costs feed directly into the cost of raw materials e.g. steel and aluminium, not to mention inflation causing a general increase in prices across the board, plus shortages of supply compounding price increases (and delay in supply).

The impact on supply chains is also likely to be severe, leading not only to increased direct costs, but also prolonged time scales for deliveries leading in turn to time inflation and related indirect costs.

It would be prudent for policyholders and their brokers to re-examine their physical damage sums insured under property, machinery and construction policies to reflect these issues. Policy average / under-insurance clauses can be applied even in partial loss situations, proportionately reducing any indemnity due under the policy.

Business Interruption and Increased Costs of Working Cover

Most operational policies contain cover for business interruption following damage and increased costs of working (ICW). In short, ICW are the additional costs incurred by the policyholder to mitigate BI losses (which may be highly relevant if there are delays in the supply of components or materials).

ICW cover is subject to various tests, including the “economic test”: the increase in costs must be less than the reduction in turnover due to the incident (i.e. the saving must exceed the cost of the additional expenses). In other words, uneconomic expenditure will not be covered.

Where the costs of inputs are spiking, it would normally be more difficult to pass this economic test.  Policyholders will need to consider the interaction between cost and time-related savings when considering such mitigating measures.

Business Interruption (BI) Insurance

Non-Damage BI Extensions

Many BI policies contain non-damage BI extensions, i.e. they allow the policyholder to make a BI claim even where there has not been damage at the policyholder’s premises. Most relevant to the current conflict would be:

  • Suppliers’ extensions: BI resulting from supply chain disruptions at suppliers.
  • Denial of access: BI resulting from an inability to access the policyholder’s premises.
  • Public authority order: BI resulting from an order from a civil or military authority.

The coverage triggers for these extensions is usually damage, whether at the premises of the supplier, within a certain radius of the policyholder’s premises or which has caused the authority to issue the order.  But this is not inevitably the case. Especially in bespoke wordings, the coverage triggers may be far more permissive, and policyholders are encouraged to review their non-damage BI extensions.

Where the coverage triggers are damage-based, the policy’s war risks exclusion will also come into play.  While these exclusions can be quite comprehensive, we would encourage policyholders to review the wordings carefully and seek advice on whether or not the exclusion applies.

Adequacy of BI Indemnity Periods

The BI indemnity period is the period for which the insurer agrees to indemnify the policyholder during which the interruption to business is ongoing.

If, for example, the policy BI indemnity period lasts for 12 months but the interruption persists for 18 months, the insurer is required to pay an indemnity for only 12 months. The policyholder would not enjoy any cover for its BI losses for the last 6 months.

If the conflict is prolonged and materials are in short supply and/or cannot be shipped to the premises in a timely manner due to the conflict or the knock-on effects, this may result in the interruption period extending beyond the policy’s BI indemnity period. In situations where critical parts of complex machinery are needed for the business to resume and are difficult to source in a timely manner, the shortfall between the indemnity period and the duration of the interruption will come into sharp focus.

Authors

Julian Teoh, Partner

Chris Wilkes, Partner

 

by Fenchurch Law

Fenchurch Law – Annual Coverage Review 2025

As the insurance market continues to navigate evolving risks, regulatory frameworks, and geopolitical developments, 2025 has delivered a series of judgments that set important precedents as well as reaffirming established coverage principles. This annual review highlights the key themes emerging from these decisions and their practical implications for those responsible for managing coverage and compliance.

The cases reported this year address critical issues such as the interpretation of policy terms, the scope of notification obligations, the application of fair presentation duties and the classification of policy terms under the Insurance Act 2015. They also explore the impact of third-party rights, insolvency considerations, and principles regarding multiple cover when ‘other insurance’ clauses are in play.

Collectively, these rulings clarify the boundaries of contractual and statutory duties, reinforce the importance of timely and accurate disclosures, and provide guidance on maintaining coverage integrity in complex scenarios.

This round-up aims to equip policyholders and brokers with a clear understanding of the legal trends shaping the insurance landscape, including salutary reminders and pitfalls to avoid.

Unless otherwise stated, the Insurance Act 2015 is referred to as the “2015 Act” and the Third Parties (Rights Against Insurers) Act 2010 as the “2010 Act”.

Insurance Act 2015

  1. Lonham Group Ltd v Scotbeef Ltd & DS Storage Ltd (in liquidation) (05 March 2025)

In this Judgment, the Court of Appeal issued seminal guidance on how the 2015 Act treats representations, warranties, and conditions precedent. The Court was asked to determine whether the requirements under a Duty of Assured clause were representations or conditions precedent and thus triggering different sections of the 2015 Act.

The policy contained a three‑limb “Duty of Assured Clause” requiring D&S to:

  1. Declare all current trading conditions at policy inception.
  2. Continuously trade under those conditions.
  3. Take all reasonable steps to ensure those conditions were incorporated into all contracts.

The Court was asked to consider whether all three limbs needed to be read collectively (i.e. they would all be classified as either representations or conditions/warranties) or separately (so that each limb was capable of a separate classification). Overturning the decision of the High Court, the Court found that limb 1 was a pre-contractual representation subject to the duty of fair presentation of the 2015 Act, but limbs 2 and 3 were warranties and conditions precedent. As such, in accordance with the 2015 Act, the Insurer had no liability after the date on which the warranty had been breached.

This classification was said to reflect the 2015 Act’s intent: representations allow for proportionate remedies if inaccurate; terms requiring future conduct held to be warranties and/or conditions, by contrast, enable insurers to reject coverage upon breach, provided the terms are clearly drafted.

This decision marked the first major Court of Appeal test of Part 3 of the 2015 Act, and confirms that Duty of Assured clauses can contain both historic representations that go to the Insured’s duty of fair presentation, and warranties as to future conduct, which can have particularly catastrophic consequences if breached. It serves as a reminder to Policyholders and Brokers to scrutinise policy terms and ensure compliance.

Read our full article here.

  1. Clarendon v Zurich [2025] EWHC 267 (Comm) – Commercial Court Judgment (13 February 2025)

Fenchurch Law acted for Clarendon Dental Spa LLP and Clarendon Dental Spa (Leeds) Ltd, who claimed under a Zurich property damage and business interruption policy after a major fire. Zurich sought to avoid liability, alleging breach of the duty of fair presentation under the 2015 Act for failing to disclose insolvency of related entities.

