Bluebon Ltd v Ageas (UK) Ltd & Ors

An insurance provision requiring an electrical installation to be inspected and tested every five years is construed by reference to the date of the last inspection, not merely from policy inception. Where no inspection occurred within that period, inspection was required immediately and cover was suspended until compliance.

The provision was a suspensive condition relating at least to losses arising from fire. Its operation did not depend on a causal connection between the breach and the loss. The court rejected a construction which would make the provision ineffective during a 12-month policy and fail to reduce the insured risk.

The claimant owned a hotel insured by the defendants under a 12-month policy covering, among other risks, fire. The policy included an Electrical Installation Inspection Warranty requiring inspection and testing every five years by an approved contractor and the prompt remedying of defects.

The last inspection had occurred in September 2003. No inspection took place during the five years before policy inception or during the policy period. After a fire destroyed the hotel, the insurers declined liability, contending that the warranty was either a true warranty or a suspensive warranty. The claimant and broker argued that it imposed only a prospective, risk-specific condition precedent.

The court determined the proper construction of the warranty, its legal character and the consequences of non-compliance.

1. Construction. The warranty required inspection and testing every five years calculated from the date of the previous inspection. If no inspection had occurred within the preceding five years, inspection was required immediately at or before inception. The contrary construction would render the provision meaningless in a 12-month policy and would defeat its commercial purpose of reducing the risk of fire.
2. Character of the provision. Applying the contractual construction principles in Rainy Sky v Kookmin Bank [2011] 1 WLR 2900 and Arnold v Britton [2015] AC 1619, the provision was a suspensive condition, or warranty descriptive of or delimiting the risk, rather than a true warranty. Although its wording and commercial importance made a true warranty strongly arguable, the contemplated consequence of non-compliance was immediate inspection and suspension of cover until compliance, not avoidance of the policy ab initio.
3. The suspensive condition suspended all cover under the policy. Alternatively, and sufficient for the preliminary issue, it suspended all cover for losses arising from fire. The court rejected the proposed narrower construction limited to fire caused by an electrical defect. The provision was directed to the general risk of fire, and no causal connection between breach and loss was required.
4. The claimant had breached the warranty because no inspection had occurred within the relevant five-year period or at inception. The insurers were therefore under no liability to indemnify the claimant for the fire losses. Their letter asserting avoidance or suspension was not a repudiatory breach. The preliminary issues were answered accordingly, with consequential matters and costs to be agreed or determined at hand-down.