Scotbeef Limited v D&S Storage Limited & Anor

Insurance policy clauses concerning declared trading conditions must be construed in their contractual and statutory context. A statement that particular trading terms are in use is a representation and cannot be converted into a warranty by Insurance Act 2015, section 9. A continuing obligation to trade under specified terms may nevertheless operate during the policy period.

A duty to take reasonable steps to incorporate those terms may apply to both existing and new contractual relationships. Where the duty is disadvantageous, it must satisfy the transparency requirements in section 17. If the breach is neither deliberate nor reckless, the insurer must establish the applicable remedy under Schedule 1. Failure to prove that it would have entered no contract on any terms prevents avoidance.

Scotbeef sought to enforce an alleged indemnity under a warehousekeepers’ liability policy issued by Lonham Group Limited to D&S Storage Limited, pursuant to the Third Parties (Rights against Insurers) Act 2010. D&S was in liquidation and did not participate.

The preliminary issue concerned whether D&S had any enforceable right of indemnity. The policy required declaration of current trading conditions, continuous trading under conditions approved by the insurer, and reasonable steps to incorporate them into all contracts. The relevant conditions were FSDF terms, which had not been incorporated into Scotbeef’s storage arrangements. The central issues were the construction of those provisions and the effect of the Insurance Act 2015.

1. Construction. The three sub-clauses of the Duty of Assured Clause had to be read together. The declaration that FSDF terms were being used was a representation. Under section 9 of the Insurance Act 2015, it could not be converted into a warranty by contractual drafting. Sub-clause (ii), however, was a freestanding continuing obligation to trade under the approved terms during the policy period. It did not apply to failures occurring before inception of that policy.
2. Sub-clause (iii) required reasonable and practicable steps to incorporate the FSDF terms into both existing and new contractual relationships. The obligation could apply even where the assured mistakenly believed that the terms had already been incorporated. Compliance could preserve indemnity, but failure could itself constitute breach.
3. Transparency. Sub-clause (iii) placed the assured in a worse position because it could be breached even where the FSDF terms had in fact been incorporated. The insurer had not shown that it took sufficient steps to draw the disadvantageous term to the assured’s attention. In any event, the term was not clear and unambiguous because the policy contained apparently conflicting provisions concerning the consequences of breach: paras [72]–[84].
4. Statutory remedies. The breach was treated in the context of the duty of fair presentation. It was not alleged to be deliberate or reckless. The insurer therefore had to show, under Schedule 1 of the Insurance Act 2015, that it would not have entered into the contract on any terms before it could avoid the contract and refuse the claim. The evidence did not establish that proposition. Important terms could instead have been included specifically in the policy: paras [85]–[86].
5. The Second Defendant was required to indemnify D&S in respect of Scotbeef’s claim, and Scotbeef could enforce that indemnity under the Third Parties (Rights against Insurers) Act 2010: para [87].