The Court examined Zurich’s proposal question, “Have you or any partners, directors or family members involved in the business… been declared bankrupt or insolvent…?,” and held that a reasonable policyholder would interpret it as referring only to current directors or partners, not former entities. Consistent with Ristorante Ltd v Zurich (2021), and applying contra proferentem, the Court confirmed that ambiguity in insurer questions is resolved in favour of the insured and that disclosure obligations are shaped by the questions asked at inception.

Overall, the Court concluded Clarendon’s answers were correct and, in any event, Zurich had waived any right to disclosure beyond the scope of its own questions.

Please see our full article here.

  1. Delos Shipholding v Allianz [2025] EWCA Civ 1019

The Court of Appeal upheld the earlier Commercial Court’s ruling, reinforcing policyholder rights under marine war risks insurance and clarifying the duty of fair presentation under the 2015 Act. The case concerned the bulk carrier WIN WIN, detained by Indonesian authorities for over a year after a minor anchoring infraction. Allianz denied cover, citing an exclusion for detentions under customs or quarantine regulations and alleging non-disclosure of criminal charges against a nominee director.

The Court confirmed the exclusion must be construed narrowly, only detentions genuinely akin to customs or quarantine regulations fall within its scope and the WIN WIN’s detention did not qualify. It also reaffirmed that fortuity remains where the insured’s actions were neither voluntary nor intended to cause the loss. On duty of fair presentation, the Court held the nominee director (who had no decision-making authority) was not part of “senior management” under the 2015 Act, so the Policyholder had no actual or constructive knowledge of criminal charges against him. Further, Allianz had failed to prove that the charges were material and would have induced Allianz to enter into the insurance contract.

Our article on the Court of Appeal Judgment can be found here. Our earlier article on the Judgment of first instance is also here.

  1. Mode Management Limited v Axa Insurance UK PLC [2025] EWHC 2025 (Comm)

Following a fire on 7 February 2018 at industrial units in Brentwood, Mode (the named insured) and its director (the property owner) sued AXA under a “Property Investor’s Protection Plan” seeking declaratory relief, specific performance (to reinstate/put them back to the pre‑loss position), and other remedies. AXA had avoided the policy ab initio in September 2018 for alleged misrepresentation/non‑disclosure (including questions over insurable interest and planning permission) and applied for summary judgment.

The Commercial Court (Lesley Anderson KC sitting as Deputy High Court Judge) granted AXA’s application. The judge held that the claims were statute‑barred under the Limitation Act 1980, and in any event had no real prospect of success, including the insured’s bid for specific performance of AXA’s alleged secondary liability to reinstate.

The director’s personal claim also failed because he was not a party insured under the policy. The Court emphasised that, on the pleaded facts and policy wording, specific performance was not an available remedy, and the case could be resolved without a trial.

The Judgment can be accessed here.

  1. Malhotra Leisure Ltd v Aviva [2025] EWHC

During the Covid-19 lockdown in July 2020, a cold-water storage tank burst at one of Malhotra’s hotels, causing significant damage. Aviva, the property damage and business interruption insurer, refused indemnity, alleging the escape of water was deliberately and dishonestly induced by the claimant and that there were associated breaches of the policy’s fraud condition.

The Commercial Court held that Aviva bore the burden of proving, on the balance of probabilities, that the incident was intentional. The Court found that available plumbing and expert evidence supported an accidental explanation, and Aviva’s own expert accepted the escape could have been fortuitous.

The Court also scrutinised Aviva’s allegations of dishonesty in the presentation of the claim, finding that the Fraud Condition must be interpreted in line with the common law, meaning it applies only to dishonest collateral lies that materially support the claim, consistent with The Aegeon and Versloot. Because there was no evidence of dishonesty, and the alleged inaccuracies were either immaterial or inadvertent, the fraud condition did not bite, and Malhotra Leisure was entitled to indemnity.

Please see our full article here.

In a separate costs hearing, the Commercial Court was asked to determine whether costs should be awarded on the standard or indemnity basis. The claimant’s approved costs budget was £546,730.50, but actual costs exceeded £1.2 million, making the distinction significant.

The Court noted that while there is no presumption in favour of indemnity costs where fraud allegations fail, such allegations are of the highest seriousness and, if unsuccessful, will often justify indemnity costs. The Judge found that Aviva’s allegations inflicted financial and reputational harm and were pursued to trial without settlement discussions. As a result, the Court ordered Aviva to pay the claimant’s costs on the indemnity basis, including an interim payment of £660,000, demonstrating the Court’s uncompromising approach towards unfounded fraud allegations.

Please see our full article here.

Effect of Third Parties Rights against Insurers Act 2010

  1. Makin v QBE [2025] EWHC 895 (KB), Archer v Riverstone [2025] EWHC 1342 (KB), and Ahmed & Ors v White & Co & Allianz [2025] EWHC 2399 (Comm)

This trio of cases highlights the strict approach taken to claims notification provisions in liability insurance policies alongside their impact under the 2010 Act and reaffirms that Claimants under the 2010 Act will have to suffer the consequences of a policyholders breach of conditions.

The Courts confirmed that third-party claimants inherit not only the insured’s rights but also its contractual obligations. Notification clauses were treated as conditions precedent, even where not expressly labelled as such, meaning a breach of these provisions entitled insurers to deny indemnity.

In Makin, Protec Security delayed notifying QBE for three years after an incident that ultimately led to catastrophic injury. The Court held that the obligation to notify arose once Protec reasonably appreciated potential liability which was well before formal proceedings. Ultimately, failure to comply barred recovery.

Similarly, in Archer, R’N’F Catering failed to notify Riverstone promptly and ignored repeated requests for information. The Court rejected arguments that the claimant’s later cooperation could cure the insured’s breach, confirming that rights lost by the insured cannot be revived under the 2010 Act.

Both judgments emphasise that the trigger for notification is not the incident itself but the point at which the insured knows a claim may arise. Excuses such as administrative errors (argument that relevant correspondence had been sent to a spam folder) or insolvency were given short shrift.

By contrast, Ahmed focused on whether notifications made by White & Co to Allianz were sufficiently clear to trigger coverage under a professional indemnity policy. Despite extensive correspondence, the Court found none of the notifications adequately identified the claims or potential liabilities intended to be covered. The judgment underscores that compliance is not just about timing but also clarity and substance, vague or incomplete notices may fail to engage the policy.

