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The Court of Appeal decision in Lonham Group Limited v Scotbeef Ltd [2025] EWCA Civ 203 concerns the Insurance Act 2015 and the proper categorisation of representations and warranties of information provided by the insured and how they interface with the obligations and remedies under the Insurance Act 2015.
The Court of Appeal held that the relevant clauses in the policy were future warranties (a promise by the insured that something will or will not be done) as well as being conditions precedent (because they were expressly labelled as such). As the insured was in breach of those terms, the insurer had no liability and the insured could not limit the insurer's remedies to those under the Insurance Act 2015.
BACKGROUND
Scotbeef, a meat producer, contracted with D&S Storage Limited (the insured) for blast freezing and storage of its meat products. Some of Scotbeef's meat stored by the insured became mouldy and unfit for consumption, resulting in a loss.
The insured had represented to its insurer that it contracted with customers on particular terms and conditions (the FSDF Terms and Conditions) which limited the insured's liability to £250 per metric ton. However, in separate proceedings, the Court determined that the FSDF Terms and Conditions had not been incorporated into the contract with Scotbeef (Scotbeef Ltd v D&S Storage Ltd (In Liquidation) [2022] EWHC 2434 (TCC)).
The insured went into liquidation, and Scotbeef added the insured's insurer (under a Marine Liability Policy (the Policy)) to the claim pursuant to the Third Parties (Rights against Insurers) Act 2010 (which allows a third party to sue the insurer directly when the defendant is insolvent).
Policy Terms
The Policy contained a number of clauses relating to the trading conditions that the insured had in place. In particular, the Policy contained the following representation:
"TRADING CONDITIONS: FSDF Terms and Conditions at £250 per tonne"
It also contained a "Duty of Assured Clause" which provided:
"DUTY OF ASSURED CLAUSE
It is a condition precedent to the liability of Underwriters hereunder:-
(i) that the Assured makes a full declaration of all current trading conditions at inception of the policy period;
(ii) that during the currency of this policy the Assured continuously trades under the conditions declared and approved by Underwriters in writing;
(iii) that the Assured shall take all reasonable and practicable steps to ensure that their trading conditions are incorporated in all contracts entered into by the Assured. Reasonable steps are considered by Underwriters to be the following, but not limited to same:
...
If a claim arises in respect of a contract into which the Assured have failed to incorporate the above mentioned conditions the Assured's right to be indemnified under this policy in respect of such a claim shall not be prejudiced providing that the Assured has taken all reasonable and practicable steps to incorporate the above conditions into contracts; ..."
Several pages later the Policy stated:
"The effect of a breach of a condition precedent is that the Underwriters are entitled to avoid the claim in its entirety."
The Policy also expressly incorporated the provisions of the Insurance Act 2015 (IA2015).
FIRST INSTANCE DECISION
The High Court was asked to determine the proper construction of the "Duty of Assured Clause" and its effect considering the IA2015. The Court found that sub-clauses (i) – (iii) had to be read together. Sub-clause (i) was a pre-contract representation and while the insured had misrepresented its trading conditions to the insurer, this misrepresentation could not be converted into a warranty because of section 9(2) of the IA2015 which prohibits representations made by an insured being converted into warranties. The insured's misrepresentation was, therefore, to be considered by reference to the insured's duty of presentation.
The Court went on to find that the insured had breached its duty of fair presentation. However, applying the proportionate remedies introduced by the IA2015, because the breach was not deliberate or reckless and there was insufficient evidence to show that the insurer would have entered into the Policy on different terms had they been aware of the breach, the Court found that the insurer was required to indemnify the insured. Scotbeef could therefore enforce that right of indemnity pursuant to the Third Parties (Rights Against Insurers) Act 2010.
A full analysis of the first instance decision can be seen in our blog post here.
COURT OF APPEAL DECISION
The Court of Appeal overturned the High Court's decision, ruling in favour of the insurer.
The Court of Appeal determined that the judge at first instance had been wrong to construe sub-clauses (i) – (iii) together and had therefore applied the wrong sections of the IA2015 to sub-clauses (ii) and (iii). While there is some overlap between the sub-clauses in that all deal with the contract terms upon which the insured is contracting with its customers, the Court of Appeal noted that each sub-clause deals with different and distinct things applicable at different times.
The Court of Appeal found that sub-clauses (ii) and (iii) of the Policy were future warranties, which in each case was a promise by the insured that something will or will not be done. These provisions were also held to be conditions precedent because they were expressly labelled as such. As the insured was in breach of these terms, the insurer could exercise its remedies for breach of a warranty and/or breach of a condition precedent and therefore had no liability. The Court of Appeal noted that the breach of warranty had not been remedied (such that the insured could not rely on section 10 of IA2015 where a breach of warranty had been corrected) and section 11 of IA2015 (where breach of certain conditions could not have increased the risk of loss) had no application here and so again could not assist the insured.
COMMENT
The Court of Appeal ran through the history of warranties and conditions precedent in insurance policies, and how the IA2015 addresses them. On the facts of this case, the various policyholder protections introduced by the IA2015 (such as proportionate remedies for breach of the duty of fair presentation, making warranties into suspensive conditions and the introduction of section 11 for loss mitigation terms) did not assist the insured.
The case is therefore a reminder of how significant the effect of a breach of warranty or breach of a condition precedent can be on a policyholder's ability to claim under a policy and how such terms can result in more significant remedies than under the IA2015. The Court of Appeal looked at the substance of the relevant policy terms (in determining that they were future warranties) as well as their labels (as conditions precedent) to determine what type of provisions they were and the effect of their breach. This case is a useful reminder that the proportionate remedies introduced by the IA2015 may not apply if there is a non-remedied breach of warranty or breach of a condition precedent which does not engage section 11. Policyholders should be vigilant to avoid, qualify or narrow any such terms, and where that is not possible, ensure compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
