What's the difference between a condition and a warranty? If you don't know, how will you explain it to your clients? John Ball maps out a complicated area of insurance

This article explains why GISC requires practitioners to explain onerous matters

to customers. If you get the feeling that insurers are in a rather strong position, you may well be right, but do not forget to revisit the ABI statement and don't be afraid to let it know if one of its members is in breach. (
www.abi.org.uk )

Conditions can be divided into two groups, implied conditions and express conditions.

Implied conditions are so fundamental that they do not need to be expressed in the policy. Most have their origins in common law. In the context of insurance contracts, the implied conditions are:

  • That both the insurers and the policyholder observe utmost good faith during the proposal, renewal and in connection with any claim

  • That the policyholder has an insurable interest in the property insured, although the timing of the existence of the interest will vary between life, marine and other insurance

  • That the subject matter of the insurance is in existence at the time the policy is effected.

    Express conditions
    Express conditions are set out in the policy and are divided into two categories: general conditions and special conditions.

    Although the policy may have a heading of "general conditions", they may also appear elsewhere in the policy, for example under the heading of "claims conditions".

    The conditions expressly incorporated in the policy can be further subdivided into:

  • Conditions precedent to the contract. In the event of a breach of a condition precedent to the contract, the policy is void or voidable from inception. An example is the first of the general conditions found in the ABI standard fire policy which reads: "This policy shall be voidable in the event of misrepresentation mis-description or non disclosure in any material particular"

  • Conditions subsequent to the contract. Examples would be the alteration condition in the standard fire policy or the fraud condition forming part of the claims conditions of the standard fire policy.

  • Conditions precedent to the liability of the insurer. Insurers are not liable for a loss unless these conditions are complied with. The claims conditions generally fall within this category.

    The effect of a breach of condition will depend upon whether it is a condition precedent to the contract, subsequent to the contract or precedent to liability.

    The first avoids the policy ab initio; the second results in the policy remaining in force, except in respect of the particular item affected by the breach; the last results in a repudiation of the claim although the policy itself will remain in force.

    In the event of a breach of condition, you must be clear as to which type of condition has been breached. For example, if there is a breach of condition precedent to the contract, the claim is not paid, but the policyholder is entitled to a return of premium. Breaches of conditions subsequent to the contract or precedent to liability do not entitle the policyholder to any return of premium.

    A warranty is an undertaking by the policyholder that a specified thing shall or shall not be done, or that some condition shall be fulfilled or whereby the policyholder affirms or denies the existence of a specified fact or facts.

    Warranties must be complied with literally and the effect of a breach of warranty, insofar as it increases the risk of damage, is to render the policy, or relevant item of the policy, void. (So if a policy has a 20" stillage warranty, that does not mean 18".) It doesn't matter whether the warranty is material to the risk or whether the circumstances were connected to the matters covered by the warranty.

    For example, a policy may incorporate a warranty relating to a burglar alarm system which must be set whenever the premises are left unattended. If there is an electrical fire, entirely unconnected with the alarm system, but the alarm warranty has been breached, insurers are nevertheless entitled to repudiate liability. The breach of warranty does not have to be causative of, or contribute to, the loss.

    If there has been a breach of warranty before policy renewal and the breach is rectified before renewal, that breach does not affect any claim occurring in the following year.

    A warranty does not, in fact, have to be headed "warranty" or to incorporate that form of words.

    Typical general warranties in commercial policies include the following:

    "It is warranted that all stock stored below ground level is and will be stored on pallets or racking and kept at least 30cm above floor level" (a stillage warranty);

    "It is a condition precedent to liability in respect of theft under this policy that the premises are protected by an intruder alarm system installed as agreed with us" (a protection warranty).

    Legal position
    The fact that one refers to a "warranty" and the other to a "condition precedent to liability" does not stop them both being a warranty.

    The strict legal and policy position has been amended by the ABI Statement of General Insurance Practice, which applies to general insurances for policyholders resident in the UK and insured in their private capacity.

    Members of the ABI agree that they will not repudiate liability on the grounds of a breach of warranty or condition, where the circumstances of a loss are unconnected with the breach unless fraud is involved.

    However, do take note that the ABI statement does not apply to commercial insurance. At law, insurers can (and do) avoid policies where there is breach of an unconnected warranty (that is, the breach had no effect on the loss).

    Finally, we are thinking of doing an article which lists and gives a brief outline of the trade associations and institutes that serve the general insurance industry so if you fall into that category or can recommend one, email us and we will be in touch.

  • This is an edited extract from the Society of Claims Technicians' (SCT) recently published study guide Insurance Law and Principles.

  • John Ball is a previous president of Cila to which the SCT is affiliated.

  • This page is edited by RW Associates, specialists in training, compliance and competence. Email,

    Using this CPD page
    For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.

    If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.

    For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.

    It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.

    Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.

    For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.

    Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.

    In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website. We will be preparing a binder for you to keep these in alongside the results of the exercises.

    To download a PDF of this article as it appears in the magazine click here .

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