The case also illustrates how technical drafting, such as aggregation clauses and endorsements, can compound the consequences of inadequate notification, limiting recovery even where coverage might otherwise apply.

These decisions reinforce several key points for policyholders and claimants:

  1. Notification clauses, even if unlabelled, may operate as conditions precedent.
  2. Breaches by the insured cannot be remedied by third-party claimants under the 2010 Act.
  3. Both timing and clarity of notifications are critical; “can of worms” notifications must be explicit.
  4. Failure to comply can result in catastrophic loss of indemnity, regardless of claim severity.

Policyholders, with their Brokers' assistance, should adopt a proactive and precise approach to claims notification to avoid disputes and preserve coverage.

Please see our full article on Ahmed here.

The full Judgment on Ahmed is available here.

Aviation

  1. Russian Aircraft Lessor Policy Claims [2025] EWHC 1430 (Comm).

In a landmark Judgment handed down on 30 June 2025, the Commercial Court determined coverage disputes arising from the grounding and expropriation of hundreds of Western leased aircraft in Russia following the invasion of Ukraine and the imposition of Russian Order 311 in March 2022. The claims, brought by a consortium of lessors including AerCap, DAE, Falcon, KDAC, Merx and Genesis, were the subject of a “mega trial” and resulted in the largest ever insurance award by the UK courts of over £809 million.

The Court held that Contingent Cover responded because the aircraft were not in the lessors’ physical possession and operator policy claims remained unpaid (interpreting, “not indemnified” as “not paid”). Applying a balance of probabilities standard, permanent deprivation was deemed to occur on 10 March 2022, with Russian Order 311 identified as the proximate cause amounting to an effective governmental restraint. This amounted to governmental “restraint” or “detention,” which fell within the Government Peril exclusion under the All-Risks section. Under the Wayne Tank principle, where there are concurrent causes, one covered and one excluded, the exclusion prevails, meaning All Risks could not respond. Consequently, the claims were covered under the War Risks section.

The biggest takeaway for Policyholders from this case, is the guidance that Mr Justice Butcher adopted from the Australian case of LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17, which held that:

“The ease with which an insured may establish matters relevant to its claim for indemnity may influence questions of construction … a construction which advances the purpose of the cover is to be preferred to one that hinders it as a factor in construing the policies.”

Please see our full article here.

Building Safety Act 1972

  1. URS Corporation Ltd (Appellant) v BDW Trading Ltd (Respondent) [2025] UKSC 21

In summary, BDW (being the relevant developer) sued URS (being the design engineers) in negligence for repair costs from structural defects in two development schemes. The Supreme Court was asked to decide whether such voluntarily incurred cost was recoverable and whether section 135 of the Building Safety Act 2022 (“BSA”) extends limitation for such claims.

The Supreme Court unanimously found that once developer knows that defects are attributable to negligent design then remedial works – even on property no longer owned by it – are not ‘voluntary’ in the sense they fall within the ambit of the engineers’ duty. This fortifies the existing common law principles that loss incurred in reliance on professional duty is recoverable, even absent a direct proprietary interest.

The Court clarified that section 135 of the BSA merely extends time for Defective Premises Act 1972 claims and does not revive or extend limitation periods for tortious claims. Policyholders should note that professional indemnity insurers need not cover historic negligence where properly time-barred under the Limitation Act 1980, unless otherwise endorsed.

The Court also held that section 135 of the BSA does not permit developers to treat their negligent repair costs as falling within extended timeframes, preserving clear statutory boundaries between contract/statutory claims and tort claims.

Read our full article on the Supreme Court’s Judgment here.

CAR Policies

  1. Sky UK Limited & Mace Limited v Riverstone Managing Agency Ltd [2025] EWCA Civ 1567

Insurers sought permission to appeal the Court of Appeal’s December 2024 decision in Sky v Riverstone ([2024] EWCA Civ 1567), which confirmed that deterioration and development damage occurring after the policy period, but stemming from damage during it, was covered under the CAR policy, along with investigation costs and a single deductible per event.

On 30 April 2025, the Supreme Court refused permission to appeal, leaving the Court of Appeal’s ruling intact. This outcome reinforces that insurers cannot restrict recovery to damage physically present at the end of the policy period and affirms a practical approach to progressive damage under CAR policies.

Overall, the refusal cements the Court of Appeal’s interpretation, providing certainty for policyholders on coverage for post-expiry deterioration linked to insured-period damage.

Our article on the Court of Appeal ruling, now confirmed by the Supreme Court’s dismissal is found here.

Latent Defects

  1. National House Building Council v Peabody Trust [2025] EWCA Civ 932 (CA)

The Court of Appeal resolved a key limitation question over NHBC Buildmark insurance’s “Option 1 – Insolvency cover before practical completion.” Under this extension, insurance is triggered not by the contractor’s insolvency per se but when the employer (Peabody) “has to pay more” to complete the homes because of the insolvency.

The underlying development involved 175 dwellings, including 88 social housing units. The contractor became insolvent in June 2016, and Peabody arranged for completion thereafter, with practical completion in January 2021. The claim for additional completion costs was brought in July 2023. NHBC contended that the cause of action accrued in 2016, when the contractor became insolvent, and was now statute-barred; Peabody argued instead that it accrued when costs were actually incurred.

The Court unanimously agreed with Peabody, affirming the Technology & Construction Court’s view that the policy insured against additional payment triggered by insolvency, so the cause of action only accrued when extra costs became payable. The NHBC appeal was dismissed.

This decision emphasises the importance of carefully identifying the insured event as defined in policy terms and confirms that policies with “pay-when-loss-incurred” triggers should be interpreted on their true wording rather than conventional accrual rules.

The Judgment can be found here.

Other Insurance

  1. Watford Community Housing Trust v Arthur J Gallagher Insurance Brokers Ltd

This Judgment was a significant ruling clarifying principles concerning multiple cover and a policyholder’s rights following a cyber-related loss. It was a resounding win for policyholders: securing sequential access to multiple policies.

The Court held that Watford had the right to choose which policies to invoke, having the benefit of PI, Cyber and Combined policies, attracting limits of £5 million, £1 million, and £5 million, respectively. Timely notification was made under the Cyber policy, but late notification was successfully raised by the PI insurer to decline indemnity. The Combined insurer confirmed cover despite late notification.

