The Court of Appeal has overturned a lower court’s decision in the case of Scotbeef Ltd v D&S Storage Ltd (in Liquidation) & Lonham Group Ltd, providing significant clarification on the interpretation of the Insurance Act 2015 (IA 2015).
Scotbeef Ltd engaged D&S Storage Ltd for meat storage services. D&S held a marine liability insurance policy with Lonham Group. Following damage to the stored meat, Scotbeef sought damages from D&S.
With D&S in liquidation, Scotbeef pursued Lonham under the Third Parties (Rights against insurers) Act of 2010. The dispute centred on the interpretation of the insurance contract and the applicability of the IA 2015.
Initially, the High Court addressed whether D&S breached its duty of fair presentation under the IA 2015 by misrepresenting the terms under which it traded. The court also examined if certain policy clauses constituted conditions precedent and whether these clauses met the transparency requirements set out in the IA 2015. The High Court found in favour of Scotbeef, determining that Lonham was liable to indemnify D&S under the policy.
Upon appeal, the Court of Appeal reversed the High Court’s decision, offering critical insights into the distinction between conditions precedent, warranties and pre-contractual representations under the IA 2015.
The court emphasised the necessity for insurers to clearly draft policy terms to void inadvertently converting representations into warranties, which could affect their ability to manage liability.
Chris Chatfield, partner at Kennedys who represented the Scotbeef insurers Lonhams, said that the case is significant due to the lack of judicial comment on the interpretations of the IA 2015. He said the decision will provide guidance on the approach of courts to the use of conditions precedent.
“The Court of Appeal recognised the obvious need for insurers to be able to assess their liability (so that they can properly consider and rate a risk) by requiring an insured to trade subject to certain terms,” Chatfield said. “Insurers rely heavily on policy terms which require their insureds to incorporate contracts which limit liability and impose time bars on claims.”
Chatfield added that the ruling underscores the importance of precise policy drafting, particularly concerning conditions precedent and warranties. Insurers must ensure that such terms are transparent and comply with the IA 2015 to effectively control potential liabilities. Policyholders, on the other hand, should be vigilant in understanding and adhering to these terms to maintain coverage.
