A fire at the insured's premises was started by an intruder. Although a fire alarm detected the fire, the insured's burglar alarm was not set at the time and in fact was no longer being monitored by the provider, SECOM, because the insured had not paid its monitoring charge. At the time of the fire, which happened at 01.00 am on a Saturday, the owner of the insured and a sub-contractor had been asleep in a separate dwelling area on the premises.
The insured's property insurance policy contained the following two conditions precedent ("CP"s):
(1) GC7, which provided that "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at all times out of business hours or when the Insured's premises are left unattended and such protections shall not be withdrawn or varied to the detriment of the interests of Underwriters without their prior consent"; and
(2) PW1, which provided that "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 ..." (emphasis added).
At first instance, the judge held that both clauses were conditions precedent but that GC7 had to be "read down", so that the insured was only required to set the burglar alarm when the premises were unattended (rather than also, separately, out of business hours (regardless of attendance)). However, the insured's case failed on the basis that it had breached the second limb of GC7 because it had been reckless as to the risk of the monitoring service being cut off. The insured appealed and the Court of Appeal has now held as follows:
(a) GC7 was a CP in relation to the burglar alarm and it could not be said that PW1 was the only CP which applied to that alarm. Since there was no conflict or inconsistency between the two CPs, "the court has to attempt to give effect to the provisions of each clause". GC7 applies to all claims, and PW1 applies only to theft/attempted theft claims.
(b) The judge had been wrong to "read down" GC7 so that it matched the terms of PW1. The language of GC7 is plain and clearly requires the burglar alarm to be set either when the premises are unattended, or out of business hours.
(c) Applying a common sense commercial construction to the policy, the reference to "premises" in GC7 should be read as including "or any part of the premises".
(d) The insured had breached the first limb of GC7. The alarm should have been set at the time of the break-in, which was out of business hours. The Court of Appeal also disagreed with the judge's interpretation of "left unattended". It held that: "The natural meaning of the word "attended", as Lord Denning said in StarFire Diamond Rings Limited is that someone is keeping the property under observation, and is in a position to observe any attempt by anyone to interfere with it". The two men in question had been asleep at the time and so the burglar alarm should have been in use.
(e) Although not necessary to decide the point in view of the conclusion that the insured had breached the first limb of GC7, the Court of Appeal also went on to conclude that the second limb of the CP had been breached too. The second limb imposed a strict obligation on the insured. Whilst a "variation" might necessarily imply some degree of knowledge on the part of the insured, a "withdrawal" might be effected unilaterally by SECOM, without the insured's knowledge. Although it might be theoretically possible for the service to be withdrawn through no fault of the insured (eg due to the insolvency or mistake of the provider), the Court of Appeal held that the risk of such an event occurring should be borne by the insured, rather than the insurer. The requirement in this case contrasted with that in the case of Melik v Norwich Union (1980), where the CP in question required a burglar alarm to be "kept in efficient working order". It was held that that requirement implied that the insured must be aware (or should have been aware) of the facts which gave rise to the alarm not being in efficient working order.
Even if the second limb was not a strict obligation, the test would be whether or not the insured had taken "reasonable or common care" (and not whether it had been reckless). On the facts, the judge had found that the insured should have known that there had been a risk that the monitoring service would be withdrawn.
Accordingly, the appeal was dismissed.
Comment
As mentioned in our summary of the first instance decision, the judge's conclusion had conflicted with textbook commentary which referred to "a rule" that each exclusion is meant to be read with the insuring agreement independently of every other exclusion. The exclusions should be read seriatim, not cumulatively ... There is no instance in which an exclusion can properly be regarded as inconsistent with another exclusion, since they bear no relationship with one another". The meaning must be sought first in context: within the confines of the clause in question" (see Clarke, The Law of Insurance Contracts, 4th edn, para 15-6). The Court of Appeal's decision supports the textbook commentary, albeit it does recognise that CPs can conflict with each other (in which case, they should not be construed as independent terms).
It might also be interesting to note how a case on these facts might be decided once the Insurance Act 2015 comes into force. The loss in question was caused by fire, started by an intruder. The Court of Appeal accepted that a burglar alarm is intended to reduce the risk not just of theft but also of a break-in which might lead to loss/damage (as was the case here). Accordingly, even after the Act comes into force, an insurer faced with a loss in similar circumstances should still be able to rely on the breach of a clause like GC7 as a defence to the insured's claim.
Milton Furniture Ltd v Brit Insurance Ltd [2015] EWCA Civ 671
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