The Court held that the “other insurance” clauses (limiting cover where overlapping insurance exists) effectively neutralised each other, allowing sequential claims rather than enforcing contribution across overlapping policies. This ruling supports the principle that a policyholder can access each policy in turn until the total loss is covered. Having recovered £6 million, Watford also sought recovery of the additional £5 million under the PI policy had timely notification been made. Consequently, Watford was entitled to a total of £11 million.

As to broker liability, the Court found that, but for the broker’s negligence, the PI policy would have been exhausted. Since it was not, the broker was held liable for the £5 million shortfall. The Judgment is a stark reminder that notification conditions should be identified and complied with. It also emphasises a broker’s duty to accurately advise on policy layers and limitations to ensure the policyholder is clearly instructed and that the advice given is documented.

Our full article can be found here.

Authors

Dan Robin, Managing Partner

Catrin Wyn Williams, Associate

Pawinder Manak, Trainee Solicitor

by Fenchurch Law

PFAS – Out of the Frying Pan into the Court Room?

Fenchurch Law considers the impact of PFAS on the UK insurance sector, following the rise of litigation progressing through the US courts.

What Are PFAs?

PFAS, or Polyfluoroalkyl Substances, also known as Forever Chemicals, are a group of over 10,000 chemicals that do not readily degrade.

These synthetic chemicals have been utilised in products such as non-stick cookware,  waterproof clothing and cosmetics since the 1950s for their non-stick, water- and heat-resistant properties. A concerning aspect of PFAS is that they can accumulate indefinitely in the environment and in living organisms. Their highly durable nature has led scientists to investigate the long-term effects of these chemicals on the body and the environment, with alarming results.

Currently, PFAS are linked to several health issues, including immunosuppression and certain types of cancer. Consequently, and unsurprisingly, regulators are now aiming to tighten the regulation of PFAS chemicals to limit ongoing risks.

Regulatory Landscape in the UK

PFAS are currently regulated under the UK REACH regime (Registration, Evaluation, Authorisation, and Restriction of Chemicals). However, only a limited number of specific PFAS are restricted for use in the UK. For example, PFOA (Perfluorooctanoic acid) and PFOS (perfluorooctane sulfonate) are types of chemicals within the PFAS category and have been listed as Persistent Organic Pollutants (POPs), making it illegal (with limited exceptions) to manufacture or use them in the UK and requiring their removal from products and waste streams.

The emerging risks associated with PFAS use are being closely monitored, with the HSE initiating a six-month consultation earlier this year on the use of PFAS in firefighting foam. UK regulation lags behind other countries; for example, the US has already declared PFAS a critical contamination crisis.

Although the UK regulatory framework for PFAS is still in its early stages, the Environmental Agency has begun assessing the risks. It has identified over 10,000 “high risk” sites believed to contain elevated PFAS levels. Some of the highest-risk sites include firefighting foam manufacturing plants, RAF bases, and airports.

Emerging Risks for the Insurance Sector

PFAS present a complex challenge for insurers. They pose potential long-tail liabilities, similar to claims arising from asbestos or environmental pollution, arising from historic use. Moreover, the increased focus of regulators and claimants on PFAS means insurers must navigate a rapidly changing risk that spans numerous lines of insurance – including general liability, product liability, environmental impairment, directors & officers, as well as property and speciality lines.

Insurers' response to this uncertain risk exposure has been to introduce specific exclusions, often based on existing pollution exclusion clauses. For instance, insurers may add a clause excluding any claims “arising out of, resulting from or relating to PFAS of any kind”.  Of course, such exclusions will not be relevant to the extent cover attaches to expired policies.

Lloyd’s has also issued standard PFAS exclusion wordings, LMA5595A and LMA5596A[1].

Types of Claims
  1. Nuisance Claims: arising from contamination of public drinking water and environmental cleanup.
  2. Personal injury Claims: resulting from exposure to PFAS in everyday products.
  3. Property Damage/Diminution of Value Claims: caused by PFAS seeping into the ground from industrial manufacturers.
  4. False Advertising & Product Labelling: Due to products failing to identify the dangers of PFAS.
The New Asbestos?

The insurance market has been questioning whether PFAS will become the “next asbestos”, as both are similar in that they were once widespread, marketed as safe, and only later revealed to be potentially dangerous.

However, a key difference between PFAS and asbestos is that exposure to many different types of PFAS is unavoidable in the modern world, whereas asbestos exposure can usually be traced back to a specific place and time to establish a cause. This causal link is likely to be far more difficult to establish in the context of PFAS exposure.

Currently, unlike in asbestos claims, no disease has been solely linked to PFAS exposure. This complicates the process of directly attributing the development of diseases such as cancer to PFAS, requiring substantial expert evidence to support the claim that the claimant would not have developed the disease without specific PFAS exposure.

UK PFAS Litigation

Although PFAS litigation is advancing through US courts with multimillion-dollar settlements already reached, UK litigation remains in the early stages. So far, there have been no PFAS cases litigated in UK courts, but two British law firms have announced investigations into PFAS contamination cases. While formal proceedings may take time, we might soon see the first UK group action application for PFAS.

Similarly, to date, there have been no regulatory actions; however, the UK Environment Agency or local authorities could designate contaminated sites for remediation in the future. Companies might then face clean-up costs and seek insurance coverage for those expenses.

Furthermore, the lack of UK personal injury claims may stem from the difficulty in proving a causal link between exposure and injury. While legal systems in countries like the US are more claimant-friendly in this regard, the UK requires evidence that a defendant’s actions caused the harm. The widespread presence of PFAS compounds further complicates this issue. There is no precedent in the UK for relaxing causation standards for PFAS, unlike asbestos, where English law permits more lenient rules for mesothelioma causation.

If and when PFAS claims arise, several key coverage questions will need to be answered, including whether PFAS claims constitute “pollution” and whether the contamination was sudden or gradual. When did an “occurrence” of contamination or injury happen (continuous trigger or not)? Can a claimant’s blood PFAS levels amount to an “injury” within the policy period?

Conclusion

PFAS present an increasing challenge across various sectors due to their persistence, health hazards, and complex liability concerns. Their extensive use, environmental durability, and potential health effects have led to heightened scrutiny and regulatory measures. However, the UK’s response via regulators and the Courts is still in its early phases compared to other jurisdictions.

As UK regulation and litigation evolve, proactive risk management and continuous vigilance will be essential to navigate the uncertainties associated with these “forever chemicals.”

