Whether a term is a condition or a condition precedent is a question of construction. The answer is important because the consequences of breach are very different. Breach of an ordinary condition will simply give the insurer a remedy in damages. The consequences of breaching a condition precedent, however, can be draconian. For contracts entered into prior to 12 August 2016, breach of a condition precedent as to liability gives the insurer an automatic right not to pay a claim, without any requirement to demonstrate a causal link between the insured’s failure to comply and any loss or prejudice that the insurer might suffer as a consequence. For contracts agreed on or after 12 August 2016, where there is non-compliance with a term (including a condition precedent) that would tend to reduce the risk of a particular type of loss, or of loss at a particular time or in a particular place, the insurer will not be able to rely on that non-compliance as a defence if the insured can demonstrate that such non-compliance “could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.”
The issue in Denso Manufacturing v Great Lakes Reinsurance was whether clauses in an ATE policy were conditions precedent to the insurer’s liability to pay a claim. The clauses in question required the insured to co-operate with the insurer in the event of a claim, in particular to provide the insurer’s legal representatives with all necessary information and assistance. The insurer argued that the clauses were plainly commercially vital and therefore apt to be construed as conditions precedent. The insured argued that the clauses were not conditions precedent but simply statements of expectation regarding co-operation.
The Court agreed with the insurer that the claims co-operation and associated clauses were conditions precedent. They were commercially vital because the insurer was exposed to the risk of adverse costs, and the policy could not work without the insured’s co-operation. It went on to hold that the insured had breached the conditions by failing to pass on communications concerning costs liability “without delay”. In the modern world, said the Judge, any delay of more than a few days was unacceptable.