The Seashell of Lisson Grove Ltd & Ors v Aviva Insurance Ltd & Ors

Insurance wording which limits the common-law effect of a breach of warranty is construed objectively. Where the policy invalidates a claim only to the extent that the loss is wholly or partly due to, or affected by, the breach, unaffected items of loss remain recoverable.

A non-invalidation clause protecting against an unknown or uncontrollable act, omission or alteration which increases the risk of damage may apply to breaches of warranty, misrepresentation, misdescription and non-disclosure. Its protection is not lost merely because damage occurs before the insured discovers the increased risk, provided the clause’s notice and premium conditions are satisfied.

The claim arose from fire damage to a restaurant and its freehold premises. The insurers disputed liability under a Restaurant Policy and a Property Policy, alleging breaches of warranty, misrepresentation and non-disclosure.

Field J ordered three preliminary issues concerning the construction of policy terms. The issues concerned the effect of the Restaurant Policy warranty clause, the scope of its non-invalidation clause, and whether the Property Policy non-invalidation clause protected against avoidance for misrepresentation or non-disclosure.

1. Restaurant Policy warranty clause. Clause 6 limited the common-law consequence of breach of warranty by requiring a causal connection between the breach and the claimed loss. A claim was invalidated only insofar as the relevant loss, destruction, damage or liability was wholly or partly due to, or affected by, the breach. The clause did not invalidate the whole claim merely because some part of the loss was causally connected with the breach. Both parts of the first preliminary issue were therefore answered Yes, subject to there being an item of loss not wholly or partly due to, or affected by, the breach.
2. Restaurant Policy non-invalidation clause. The words “any act or omission” were broad enough to include breach of warranty, as well as misrepresentation and non-disclosure. The fact that clause 6 separately addressed warranties did not prevent the clauses having overlapping operation. Where the relevant breach was unknown to, or beyond the control of, the insured, the insurance was not invalidated provided that immediate notice was given on discovery and any required additional premium was paid.
3. The clause applied even where damage had occurred before discovery of the breach. The court considered the reasoning concerning held-covered clauses in Greenock Steamship Co. v Maritime Insurance Co. [1903] 1 KB 367, Mentz, Decker & Co. v Maritime Insurance Co. [1910] 1 KB 132, Hewitt v London General Insurance Co. [1925] 23 Ll.L. Rep. 243 and Liberian Insurance Agency v Mosse [1977] 2 Lloyd’s Rep. 560. The second preliminary issue was answered Yes and No.
4. Property Policy. The non-invalidation clause applied to an act or omission increasing the risk of damage, including misrepresentation, misdescription or non-disclosure. There was no warrant for excluding those matters from the clause. As with the Restaurant Policy, the clause could be relied upon where damage occurred before the insured was able to give notice. The third preliminary issue was answered Yes.

First-instance determination of three preliminary issues ordered by Field J. on 4 March 2011.