[1] https://lmalloyds.imiscloud.com/LMA_Bulletins/LMA23-035-TC.aspx

Chloe Franklin is an Assoicate at Fenchurch Law

by Chloe Franklin

New Zealand’s Contracts of Insurance Act 2024 – What to Expect for Policyholders

The Contracts of Insurance Act (the “Act”), which received royal assent in 2024 and will come into force at the latest by November 2027, will overhaul and rationalise insurance law in New Zealand while harmonising it with existing law in other common law jurisdictions. In some respects, the Act should be celebrated as a win for policyholders, as it adopts some of the policyholder-friendly approaches taken in the UK Insurance Act 2015 (the “UK Act”).

The Act is intended to provide greater clarity for both consumers and commercial parties, replacing the previously fragmented law that was contained in multiple statutes and common law principles.

Key Provisions

The Act distinguishes between consumer and non-consumer (ie, commercial) policies. This article focuses only on the latter.

  • Disclosure Duties
    Previously, an insured’s duty of disclosure was based on the principle of utmost good faith. Under the Bill, this is amended to a duty of fair presentation of the risk, mirroring the UK Act. This requires that a policyholder:

    • Discloses every “material circumstance” that the policyholder knew or ought to have known, or provides sufficient information to put a prudent insurer on notice to make further inquiries;
    • Gives disclosure in a reasonably clear and accessible manner; and
    • Makes every “material representation” of fact substantially correct.
      Here, “material” means anything that would influence the judgment of a prudent insurer.

For our thoughts on how the English courts have applied the principle of fair presentation, please see A “WIN WIN” for Policyholders - Fenchurch Law APAC.

  • Proportionate Remedies
    The Act also introduces proportionate remedies where the duty of fair presentation is breached, again mirroring the UK Act,. This is a departure from the previous “all or nothing” position, which meant the insurer could avoid the policy for breach of duty. The Bill now provides that the insurer can either:

    • Avoid the policy but return the premium (where the breach is not deliberate or reckless);
    • Amend the policy terms where the insurer would still have underwritten the policy but on different terms; or
    • Where the insurer would have charged a higher premium, it can either raise the premium for the term of the policy or proportionately reduce the indemnity.
  • Damages for Late Payment of Claims
    Another import from the UK Act, the Act establishes a new cause of action for damages where insurers fail to process claims within a “reasonable time”.

    • Whether the insurer has reasonable grounds for disputing the claim is a relevant factor in determining whether the obligation has been breached, as is the case under the UK Act.
    • An insured will only be entitled to damages if it can establish that the insurer’s breach caused a loss, and those losses will be subject to the usual principle that they must not be too remote.

Aims

The above changes should allow policyholders to understand their obligations, and those of insurers more clearly and allow more efficient resolution of claims disputes.

The Act is designed to provide clarity and address historical imbalances between policyholders and insurers, and levels the playing field for policyholders by making their obligations and rights of recourse easier to understand.

What can be learnt from the UK market?

The coming into force of the UK Act has resulted in relatively few reported cases, making it more challenging to predict how New Zealand courts will interpret the provisions of the Act.

However, market feedback to the UK Act has shown that it has had a positive influence, fostering better communication before a policy is taken out, and fairer treatment of policyholders during the claims process.

Qualitative research suggests that Risk Managers have changed how they approach disclosure following the UK Act, with survey respondents reporting greater engagement with insurers.

While the introduction of damages for late payment has not so far resulted in any successful claims in the UK, the mere presence of the rule may be a motivator for insurers to handle claims diligently.

Most importantly, surveyed risk managers reported that the impact of the 2015 Act has overall been positive. Further, the data shows that, contrary to some initial fears, the introduction of the UK Act did not lead to a spike in disputes. The same result should be hoped for, and expected, in New Zealand.

Matthew King is an Associate at Fenchurch Law.

by Matthew King

The Good, the Bad & the Ugly: #26 The Good: The Seashell of Lisson Grove Ltd v Aviva

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.

#26 The Good: The Seashell of Lisson Grove Ltd & Ors v Aviva Insurance Ltd & Ors [2011] EWHC 1761

Introduction

In the Good, the Bad and the Ugly series, we look at recently decided cases but occasionally – as in this piece – we like to revisit an older decision which frequently crops up in negotiations with insurers.

This High Court judgment from 2009 relates to a Non-Invalidation Clauses (NIC), which are important clauses routinely found in property and construction policies.

Insurers often allege that a policyholder is in breach of a policy term or obligation and that provides them with an entitlement to decline a claim.

In responding, the policyholder and its lawyers will consider all of the usual points: Is the policyholder in fact in breach, what is the status of the term, what are the consequences of breach and the extent to which it may be possible to argue that any breach did not increase the risk of loss which occurred (so that the policyholder is saved by s.11 Insurance Act 2015).

However, even if the prospects are looking gloomy in relation to all of those points, the policyholder’s claim may nevertheless be saved by an NIC.

For these reasons, The Seashell is a very Good case from the policyholder perspective.

The claim arose from a fire at The Seashell Restaurant in Marylebone, London, in 2009. The restaurant operator and trustees of a pension scheme, who held the building's freehold, claimed against their insurers, Aviva, under two policies. In this article, we consider only the insureds’ claim under the Restaurant Policy, where Aviva denied liability, citing breaches of a Frying Range Warranty.

The Restaurant Policy

The Restaurant Policy contained the NIC below, which is a fairly typical NIC, as well as other relevant clauses as follows:

NIC

“The Insurance by Section A [Buildings] and B1 [Contents] will not be invalidated by any:

1) act; or

2) omission; or

3) alteration

either unknown to You or beyond Your control which increases the risk of Damage.

However, You must:

  1. a) notify Us immediately You become aware of any such act, omission or alteration; and
  2. b) pay any additional premium required".

Clause 5(c)

"5. Rights and Responsibilities"

(c) Any Section of this Policy will cease to be in force if after the commencement of this insurance there is any alteration in respect of such Section which results in

(i) the risk of loss damage or injury or disease being increased”

A preliminary issue was whether the NIC protected the insureds in the event they were found to have acted in breach of warranty.

The insureds argued that the “act, omission or alteration” referred to in the NIC could include a breach of warranty, and that “The Insurance” meant the insurance cover in respect of the claim, and not the entire insurance policy. In this regard, the insureds relied on the decision in Kumar v AGF [1999] where, in a different context, a bar on repudiation of “this insurance” was held to apply not only to repudiation of the policy, but also to being discharged from liability for reason of a breach of warranty.

