Insurance needs expertise. And we’re not just saying that because we’re considered the leading experts in sports and social club insurance in the UK.
Insurance can be complicated and subject to interpretation, so it’s important that you know what you’re looking for when you’re going through your policy wording.
For this blog, we thought we’d look at an example which shows how important expertise can be. It’s not about clubs (a hotel. actually), but all the insurance discussion points are still valid.
Bluebon (the insured) v Ageas, Aviva and Towergate (The insurer and broker)
In 2010, Bluebon Limited brought proceedings against their broker, Towergate, and their insurers, Ageas and Aviva, after a fire had ripped through their Star Garter Hotel in Scotland.
They took out a policy with the insurer which contained the following Electrical Installation Inspection Warranty:
“It is warranted that the electrical installation be inspected and tested every five years by a contractor approved by the National Inspection Council for Electrical Installation (NICEIC) and that any defects be remedied forthwith in accordance with the Regulations of the Institute of Electrical Engineers.”
However, the last inspection at the hotel has occurred seven years previously, back in 2003.
The insurer argued that as the inspection hadn’t been carried out every 5 years, the policy was null and void.
Bluebon and their legal team argued that this wasn’t the case as:
- The wording had not been clear enough; there was no certainty as to whether the ‘5 year’ time span noted in the wording started from the date of the last inspection, or the inception of the policy which came in 2009.
- There was no set consequence for a breach of the conditions.
In regards to point 1, the insurer argued that the ‘natural meaning’ of the Warranty was that inspections should take place 5 years from the last inspection, no matter when the policy was taken out. They said that a reasonable person would assume as such and know that regular inspections were required.
Bluebon argued that the wording of the policy was not clear on that, and the forward-thinking nature of it could lead anyone to think it meant from the commencement of the contract. They said the policy could have said ‘has been inspected or tested’ rather than ‘be inspected and tested’.
The judge in this case rejected point 1 as it made no sense in regards to a 12-month insurance policy. For the warranty wording to come into effect, the policy would have to be renewed four times. The judge found that Bluebon has been in breach of the warranty.
On point number 2, the argument wasn’t so black and white. The insurer said that the warranty has either been a true warranty, and breach of it would have equated to breaching the contract, or a suspensive warranty, where the contract would have been suspended by the breach.
In response, Bluebon argued that the warranty was ‘risk-specific’ and that unless the fire was caused by the electrical installation, the breach was irrelevant.
Again, the judge sided with the insurer on this point. The interpretation was that the warranty was a suspensive condition, and that it wouldn’t have been businesslike to suspend cover in respect of losses arising from defects in the electrical installation, but not for losses arising out of the fire generally.
Interestingly, the outcome could have been entirely different had the case occurred 6 years later (after the 2015 Insurance Act).
Under section 11 of the act, an insured will be protected in the event of a breach of warranty provided that it can show that the term was ‘totally irrelevant to the loss’ i.e. the breach “could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.”
But the reason we put ‘could’ in italics is because there would still be some interpretation required.
For one, the insurer could still argue that an inspection could have prevented the fire, or at least aided in prevention. It would have been very difficult for Bluebon to argue that the fire would definitely have taken place even if the breach hadn’t occurred.
Bluebon would also have to prove that the fire was caused by an issue completely unrelated to the electrical installation.
Until the true meaning of Section 11 is determined by the Courts, the interpretation will doubtless remain a matter for debate.
Had Club Insure been involved in this case, we would have offered our expertise based on our huge experience, ensuring that the policy wording made sense to the client, and that they were fully compliant with any warranties or conditions.
We place huge importance on risk management, and a proper risk management operation could have prevented this whole occurrence.
It’s also worth noting that we make check annually in our call or visit that all electrics are up to date. We’d have also helped comply with the warranty in this case as we work with an NICEIC approved supplier.