London Market - December 2009

Interpretation of terms of policy, construction of terms, suspensive conditions

In A C Ward & Sons Ltd v Catlin (Five) Ltd (10 September 2009) the Court of Appeal found that a judge was correct to find that an insurance claim could not be summarily disposed of where the insurers had sought to rely on an interpretation of the terms of a outdated insurance policy. The construction and effects of those terms required that they be examined at a full trial.

The original hearing dates back to 19 November 2008 in the Commercial Court where applicant insurers, Catlin, applied for summary judgment against the insured, Ward. Ward owned a warehouse which was burgled. A contract of insurance covering theft from secure storage was in place with Catlin.

Catlin refused to pay, citing that:

1. The policy contained a burglar alarm maintenance warranty, in which the alarm specifications were to be detailed.  These were never received by Catlin.
   
2. The policy contained a protection and maintenance warranty, security devises should be operational and all defects promptly remedied.  Onsite CCTV was effective but offsite monitors were defective, there were also issues with an alarm.

Catlin submitted that “warranties” were “suspensive conditions” limiting risk so that the insurer was effectively off cover during any period of non-compliance. 

Ward submitted that the warranty only applied to protections notified to the insurers in writing prior to entering into the policy, that the warranty obligations were no more than obligations to promptly remedy defects and the absence of the specifications meant the alarm maintenance warranty did not apply.

Held
The application by Catlin was refused as:

• The summary judgment application failed as Ward had an arguable case on the issues and was entitled to a determination on them.
  
• The warranties were warranties in the technical sense, not “suspensive conditions” as the meaning of a warranty was a defined term in the policy and the definition clause said that a breach voided the contract from the date of breach.
  
• The protection and maintenance warranty did not apply only to protections notified to the insurers.  There was no reason to exclude devices monitored by third parties or for which third parties had some responsibility or which were not physically on the premises from protection. These were risks and inclusions reasonably expected by insurers.
  
• The burglar alarm warranty should be best interpreted as extending to such system as the insured might from time to time install, regardless of whether it had been approved by the insurer.