AC Ward & Son v Catlin (Five) Ltd & Ors

Where an insurance warranty is said to discharge the whole policy upon breach, an insurer seeking that draconian consequence must use clear language. The more unreasonable the proposed result, the less likely it is to reflect the parties’ intention and the greater the need for clarity.

Reverse summary judgment should be refused where the policyholder has a real prospect of establishing a narrower, commercially reasonable construction. That may include limiting a security warranty to disclosed or scheduled protections and to defects known or reasonably knowable to the policyholder. The court should assess arguability without prematurely determining the final construction. An unparticularised possibility of further factual evidence is insufficient by itself, although it may be relevant when combined with an arguable construction of standard policy wording.

The insured operated a warehouse from which professional burglars stole cigarettes and alcohol worth approximately £450,000. Its insurers refused indemnity on grounds concerning the security arrangements. They alleged breaches of a Protection Maintenance Warranty and a Burglar Alarm Maintenance Warranty.

The insurers applied for reverse summary judgment under CPR rule 24.2. HHJ David Mackie QC dismissed the application. He determined that the provisions were warranties rather than suspensive conditions, but considered that the insured had an arguable case concerning their scope and the relevance of its knowledge of any defects.

The insurers appealed. The central issue was whether the judge should have determined the warranties’ meaning and breach summarily, or whether the insured’s proposed narrower construction had a real prospect of success and should be considered at trial.

1. Appeal dismissed. Etherton LJ held that the judge had acted within the proper exercise of his discretion. Wilson and Sullivan LJJ agreed. No order was made on the Respondent’s Notice.

2. The insured had a real prospect of succeeding on the basis that the insurers’ construction of the warranties was incorrect. Because the application sought summary judgment for the insurers rather than the determination of preliminary issues, it was neither necessary nor appropriate to determine the final construction in the insured’s favour.

3. The insurers accepted that the provisions were warranties and that, under the policy’s definition, breach would void the contract from the time of breach. On their proposed construction, any failure of an installed security device while the premises were unattended would discharge the entire policy, even if the defect was unknown, unknowable and subsequently remedied. Such consequences were draconian. Following Pratt and Agaion Co SA (The Resolute) [2008] EWCA Civ 1314, an insurer seeking such consequences had to stipulate for them clearly.

4. The more unreasonable a contractual result, the less likely it was that the parties intended it and the greater the need for clear wording: Wickman Machine Tools Sales Limited v Shuler AG [1974] AC 235. The relevant wording was reasonably open to a narrower construction. The expression “protections provided for the safety of the insured property” was undefined and could be limited by the protections disclosed in the proposal. The alarm warranty referred to a system stated in the schedule and approved by the insurers, although no particular warehouse alarm was stated there. References to “the above alarm” and “all other appropriate times” added further uncertainty.

5. The insured therefore had a real prospect of arguing that the warranties applied only to disclosed protections or a scheduled and approved alarm, and only to defects known or reasonably capable of being known by it or its agents. These were possible constructions, not final determinations.

6. The mere possibility of obtaining further factual-matrix evidence would not have been sufficient by itself, particularly where no likely evidence had been clearly identified: ICI Chemicals & Polymers v TTE Training [2007] EWCA Civ 725. Nevertheless, the arguability of the insured’s construction, combined with the standard nature and wider market use of the wording, justified permitting it to seek and adduce relevant admissible material at trial.

• Court of Appeal (Civil Division): In AC Ward & Son v Catlin (Five) Ltd & Ors [2009] EWCA Civ 1098 , the court unanimously dismissed the insurers’ appeal and made no order on the Respondent’s Notice.
• Commercial Court: On 19 December 2008, HHJ David Mackie QC dismissed the insurers’ application for summary judgment. He determined that the relevant provisions were warranties but left the disputed issues of construction and breach for trial.