Lonham Group Limited v Scotbeef Limited & Anor

Insurance policy provisions must be construed by their substance, wording and temporal operation. A clause requiring an insured to trade during the policy period under declared and approved terms, or to take reasonable steps to incorporate those terms into future contracts, is a future warranty. It is not a pre-contract representation merely because another clause requires disclosure of existing terms. Where the policy makes compliance a condition precedent, Part 3 of the Insurance Act 2015, particularly section 10(2), governs the consequences of breach. Sections 16 and 17 apply only where a term contracts out of the statutory protections and places the insured in a worse position. They do not apply where the policy simply reflects the statutory consequences of breach.

Scotbeef claimed losses arising from contaminated meat stored by D&S Storage Ltd. After D&S entered liquidation, Scotbeef joined Lonham, D&S’s insurer, seeking the benefit of the indemnity under the Third Party (Rights against Insurers) Act 2010.

The High Court had found that provisions requiring D&S to trade under declared terms were representations governed by the fair-presentation provisions of the Insurance Act 2015. It held that Lonham had to indemnify D&S. Lonham appealed, principally challenging the characterisation of provisions requiring future trading conduct and incorporation of terms, and the application of the transparency requirements. The central issue was whether those provisions were representations or future warranties.

1. Disposition. Fraser LJ, with whom Zacarolli and Coulson LJJ agreed, allowed the appeal on Grounds 3 and 6 and rejected all three grounds in Scotbeef’s Respondent’s Notice.
2. Construction and characterisation. An insurance policy is a commercial contract and must be construed as a whole, giving effect to the natural meaning of its provisions in context. The court should not treat separate provisions as an all-or-nothing group merely because they appear under a common heading. Applying the principles discussed in EE Ltd v Mundio Mobile Ltd [2016] EWHC 531 (TCC) and ABN AMRO Bank NV v Royal and Sun Alliance Insurance plc and ors [2021] EWHC 442 (Comm), sub-clause (i) concerned existing trading conditions at inception and was a representation. Sub-clause (ii) required continuous future trading under approved terms. Sub-clause (iii) required reasonable and practicable steps to incorporate those terms into future contracts, while preserving cover where those steps had been taken but incorporation failed. Sub-clauses (ii) and (iii) were future warranties.
3. Conditions precedent and breach. The policy expressly made sub-clauses (ii) and (iii) conditions precedent to liability. Section 9(2) of the Insurance Act 2015 was irrelevant because Lonham was not converting representations into warranties. Under section 10(2), the insurer had no liability for loss occurring after breach and before remedy. The binding finding that the FSDF terms were never incorporated meant that D&S breached one or both warranties. The exceptions in sections 10(3) and 10(4), and section 11, did not preserve liability. Lonham therefore had no liability to indemnify D&S.
4. Transparency. Section 16(1) did not apply because the provisions were warranties, not representations. Sections 16(2) and 17 were not engaged: the policy did not contract out of sections 10 or 11, and the warranties did not place D&S in a worse position than the statutory regime. The transparency requirements therefore did not arise.

1. Court of Appeal (Civil Division): On 5 March 2025, allowed Lonham’s appeal and rejected Scotbeef’s Respondent’s Notice.
2. High Court of Justice, Business and Property Courts in Leeds, Technology and Construction Court: HHJ Kelly held on the second preliminary issue that the relevant policy provisions were representations governed by the fair-presentation regime and that Lonham was liable to indemnify D&S.