Ten years on from the introduction of the Insurance Act 2015, the Court of Appeal has handed down a significant judgment, addressing for the first time the proper characterisation of warranties and representations under the "new" law. The decision in Lonham Group Ltd v Scotbeef Ltd & Anr [2025] EWCA Civ 203 provides an important and helpful insight into the operation of the Act and a reminder to parties that while the Act went some way to balancing the rights of insurers and policyholders, an insurer will still be able to avoid a policy where the policyholder is in breach of warranty.
Warranties, representations and the Insurance Act 2015
Historically, English insurance law imposed strict obligations on policyholders, obliging them to disclose "every material circumstance" which would influence the "judgment of a prudent insurer" in fixing the premium or deciding whether to take the risk, failing which the insurer could treat the policy as if it did not exist. In addition, where the policyholder failed to comply with any warranty it had given, the insurer was discharged from liability under the policy, whether or not the warranty was material to the risk and whether or not the breach was remedied. In the early days of insurance these potentially harsh rules were arguably justified by the information imbalance between policyholder and insurer. However, by the 21st century, the increasing sophistication of the insurance market led to calls for reform.
The result, at least in respect of non-consumer insurance law, was the Insurance Act 2015, which marked a significant change in approach. The duty of disclosure was replaced with a duty of fair presentation, breach of which only entitled the insurer to avoid the policy and refuse claims in certain circumstances. In relation to warranties, meanwhile, the Act abolished "basis of the contract" clauses, which converted all pre-contractual information supplied to insurers into warranties; suspended rather than discharged the insurers' liability in the event of a breach of warranty; and provided that non-compliance with a warranty should not allow the insurer to escape liability for a different type of loss on which the non-compliance could have no effect. The Act prohibited any attempt to contract out of the abolition of "basis of the contract" clauses and, to the extent that any other term put the policyholder in a worse position than it would otherwise be in under the Act, that term had to meet certain transparency requirements in order to have any effect.
Despite having been in force for nearly a decade, the Act has been the subject of relatively limited judicial comment and so, in Lonham, the Court of Appeal took the opportunity to consider it in detail.
Background
Scotbeef is a producer and distributor of meat for retail. In 2017 it entered into an agreement with D&S Storage whereby D&S agreed to freeze and store Scotbeef's meat products at its warehouse. However, in 2020 a significant quantity of meat was found to be contaminated with mould and unfit for human or animal consumption. Scotbeef therefore brought a claim against D&S for the loss.
D&S contended that the agreement between the parties had incorporated standard industry terms and, pursuant to those terms, the claim was subject to certain limitations and time-bars. That argument was rejected at a preliminary issue hearing and D&S then went into liquidation. Scotbeef therefore joined D&S's liability insurer, Lonham, to the claim, seeking an indemnity from it pursuant to the Third Parties (Rights Against Insurers) Act 2010.
Lonham argued that it was entitled to avoid the claim on the basis that D&S had breached a condition precedent in the relevant insurance policy by contracting with Scotbeef other than on the standard terms declared to Lonham and, as a result, Scotbeef could not enjoy the benefit of an indemnity under the 2010 Act. However, at first instance the court held that the information provided to Lonham about the contracting terms constituted representations rather than warranties, to be viewed in the context of the duty of fair presentation, and that Lonham was not entitled to avoid the policy. Lonham appealed.
The decision
The key clause provided that:
It is a condition precedent to the liability of Underwriters hereunder:
- That [D&S] makes a full declaration of all current trading conditions at inception of the policy period;
- That during the currency of this policy [D&S] continuously trades under the conditions declared and approved by [Lonham] in writing;
- That [D&S] shall take all reasonable and practicable steps to ensure that their trading conditions are incorporated in all contracts entered into by [D&S]…
At first instance, the High Court concluded that sub-clauses (1), (2) and (3) had to be read together and, because sub-clause (1) was a representation, that meant that (2) and (3) were too. However, the Court of Appeal disagreed, emphasising that the first exercise when analysing an insurance contract under the Act is to determine whether the relevant term is a representation (and therefore subject to the duty of fair presentation in Part 2 of the Act) or a warranty (and therefore subject to Part 3 of the Act).
Here the Court of Appeal considered that, although there was some overlap, the sub-clauses were all dealing with different and distinct things. While (1) contained representations as to the existing state of affairs as at the commencement of the policy period, (2) and (3) constituted future warranties as to how D&S would carry on business. Further, given the clear wording of the policy, they were conditions precedent. As the court had already determined that the standard terms were not incorporated into the contractual relationship between Scotbeef and D&S, D&S was clearly in breach of those warranties / conditions precedent. None of the exceptions to the general rule that an insurer will not be liable in respect of loss arising after a warranty has been breached but before it has been remedied applied here. As a result, Lonham was not liable to indemnify D&S in respect of the losses claimed by Scotbeef.
The Court went on to reject a separate argument raised by Scotbeef that, if sub-clauses (2) and (3) were warranties rather than representations, this amounted to an "implied contracting out" of duties under the Act, and accordingly any such term had to satisfy the transparency requirements of the Act. Including warranties did not subvert the purpose of the provisions in the Act dealing with fair presentation of risk, nor did it return the law to the regime that applied prior to the Act. In the Court's view, there was no attempt to contract out of the Act here and so there was no need to consider the transparency requirements.
The appeal was allowed.
Conclusion
As Lord Justice Fraser noted, there is limited authority on the operation of the Act. He suggested that demonstrated the degree to which it has successfully reformed insurance law and practice. Whether that is the case is perhaps still an open question. Nevertheless, in emphasising the importance in first properly characterising insurance terms to ensure that the correct provisions of the Act are applied, the Court of Appeal has provided helpful and important guidance for the future.
The decision also demonstrates the continuing importance of insurance warranties, and the need to ensure that such warranties, together with any pre-contractual representations, are carefully reviewed on renewal.