In short, the insureds argued that, if there was a breach of warranty, they would be protected by the NIC.

The insurer argued that the NIC did not ameliorate the effect of a breach of warranty; it was instead only to ameliorate the effect of clause 5(c), such that an alteration which increased the risk of damage – which was unknown to or beyond the insured’s control – would not give the insurer any remedy under clause 5(c).

Findings

The Court agreed with the insureds and found that:

1.  Clause 5(c) was triggered in the event there was an "alteration" which increased the risk of damage, whereas the NIC applied where there was "any act, omission or alteration" which increase the risk of damage. The inclusion of the words "act [or] omission", in addition to “alteration”, indicated that the NIC's application was not limited to ameliorating the effect of clause 5(c);

2. The words "act or omission" were capable of applying to a misrepresentation, non-disclosure or breach of warranty. Thus, if the insured was inadvertently in breach of any of these different types of obligation, the NIC might alleviate the consequences of breach. Interestingly, the decision did not mention whether the words “act or omission” were capable of applying to a condition precedent although, in another case with an identically worded NIC where an insured has breached a condition precedent, there is no reason to consider that the NIC may not come to the policyholder’s rescue for the same reasons discussed in The Seashell.

3. The insureds could still rely on the NIC notwithstanding damage had already occurred, provided it notified the insurer immediately on becoming aware of the breach and paid any additional premium required. Whilst not part of the decision in The Seashell, in other cases any discretion that an insurer has to charge additional premium must be exercised in good faith (subject to the wording of the policy), meaning an insurer is unlikely to be entitled to arbitrarily charge exorbitant premium post-damage where an insured seeks the protection under an NIC; any premium charged should bear some correlation to the increase in the risk of damage caused by the act/omission/alteration.

Conclusion

The precise effect of an NIC will, of course, always turn on its interpretation and that of the wider policy. The judgment in The Seashell is a useful decision in showing how the Court interpreted the NIC in that case.

As we say, the wording of the NIC was not untypical of the wordings which we see in many other policies so the decision may assist policyholders in arguing that they are relieved from the consequences of a breach of obligation; potentially any obligation.

In each case, the policyholder will also need to satisfy the constituent factual elements of the NIC in question, e.g. that the policyholder was unaware of the breach or that it was beyond their control, that they provided immediate notification and have paid additional premium.

All of these elements can present difficult challenges to policyholders in their own right.

For example, in relation to the requirement to provide notice on becoming aware of the increased risk, whose knowledge is relevant in the case of a corporate policyholder? If “head office” have no actual or constructive knowledge of an increase in risk, will this trigger an obligation to notify or might it be possible for a policyholder to argue that it is only the knowledge of “senior management” that counts for the purposes of the NIC (relying on what s.4 of the Insurance Act 2015 says about the knowledge of a corporate insured in the different context of the duty of fair presentation).

Further, an obligation to provide “immediate” notice is clearly more onerous than one required “as soon as reasonably practicable” or similar so brokers with the gift of amending policy wordings will want to consider points like this so as to put their policyholder clients in the strongest position when claims arise.

Finally, co-insured lenders to real estate and construction projects will also want to ensure policies include a suitably drafted NIC, which may be the difference between a claim being paid or not, given such parties often have no knowledge or control over increases in risk.

Chris Ives is a Partner at Fenchurch Law

by Christopher Ives

Timing is everything Part II – Archer v Riverstone and (a reminder of) the cost of not complying with a condition precedent

In our article on Makin v QBE last month, we highlighted the importance of complying with conditions precedent, and noted that claimants pursuing claims under the Third Parties (Rights Against Insurers) Act 2010 (“the 2010 Act”) inherit both the rights and obligations of the insured. This case serves as yet another clear reminder of that principle, underlining the risks claimants face when policy conditions are not strictly observed.

Background

The Claimant, Hannah Archer, issued proceedings against R’N’F Catering Limited (“R’N’F”) on 5 July 2022, seeking damages for personal injury following a meal at R’N’F’s restaurant (“the Proceedings”).

R’N’F filed a defence in December 2020 and then entered into a members’ voluntary liquidation in February 2023 (“the Insolvency”). It played no active role in the Proceedings thereafter.

By a consent order dated 9 July 2024, Riverstone Insurance (Malta) SE (“Riverstone”), the successor to ArgoGlobal SE, which insured R’N’F under a restaurant insurance policy from 18/09/18 – 17/09/19 (“the Policy”), was added to the Proceedings.

The Proceedings

Miss Archer claimed that she was entitled an indemnity from Riverstone by virtue of the 2010 Act. Specifically, she said that:

  • The Insolvency meant that R’N’F’s rights under the Policy had automatically transferred to her; and
  • By reason of s.9(2) of the 2010 Act – which stated that anything done by a third party which, if done by the insured, would amount to fulfilment of the condition as if done by the insured – she complied with the Policy.

The question of Riverstone’s liability to Miss Archer was disposed of at a preliminary issues trial. There were two issues to be determined:

  • Could Riverstone prove that R’N’F was not entitled to an indemnity under the Policy (“Issue 1”)?
  • Could s.9(2) of the 2010 Act assist Miss Archer to render Riverstone liable on proof of R’N’Fs liability (“Issue 2”)?

Issue 1

The breaches of condition precedent

Riverstone asserted the following breaches of condition precedent by R’N’F:

  1. A failure to “On the happening of any event which could give rise to a claim … as soon as reasonably possible give notice to the insurer” (“the First Breach”)
  2. A failure to “supply full details of the claim in writing together with any evidence and information that may be reasonably required by the Insurer for the purpose of investigating or verifying the claim … within … 30 days of the event or circumstances …” (“the Second Breach”).
  3. A failure to “take all reasonable precautions to prevent or diminish loss destruction damage or injury” (“the Third Breach”).
  4. A failure to “provide all help and assistance and cooperation required by the Insurer in connection with any claim” (“the Fourth Breach”).

(Collectively, “the Breaches”).

The Breaches were all largely based on the same facts.

In a nutshell, Miss Archer first contacted R’N’F on 29 November 2019 to advise that she had become seriously unwell following a meal at its restaurant. Her solicitors then wrote to R’N’F on a several occasions, which included their sending a Claim Notification Form (“CNF”) and a letter on 10 January 2020 which requested R’N’F’s insurance details. R’N’F did not respond.

