In The Seashell of Lisson Grove Ltd & Ors v Aviva Insurance & Ors [2011] EWHC 1761 (Comm), Mr Justice Teare decided three preliminary issues in relation to the construction of clauses in property insurance contracts which purported to ameliorate the effects of breaches of warranty and misrepresentations and non-disclosures. Teare J found for the insured on each issue, as set out below.

The proceedings arose out of a fire at the Seashell restaurant in August 2009. The claimants (the operators of the restaurant (the Operators) and the trustees of a pension scheme which held the freehold of the property (the Trustees)) made a claim under two separate insurance contracts with the defendant insurers (the Insurers) in relation to the damage caused by the fire. The Insurers denied the claim on the basis of a breach of warranty and misrepresentation and non-disclosure.

Three preliminary issues in relation to the construction of the contract came before Teare J, as follows:

  1. The first issue concerned the operation of clause 6 of the policy, which provided that a failure to comply with any warranty would invalidate any claim for losses which were “wholly or partly due to…such failure to comply“. The question asked of Teare J was whether the effect of the clause was that the Insurers were liable to pay those parts of the claim where the damage was not caused by the breach of warranty, notwithstanding that part of the damage (and therefore part of the claim) was causally linked to a breach of warranty. Teare J found for the Operators and the Trustees, holding that the clause meant that a claim would only be invalidated where the loss in question was wholly or partly due to the breach of warranty. The clause would not operate to discharge the entire claim on the basis that it could be shown that some part of the loss was linked to the breach of warranty.
  2. The second issue related to the non-invalidation clause in the policy, which provided that the insurance would not be invalidated by an act or omission which was unknown to or beyond the control of the insured and which increased the risk of damage under the policy, provided the insured informed the insurer as soon as it was aware of such an act or omission. The issue before Teare J was whether this clause applied to a breach of warranty per se, and whether it applied in circumstances, as on the present facts, where the damage in question had in fact occurred before the insured became aware of the relevant act or omission. Teare J again found for the insured, holding that the clause did apply to breaches of warranty (rejecting the insurers contention that clause 6 alone dealt with ameliorating the effect of a breach of warranty) and that there was no reason why the clause did not apply to situations where damage had already occurred before the insured knew of the relevant act or omission which increased the risk of loss or damage.
  3. Finally, the third issue related to whether the Trustees could rely on a similar non-invalidation clause in the separate insurance policy with the Insurers to ameliorate their position in relation to potential misrepresentations and non-disclosures, which, if they existed, were beyond the knowledge and control of the Trustees. Teare J held that the Trustees could indeed rely on the clause.

This case serves as a reminder that the English courts have a tendency to construe any clauses which lessen the perceived draconian effects of the remedies for breach of warranty and misrepresentation and non-disclosure in favour of insureds.