The Good, the Bad & the Ugly: #25 The Good turned Ugly: Lonham Group Ltd v Scotbeef Ltd & DS Storage Ltd (in liquidation) [2025] EWCA Civ 203

Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

In our view, some cases are bad for policyholders, wrongly decided and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

#25 The Good turned Ugly: Lonham Group Limited v Scotbeef Limited & DS Storage Limited (in liquidation)

Introduction

In a highly anticipated appeal concerning the Insurance Act 2015 (“the Act”), the Court of Appeal has offered the first guidance on the operation of Parts 2 and 3, and the characterisation of representations, warranties and conditions precedent.

Background

D&S Storage Limited (“D&S”) provided refrigeration and transport services to Scotbeef Limited (“Scotbeef”), who are producers and distributors of meat. In October 2019, D&S transferred six pallets of mould contaminated meat to Scotbeef. The meat was unfit for consumption by humans and/or animals and was consequently destroyed, leading Scotbeef to issue a claim against D&S for £395,588.

Initially, D&S sought to limit its liability to £25,000 on the basis that the Food Storage and Distribution Federation terms (“FSDF Terms”) (which included a £250 per tonne liability limit for defective meat) had been incorporated into its contract with Scotbeef. The Court disagreed, finding that the FSDF Terms were not incorporated into the contract, and that Scotbeef’s claim was not limited in value.

The first instance decision triggered D&S’ insolvency, and Scotbeef sought to pursue the claim directly against D&S’ insurer, Lonham Group Limited (“the Insurer”) pursuant to the Third Parties (Rights Against Insurers) Act 2010.

The Insurer defended the claim on the basis that D&S had failed to comply with a condition precedent in the Policy by not incorporating the FSDF Terms into the contract.

The Policy

The Policy contained a “Duty of Assured” clause that read:

“Conditions

General Conditions, Exclusions, and Observance…

DUTY OF ASSURED CLAUSE

It is a condition precedent to liability of [the Insurer] hereunder:-

(i) that [D&S] makes a full declaration of all current trading conditions at inception of the policy period;

(ii) that during the currency of this policy [D&S] continuously trades under the conditions declared and approved by [the Insurer] in writing;

(iii) that [D&S] shall take all reasonable and practicable steps to ensure that their trading conditions are incorporated in all contracts entered into by [it]. Reasonable steps are considered by [the Insurer] to be the following but not limited to… [various examples relating to incorporation of terms and conditions were set out]…”

(Our emphasis)

The following term was also included elsewhere in the Policy:

“The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety.”

The High Court decision

Section 9 of the Act expressly prohibits an Insurer from converting a representation into a warranty or a condition precedent, whether by declaring the representation to form the basis of the contract or otherwise.

The High Court found that although sub-clause (i) was expressed as a condition precedent, it was in fact a representation about the insured’s trading position at the inception of the Policy. As such, it fell to be considered under Part 2 of the Act, which deals with the fair presentation of the risk.

As the Insurer had not based their defence on a breach of the duty of fair presentation and had not claimed any of the Section 8 proportionate remedies (such as part reduction in the claim), they could not rely on sub-clause (i) to repudiate liability.

Adopting a pro-policyholder interpretation, the Court held that each of the sub-clauses in the Duty of Assured clause had to be read together, meaning that sub-clauses (ii) and (iii) could not be relied upon either.

The Insurer appealed.

The Court of Appeal decision

Whilst the Court of Appeal agreed that sub-clause (i) was a pre-contractual representation dealing with existing contracts at policy inception, they disagreed that sub-clauses (ii) and (iii) had to be classified in the same way, stating that “the way they are grouped together in the policy does not justify… the “all or nothing” collective approach that was adopted by the judge.”

That being the case, the heart of the appeal went to the characterisation of sub-clauses (ii) and (iii), and whether they were warranties and/or conditions precedent.

Answering that question, the Court ruled that the wording was clear, and that on a proper construction, sub-clauses (ii) and (iii) were warranties and conditions precedent to liability covering D&S’ future business operations, because:

1. They were included under the heading “General Conditions, Exclusions and Observance”.
2. The heading of the clause included the word “duty”, synonymous with an ongoing responsibility, obligation or burden.
3. It was stated, in no uncertain terms, that the clause was “a condition precedent to liability”.
4. The Policy contained, elsewhere, the following wording: “The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety”.

Their categorisation as warranties meant that rather than being governed by the provisions of Part 2 of the Act, sub-clauses (ii) and (iii) fell to be considered under Part 3 of the Act, section 10(2), which provides that an insurer has no liability for any loss after a warranty has been breached but before it has been remedied. Since it had been established that the FSDF Terms were never incorporated into the contract between Scotbeef and D&S, D&S was in breach of the warranties and conditions precedent contained in sub-clauses (ii) and/or (iii), and the Insurer was absolved of any liability.

The Court of Appeal disagreed with the High Court’s interpretation that the Duty of Assured clause was an attempt to contract out of the Act because:

1. The Duty of Assured Clause stated that it was subject to and incorporated the Act, which was “directly contrary to the type of wording that would be necessary to achieve any contracting out”; and
2. Sub-clauses (ii) and (iii) did not place D&S in a worse position than it would have been in under the Act given that, under section 10(2) the Insurer is entitled to decline indemnity for breach of a warranty which has not been remedied.

Key takeaways for policyholders

The Court of Appeal decision highlights some of the difficulties policyholders may have in distinguishing between conditions precedent, warranties and pre-contractual representations in policies.

It is clear in a post-Insurance Act 2015 world that, although the ability of insurers to rely on conditions precedent and warranties has been limited, they are still of considerable use to insurers when properly applied. This decision confirms that underwriters are able to control the nature and extent of the risks they undertake through the use of appropriately worded duty of assured clauses, and warranties more generally, without contravening the provisions of the Act regarding the duty of fair presentation of risk (which the judgment of the lower court placed in doubt).

This decision is a salutary reminder for policyholders to ensure compliance with policy terms, and to seek support in identifying any conditions precedent to liability in order to ensure that an indemnity is available when needed.

Most importantly, for policyholders in the logistics and warehousing industry, where the value of goods stored or carried can be difficult to quantify and insurers manage their liability by requiring insureds to trade on industry terms, insurers will rely heavily on policy terms which require the incorporation of those terms, which limit liability and impose time bars on claims.

Abigail Smith is an Associate at Fenchurch Law