Miss Archer’s solicitors then sent a letter of claim to R’N’F on 30 October 2020. That prompted R’N’F belatedly to notify Riverstone on 17 November 2020.

Sedgwick, Riverstone’s claims handlers, thereafter emailed R’N’F asking for information about the claim. That included, notably, a chaser email on 20 July 2021 which stated: “failure to assist us with this matter is a breach of policy terms so if we fail to receive your response your insurer may take the decision to decline indemnity”. Indeed, it was not until October 2022 that R’N’F’s Director, Mr Ali, engaged with Sedgwick, at which point he blamed the delay on the fact that emails had gone into a spam folder.

The parties’ positions

Riverstone said there was no case for R’N’F to answer in respect of the Breaches. It described R’N’F as “burying its head in the sand for months and indeed years, before coming up with a ‘dog ate my homework’ series of excuses’.

Miss Archer, perhaps unsurprisingly, did not advance a positive case as to R’N’F’s actions. She simply said that Sedgwick took only limited steps to contact R’N’F for information, and that “alarm bells should have rung” when R’N’F did not respond.

The decision

The court had no difficulty in finding that Riverstone was right.

As to the First Breach, it said that any and all of the initial communications from Miss Archer and/or her solicitors to R’N’F were “circumstances” which should have prompted R’N’F to notify Riverstone, and that R’N’F was “thoroughly disengaged with the threatened claim, maybe hoping that by ignoring it, it will go away”. So, because R’N’F did not notify Riverstone of the “circumstance” until 17 November 2020, the First Breach was made out.

As to the Second Breach, the court agreed with Riverstone that R’N’F repeatedly ignored Sedgwick, and had no good reason for doing so. Further, the timing of its belated engagement was redolent of a policyholder that “panicked that its prior tactic of ignoring the threatened claim had failed”. The court also rejected Mr Ali’s “spam folder” explanation; that lacked any sort of cogency, and even if it did, the court found that R’N’F ought to have had proper procedures in place for checking important emails.

Based on the same factual matrix, the court found that the Third and Fourth Breaches were also made out.

As R’N’F was in breach of conditions precedent to liability, Riverstone was entitled to refuse to indemnify it.

Issue 2

Miss Archer asserted that even if R’N’F was in breach of condition precedent, she was nonetheless entitled to an indemnity. The gist of her argument was that R’N’F only became a ‘relevant person’ within the meaning of the 2010 Act at the point of the Insolvency. Thereafter, she “stood ready” to comply with the Policy, as shown by the fact that notifying and corresponding with Sedgwick and Riverstone’s solicitors. So, her position was that anything done by her was to be treated as done by R’N’F, thus entitling her to an indemnity.

She also argued that it was impossible for her to comply with the conditions precedent in the Policy before the Insolvency, as her rights only arose at that stage. That was also consistent, she said, with the 2010 Act’s policy of protecting third parties in circumstances where an insured becomes insolvent.

Riverstone disagreed. It said that any actions taken by her after the Insolvency, however reasonable, were too late, and were incapable of leading to a conclusion that she complied with the Policy.

Although the court had considerable sympathy with Miss Archer, it found that she was nevertheless wrong. In short, it was not possible to “resurrect” her right to an indemnity in circumstances where that same right had already been invalidated by R’N’F. If it was, that would effectively mean that the conditions precedent to which was subjected were entirely different from those to which R’N’F were subjected. The court found no authority for such a proposition.

The court was also unpersuaded by Miss Archer’s impossibility argument. It noted that over three years passed between the first circumstance in November 2019 and the Insolvency, and no impossibility prevented R’N’F complying with its obligations in that time. So, as R’N’F had already lost its rights under the Policy when it was not faced with an impossibility, Miss Archer could not take the benefit of them now.

Summary

The decision in Archer is another important illustration that where an insured has already lost its rights under a policy, a claimant pursuing a 2010 Act claim stands in no better a position. Even if the failure was not of the claimant’s making, that is of no consequence – the claimant does not get a second chance.

Finally, although the judgment does not explore the point in detail, it reinforces the principle that conditions precedent, and particularly notification requirements, must be complied with strictly.

The full judgment can be found here:

https://www.bailii.org/ew/cases/EWHC/KB/2025/1342.html

Author:

Alex Rosenfield, Partner

by Alex Rosenfield

Timing is everything – Makin v QBE and the cost of not complying with a condition precedent

This recent decision from the High Court provides a powerful reminder of the consequences of not complying with a condition precedent to liability, and that a claimant pursuing a claim under the Third Parties (Rights Against Insurers) Act 2010 inherits both the rights – and the pitfalls – of the insured’s policy.

Background

The Claimant, Daniel Makin, attended a Bar and Restaurant on 6 August 2017. At around 08:30pm he threw a glass on the floor while apparently in “high spirits”, and was then forcibly ejected by two door supervisors (“the Incident”).

Although Mr Makin was seemingly unaffected by the Incident (he walked away and took a taxi home), he later suffered a stroke rendering him unable to work and requiring long-term care.

The Proceedings

Acting by his mother and litigation friend, Mr Makin issued proceedings against (1) the Restaurant Muse Limited (“the Restaurant”); (2) Protec Security Group Limited (“Protec”), the employer of the two doormen; and (3) QBE Insurance (Europe) Limited (“QBE”), who insured Protec under a “Security and Fire Protection” insurance policy (“the Policy”). QBE was joined to the proceedings under the Third Parties (Rights Against Insurers) Act 2010 (“the 2010 Act”).

At a preliminary issues hearing (which Protec did not attend, having entered into administration on the preceding day), the Judge, HHJ Sephton KC, gave judgment that Protec were liable to Mr Makin for assault and his consequent injury (“the Judgment”).

At trial, the parties agreed that pursuant to the 2010 Act: (1) Mr Makin was entitled to claim against QBE directly; and (2) Mr Makin’s rights were no better than those of Protec ie., if QBE had a good defence to a claim for indemnity by Protec, it would also have a good defence to Mr Makin’s claim.

QBE asserted that it had no liability to Mr Makin because Protec breached the claims condition in the Policy – a condition precedent – which required it to notify, “… as soon as practical but in any event within thirty (30) days in the case of other damage, bodily injury, incident accident or occurrence, that may give rise to a claim under your policy …” (“the Condition”).

