In Milton Furniture Limited v Brit Insurance Limited [2015] EWCA Civ 671, the Court of Appeal considered whether Jay J was correct to deny Milton the right to an indemnity under its insurance policy for losses suffered as a result of a fire at its premises, on the basis that it had breached a condition precedent.

The fire was started deliberately whilst two of Milton’s employees were asleep in different parts of the premises. The burglar alarm had not been set that night. Milton sought to claim under its insurance policy which contained the following terms:

PW1: “It is a condition precedent to the liability of the Underwriters in respect of loss or damage caused by Theft and/or attempted Theft, that the Burglar Alarm shall have been put into full and proper operation whenever the premises […] are left unattended …”.

GC7: “The whole of the protections including any Burglar Alarm provided for the safety of the premises shall be in use at all times out of business hours or when the Insured’s premises are left unattended and such protections shall not be withdrawn or varied to the detriment of the interests of Underwriters without their prior consent”.

Jay J found at first instance that as Milton had failed to pay invoices to the company which provided the alarm services, so that it was reckless as to the risk that the monitoring service might be cut off, it had breached the second limb of GC7. This was Milton’s only breach and Jay J found in favour of Brit.

Milton appealed the decision and the Court of Appeal considered four key Issues: (1) was GC7 subordinate to PW1 and therefore not a condition precedent; (2) did PW1 qualify GC7 so that Milton’s obligations under GC7 were no more onerous than under PW1; (3) was Milton in breach of the first limb of GC7; (4) was Milton in breach of the second limb of GC7? Gloster LJ held the following in respect of each issue:

(1) there was overlap between the two provisions, however there was no conflict or inconsistency between them. GC7 had a separate commercial purpose and was a condition precedent.

(2) PW1 did not qualify GC7. The language of GC7 was plain and had a sensible commercial purpose, namely to ensure that the alarm was set at all times “out of business hours” or when the premises were “unattended.” The words could not be read in the conjunctive sense.

(3) Milton was in breach by not setting the alarm out of business hours. Two people asleep in separate parts of the premises did not qualify as “attended.”

(4) GC7 imposed a strict liability on Milton in respect of the monitoring service and it was in breach. In the event there was no strict liability, the correct test for determining breach was not recklessness but whether Milton was aware of the facts which gave rise to the withdrawal of the monitoring service or should have known the facts. In any event, as both tests were satisfied, Milton was in breach.

The appeal was dismissed with Gloster LJ finding Milton to have been in breach of both limbs of GC7. The Court of Appeal imposed more onerous obligations on Milton than Jay J and the decision is a further reminder of the courts’ willingness to strictly enforce conditions precedent and to focus on commercial sense when interpreting policy wordings.

Posted by Harry Calkin