SUGAR HUT GROUP LTD V GREAT LAKES REINSURANCE (UK) PLC

[2010] EWHC 2636 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Burton, 26 October 2010

Insurance (property) - Nightclub damaged by fire - Whether insurers entitled to avoid policy by reason of non-disclosure of assured's change of identity - Breach of warranty - Whether policy terms requiring inspection and no contact with combustible materials were warranties - Waiver of breach of warranty - Whether burglar alarm obligation was a warranty or a suspensory provision - Construction of ambiguous condition precedent

The claimants, who operated four nightclubs, were insured against property risks by the defendant insurers. Following a fire at one of the nighclubs, a claim was made against the insurers. The insurers raised non-disclosure and breach of warranty defences, all of which succeeded before Burton J. The court held as follows. (1) The policy could be set aside by reason of the claimants' failure to disclose that their predecessors in title had gone into administration due to financial difficulties and that when the policy had been renewed and then endorsed to refer to new companies there was not simply a change of name but rather a substitution of new assureds. That was material and, had there been disclosure, the insurers had shown that they would have refused the risk or varied the terms of cover. There was no waiver of disclosure in respect of the history of the assured companies by the fact that the proposal form asked specific questions only about the assured's trading name. (2) Terms in the policy, described as warranties, which required the kitchen ducting not to be in contact with combustible materials and which required specialist inspection of the ducts every six months. The court held that each of these provisions had been broken. As to the former, even if there was a de minimis exception to the right of insurers to rely upon breach of warranty, the breach was not de minimis here. As to the latter, even if the clause could be construed as a suspensory provision rather than a strict warranty, that did not assist the assured because there had not been an inspection by the date of the fire. (3) There had been breach of a burglar alarm warranty, in that the requirement for the alarm to be connected to a central monitoring station had not been met: the alarm, if triggered, merely produced a phone call to a member of staff. (4) The risk improvement requirements set out in the slip which required the burglar alarm to be upgraded, but which did not appear in the formal policy, nevertheless survived as part of the contract. This was a case in which the slip was not intended by the parties to be superseded by the policy. These requirements did not constitute warranties but merely suspensory provisions. However, that did not assist the assured: the risk improvement requirements did not waive the burglar alarm warranty; and the requirements had not been satisfied at the date of the fire so that the risk had remained suspended. (5) A condition precedent to the insurers' liability that wheelie bins would be made of non-combustible material was not broken by the use of high density plastic rather than metal: the clause was ambiguous, and if the insurers had wanted metal bins only, they could have so stipulated.