CONSTRUCTION OF POLICIES - THE EFFECT OF BREACH OF CONDITION

(Kazakstan Wool Processors (Europe) Ltd v Nederlandsche Credietverzekering Maatschapij NV [1999] Lloyd’s Rep IR 596)

The effect of the breach of a condition in an insurance policy depends upon whether that condition is or is not a condition precedent to the insurer’s liability. Breach of a condition precedent deprives the assured of his right to press his claim, as such a condition sets out the procedural requirements for the making of a claim which, if not fulfilled, operate to bar the claim. By contrast, if the term is not a condition precedent to the insurer’s liability, the insurer’s remedy for breach of condition is either termination of the entire policy from the date of breach, or damages: the former is available only where the assured’s breach goes to the heart of the contract, and the latter is available only where the insurer can prove loss. What is clear from this is that a breach of an ordinary condition is most unlikely to give the insurer any remedy at all, whereas breach of a condition precedent gives an absolute right to refuse to pay. Not surprisingly, therefore, the attitude of the courts to the construction of conditions precedent is cautious in the extreme. The most recent illustration of such caution is Kazakstan Wool Processors (Europe) Ltd v Nederlandsche Credietverzekering Maatschapij NV [1999] Lloyd’s Rep IR 596 .