Mr Makin disagreed. He contended that even if there was a breach of the Condition, it was not a condition precedent which entitled QBE to automatically refuse cover. Rather, it only gave QBE only the discretion to decline the claim, which it could not exercise “arbitrarily, irrationally or capriciously”.

Finally, an issue arose as to whether the Judgment was binding in these proceedings.

The issues to be decided, therefore, were:

  1. Did Protec breach the Condition? (“Issue 1”)
  2. If so, was QBE entitled to refuse cover for a breach of a condition precedent, or did it merely have a discretion to decline the claim? (“Issue 2”)
  3. If QBE was not automatically entitled to refuse cover, was it nevertheless entitled to do so on the facts? (“Issue 3”)
  4. Was the Judgment binding on QBE? (“Issue 4”).

Issue 1

Following the incident in 2017, neither the correspondence passing between the Restaurant and Protec, the Police’s investigations, nor the Letter of Claim sent in 2020 were disclosed to QBE contemporaneously. In fact, there was no suggestion that QBE were aware of the Incident at all before July 2020. Against that background, QBE said that Protec breached the Condition.

Mr Makin argued that a reasonable person would not have thought that the Incident, on its own, might give rise to a claim. He also argued that any suggestion that Protec may have come under an obligation at a later point to notify the Incident was contrary to the proper meaning and effect of the Condition. He relied in that regard on Zurich v Maccaferri [2016], in which the Court held that the likelihood of a claim eventuating is assessed at the time the event occurs.

QBE, by contrast, held that it would have been apparent to a reasonable person in Mr Lucas’ position that a claim might be made against Protec arising out of the Incident. It also distinguished the present case from Zurich v Maccaferri, because the requirement in that case was to notify a circumstance that was “likely” to give rise to a claim, whereas the Condition required Protec to notify a circumstance “might” give rise to a claim, which was a much lower threshold.

Although the Court accepted that the Incident, in isolation, would not have led a reasonable insured to form the view that there might be claim, there was nevertheless “a clear point in time” when the matters known to Mr Lucas, which included the police investigation, and that Protec were potentially open to criticism for injuring a customer, gave rise to an obligation to notify. Having not done so, Protec was in breach of the Condition.

Issue 2

On Mr Makin’s case, the Condition was not a condition precedent. That is because, he said, it was not expressed in that way (by contrast, there were other terms in the Policy that were so expressed), and if there was any doubt as to the correct interpretation, the Condition should be construed contra proferentem in his favour.

QBE disagreed. It said the Condition did not need to be labelled as a condition precedent in order to have that effect. It also referred to the introductory section of the Condition, which stated: “The following conditions 1-10 must be complied with after an incident that may give rise to a claim under your policy. Breach of these conditions will entitle us to refuse to deal with the relevant claim”.  So, QBE said, the Condition made clear at the outset that its obligation to meet a claim was conditional upon Protec’s compliance. Further, and importantly, QBE contended that the use of the word “will” was consistent with an absolute right, not a contractual discretion.

As with Issue 1, the Court agreed with QBE. The true meaning of the Condition was clear, even without the label of “condition precedent”. The Court also agreed with QBE’s analysis that the word “will”, in the introductory section of the Condition, did not merely import a discretion to decline indemnity. To hold otherwise, in the Court’s view, would do an injustice to the language used. There was also good commercial sense in that conclusion: an early notification enables an insurer to investigate claims at a time when witnesses will be easier to contact and memories are likely to be better, as well as to consider the early settlement of the claim, minimising any delays.

So, on the basis that the Condition was indeed a condition precedent to QBE’s liability, and in circumstances where that condition was breached, QBE was entitled to refuse indemnity under the Policy.

Issue 3

Given the Court’s earlier findings, this point was academic: QBE had already prevailed in light of the Protec’s breach of a condition precedent to liability. However, had the Court found that the Condition did not have that status, then, applying the well-established Braganza principles – namely, that a decision must be lawful, rational and made in good faith – it would have found that QBE was not entitled to refuse cover. The breaches in this case were trivial and of no meaningful consequence for QBE’s ability to deal with the claim.

Issue 4

The final issue was whether the Judgment establishing Protec’s liability was binding on QBE in circumstances where it was given (a) at a hearing which Protec did not attend; and (b) before QBE were a party to the proceedings.

Mr Makin contended that the Judgment was binding on QBE as establishing Protec’s liability. He relied in particular on Scotland Gas Networks plc v QBE UK Ltd, in which the Court of Session held that where a policyholder’s liability was established by way of a judgment of the court in previous proceedings, “it is not open to the [insurer] to require either the existence or the amount of that liability to be proved in the present action”.

QBE argued the contrary. It referred to AstraZeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd and Omega Proteins Ltd v Aspen Insurance UK Ltd, both of which established that neither a judgment nor an agreement are determinative of whether a loss is covered by a policy – it is open to an insurer to dispute that the insured was in fact liable.

The Court agreed with Mr Makin. The present case was distinct from Omega Proteins and AstraZeneca v XL Insurance, because those cases did not involve the 2010 Act, which was focussed on placing a claimant in the same position as the insolvent insured. It would therefore be incongruous with that objective if an insured’s liability could be determined definitively, only for the insurer to later challenge it.

Summary

There are a number of salutary lessons from Makin:

Firstly, the decision provides a convenient reminder of the distinction between “likely to” and “may / might” wordings in the context of notification conditions. Whereas the former requires an insured to notify circumstances which are at least 50% likely to lead to a claim, the latter requires only a real, as opposed to fanciful, risk of a claim eventuating. Policyholders would be well advised to check which wording appears in their policies, and to ensure that the requirements are met.

Secondly, the decision reinforces that a condition precedent need not be labelled as such in order to have that effect. Where the consequences of breaching a condition are clearly spelt out, namely, that an insurer will not be liable for a claim, the courts will likely treat the condition as a condition precedent to liability. It should never be assumed, therefore, that a condition precedent does not have that status simply because the words “condition precedent” are not included.

Thirdly, and finally, although the Court’s application of the 2010 Act did not assist Mr Makin on the facts, it is likely to be helpful for policyholders generally: where an insured’s lability is definitively determined in earlier proceedings, then, applying Makin, it will not be open to an Insurer to unravel that Judgment later down the line.

Author:

Alex Rosenfield, Partner

by Alex Rosenfield