Condition Precedents/Warranties in Insurance Contracts

Wheeldon Brothers Waste Limited v Millennium Insurance Company Limited [2018] EWHC 834 (TCC)

Constructing the meaning of words used in insurance contracts is a regular function of courts. In this case, the meaning of various terms, which appeared in the policy that Wheeldon (the assured) had with Millennium Insurance Co Ltd (the insurer), received judicial airing. The assured owned a waste processing plant which was destroyed in a major fire in June 2014. The assured’s claim for indemnity was turned down by the insurer who argued that the assured was in breach of several terms of the policy. The assured brought this action seeking declaratory relief that the insurer is liable under the policy for the loss.

The Deputy Judge, Mr Jonathan Acton Davis QC, first of all sought to identify the cause of fire at the plant. The plant produced solid recovered fuel by removing non-combustible components from inputted waste material transported on conveyor belts. It was discovered that a failed bearing caused a misalignment of one of the conveyor belts which created a gap between it and a trommel (a rotating industrial sieve). Combustible materials which would have been otherwise caught by the sieve, dropped through the gap at the bottom of the conveyor and began to accumulate there. The friction caused by the failed bearing led to hot metal fragments dropping into the accumulated combustible material thus starting a fire.

The insurer, inter alia, argued that the assured was in breach of:

  1. A condition precedent to liability which provided that “combustible waste must be stored at least 6m away from any fixed plant” (storage condition)
  2. A warranty that required “all combustible stocks and/or wastes to be removed from picking station base and/or trommels and/or hopper feeds and balers etc when business is closed.” (combustible materials warranty)
  3. A condition precedent which required the assured “to maintain all machinery in efficient working order in accordance with the manufacturer’s specifications and guidelines and keep records of all such maintenance” (maintenance condition)

At the plant, there were potentially combustible materials, such as a combination of glass, stones and soils which passed through the sieve, and were kept 6 meters of the fixed plants. Also, combustible materials had accumulated in the gap created by the conveyor belt misalignment. The Deputy Judge held that the presence of such materials did not amount to breach of the “storage condition” in the policy. It was stressed that the word “combustible” should be given the meaning, which would be understood by an ordinary person and not its scientific meaning, which is anything which burns when ignited. On that basis, a layman would not regard a combination of “glass, stones and soils” as combustible. The judge also indicated that the word “store” implied a degree of permanence and a conscious decision by the assured to designate an area to keep a particular material. On that basis, materials accumulated in the gap created by malfunctioning cannot said to be “stored” within the meaning of the condition in the policy.

With regard to (ii), the combustible materials warranty, the assured provided evidence that there was a system requiring employees to undertake a visual inspection and carry out the necessary cleaning each day. The judge held that even though the system, without more, was insufficient, the fact that it was in place and had been adhered to were adequate to comply with the warranty.

On third point, the judge found that the failure of the bearing, without more, did not conclusively mean that there was a breach of this condition. In any event, there was no evidence of any breach. As to the requirement to keep formal records, the judge agreed with the assured that their system of daily and weekly checklist was adequate. Furthermore, the judge stressed that if the insurer required records to be kept in a particular format, this should have been prescribed clearly in the maintenance condition.

Although the focus of the case is construction of certain terms in an insurance contract, it is a reminder to insurers that they need to be clear and specify the particulars carefully in the clause if they want to attribute a specific or scientific meaning to a word or requirement on the part of the assured. Otherwise, any word or requirement in a condition precedent or warranty is likely to be construed by courts as an ordinary person would read them.

It should be noted that request for permission to appeal against this judgment has recently been turned down by the Court of Appeal.

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