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CHAPTER 14 BREACH OF WARRANTY AND OTHER CONDITIONS

Insurance Law and the Financial Ombudsman Service

14 BREACH OF WARRANTY AND OTHER CONDITIONS THE LAW Term classification 14.1 Sometimes the policy itself will stipulate the effects of breach of any particular term. When it does not, the court will decide the type of term that has been breached, and apply the relevant consequences. Breach of warranty will discharge the insurer automatically from liability from the date of breach—see further below at paragraphs 14.5 et seq . A warranty has a special meaning in an insurance policy and is different to a warranty in a non-insurance context. Non-compliance with a condition precedent will, depending on the particular details of the requirements not complied with, prevent the risk from attaching, terminate the risk as a whole or prevent a claim being made. Serious breach of a fundamental term can lead to repudiation of the whole contract, but it is rare that any term is considered so fundamental. Any other condition is an innominate term, a breach of which can only lead to a claim in damages, although such damages are likely to be nominal as it is usually hard to prove that the breach caused any particular and quantifiable loss to insurers. 1 One other option put forward in Alfred McAlpine plc v BAI (Run-Off) , 2 is no longer good law. 3 That was that a serious breach of an innominate term, so as to seriously prejudice the insurer’s position, could result in repudiation of the claim only, and not the whole contract.

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