A recent decision of the High Court confirms that an insurer can decline cover where an insured fails to comply with specific conditions set out in their insurance policy, even where the failure to comply with the conditions did not in any way affect the damage that occurred.
The decision was given in Kelly Builders (Rosemount) Ltd v HCC Underwriting Agency Limited.
The insured issued proceedings seeking orders compelling the insurer to pay out on foot of an insurance policy. The insured sought cover for damage that arose from a fire at the NUI Maynooth Campus in November 2010. The fire occurred when a sub-contractor was carrying out hot works to repair a flat roof.
The policy contained a number of conditions precedent, including specific requirements for burning, welding and cutting activities. The insurer argued that it did not have to pay out on foot of the policy as the insured had not complied with the requirement to provide suitable and fully charged fire extinguishers ready for immediate use. The insured argued that there was an appropriate and fully charged fire extinguisher available, but that it failed to operate properly, and that it was therefore entitled to cover under the policy.
The Court held that:
- A condition precedent is one which must be complied with before an insurer is contractually obliged to indemnify the insured. This follows the principle set out in the UK decision of Cornhill Insurance plc v D.E. Stamp Felt Roofing Contractors Limited.
- It is irrelevant whether the failure to comply with a condition precedent causes or affects in any way the event giving rise to a claim under the policy.
- The onus of proof in establishing non-compliance lies with the insurer. However once the insurer has adduced sufficient evidence, the evidential burden shifts to the insured to show that it has in fact complied with the condition.
The Court found that the sub-contractor had been provided with an appropriate fire extinguisher, as required, but that on the balance of probabilities the insured had failed to ensure that it was fully charged. As the insured had not fully complied with a condition precedent, the insurer was entitled to repudiate the policy. The Court reached this conclusion even though it accepted the evidence that had the fire extinguisher worked it would have made no difference to the outcome of the fire and would not have prevented the damage to the property.
While it may seem unfair that the insurer in this case could avoid liability for non-compliance with a condition that was irrelevant to the outcome of the fire, this decision serves as a warning that a failure to comply with a condition precedent, regardless of its relevance to the event, can have very serious consequences for an insured.