9.1 Warranties, Conditions and Representations
Key Takeaways
- A warranty is a promissory term; at common law (Marine Insurance Act 1906 s.33-34) any breach, however minor or immaterial, allows the insurer to avoid the policy from the date of breach regardless of whether the breach caused the loss
- The Insurance Act 2015 reforms for business insurance: s.9 abolishes 'basis of the contract' clauses; s.10 suspends the insurer's liability for losses after the breach and before remedy; s.11 prevents reliance on a term where the non-compliance could not have increased the risk of the actual loss
- A condition precedent must be met before the insurer's liability arises; a condition subsequent terminates an existing liability; unlike a warranty, a breached condition precedent bars the particular claim rather than discharging the whole policy
- A representation is a statement of fact at a point in time, not a continuing promise; under IA 2015 s.9 and CIDRA 2012 s.6 it cannot be converted into a warranty by a 'basis of the contract' clause
- The IA 2015 does not apply to consumer insurance; consumer warranties and representations are governed by CIDRA 2012 and the Consumer Rights Act 2015 unfair-terms regime
Three Classes of Policy Term
Insurance policies, like all contracts, are made up of terms. English insurance law recognises three distinct classes of term that have very different legal consequences when breached: warranties, conditions, and representations. IF1 candidates must be able to define each, distinguish them, and state the remedy for breach — the differences are heavily tested because they decide whether an insurer can avoid a claim.
Quick Answer: A warranty is a promissory term by which the insured undertakes that something shall or shall not be done, or that a particular state of facts shall exist. A condition is a term whose breach gives rise to a defined remedy, often a condition precedent to liability. A representation is a statement of fact made during negotiations that is not a continuing promise. The three look similar but have very different consequences.
Warranty
A warranty is a promissory term by which the insured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or that a particular state of facts shall exist. The classic definition is in the Marine Insurance Act 1906 (MIA 1906), section 33. A warranty can be express (written into the policy) or implied (imposed by law, as in the MIA 1906 implied warranty of seaworthiness).
The Common-Law (Pre-2015) Remedy
At common law, as codified by MIA 1906 ss.33-34, a warranty is a condition precedent: strict compliance is required, and any breach, however minor or immaterial, allows the insurer to avoid the policy from the date of breach, regardless of whether the breach caused the loss. This rule is famously harsh. A warranty to maintain a burglar alarm "at all times" is breached the moment the alarm is switched off, and if a fire occurs while the alarm is off — even a fire wholly unrelated to the alarm — the insurer can refuse the claim under the pre-2015 rule.
The Insurance Act 2015 Reforms (Non-Consumer Insurance)
The Insurance Act 2015 (IA 2015) reformed the warranty regime for non-consumer (business) insurance. The Act did not abolish warranties, but it softened the remedy in three important ways:
| IA 2015 provision | Effect |
|---|---|
| s.9 | Abolishes "basis of the contract" clauses: an insurer can no longer convert the insured's pre-contract representations into warranties by declaring them to form the basis of the contract. |
| s.10 | A breach of warranty suspends the insurer's liability rather than discharging it. The insurer has no liability for a loss occurring, or attributable to something happening, after the breach and before it is remedied. The insurer remains liable for losses before the breach and, once the breach is remedied, for losses after remedy. |
| s.11 | A term (warranty or otherwise) that tends to reduce the risk of a particular kind of loss, at a particular location, or at a particular time cannot be relied on if the insured shows that the non-compliance could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred. |
The s.11 test is not a simple "did the breach cause the loss?" test. It asks whether the non-compliance could have increased the risk of the actual loss. The legislation's own example: a failure to fit a required window lock cannot increase the risk of flood loss, so the insurer must pay a flood claim despite the breach.
Consumer Insurance
The IA 2015 does not apply to consumer insurance. Warranties in consumer contracts are governed by:
- Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA), s.6 — a consumer's pre-contract representation cannot be converted into a warranty by any contract term, whether by a "basis of the contract" declaration or otherwise. "Basis of the contract" clauses are therefore abolished for consumers.
- The general law and the Consumer Rights Act 2015 — an outright warranty term in a consumer policy is still possible in principle, but unfair terms (including terms that are not transparent or that cause a significant imbalance) can be challenged under the CRA 2015 unfair-terms regime.
In practice, consumer policies rarely contain true warranties; they contain conditions and representations, and misstatements are judged under CIDRA's "reasonable care" misrepresentation regime (ss.2-5 and Schedule 1).
Condition
A condition is a term whose breach gives rise to a defined remedy. Two categories matter in insurance:
- Condition precedent — something that must be done or exist before the insurer's liability arises. A common example is a condition precedent to payment of a claim that the insured give prompt notice of the loss to the insurer. If the condition is not met, the insurer's liability for that claim never triggers — but the policy is not avoided.
- Condition subsequent — a term that terminates an existing liability when a specified event occurs (for example, a policy that ends automatically if the insured vehicle is sold).
The key distinction from a warranty is the remedy: a breached condition precedent prevents the particular claim, but it does not (unlike a warranty at common law) automatically discharge the whole policy from the date of breach.
Representation
A representation is a statement of fact made by the insured during negotiations (typically in the proposal form) that is not a continuing promise. It is accurate (or inaccurate) at the moment it is made; it does not promise anything about the future. The remedy for an inaccurate representation is governed by the duty of fair presentation of risk under IA 2015 (non-consumer) or the reasonable-care misrepresentation regime under CIDRA 2012 (consumer) — both covered in detail in Chapter 6. For this chapter, the essential point is to locate representations within the taxonomy: a representation is not a warranty, and (post-2015/post-CIDRA) it cannot be turned into one by a "basis of the contract" clause.
Comparison Table
| Feature | Warranty | Condition | Representation |
|---|---|---|---|
| Nature | Promissory (ongoing undertaking) | Term whose breach triggers a remedy | Statement of fact at a point in time |
| Typical timing | During the policy, ongoing | At claim stage or on a triggering event | At proposal/negotiation stage |
| Common-law remedy for breach | Avoidance from date of breach, regardless of causation | Varies — claim barred (condition precedent) or policy ends (condition subsequent) | Avoidance or damages under fair-presentation/misrepresentation rules |
| IA 2015 modification (business) | s.9 abolishes basis clauses; s.10 suspends liability; s.11 causal-irrelevance defence | s.11 may also apply | s.9 abolishes basis clauses |
| Consumer position | CIDRA s.6: representations cannot become warranties; CRA 2015 unfair-terms control | General law + CRA 2015 | CIDRA ss.2-5 reasonable-care regime |
Worked Scenario: The Burglar Alarm Warranty
A shop policy contains an express warranty: "The intruder alarm will be maintained in good working order and set whenever the premises are unattended." The insured switches the alarm off for a weekend while carrying out shop refitting. On the Sunday, a fire (wholly unrelated to the alarm) damages the premises.
- Common law (pre-2015): The warranty is breached; the insurer can avoid the policy from the date of breach and refuse the fire claim, even though the alarm could not have prevented a fire.
- IA 2015 s.10: The insurer's liability is suspended for the period the alarm was off. If the fire occurred during that period, the insurer can rely on the suspension to refuse the fire claim.
- IA 2015 s.11: The insured can argue that the alarm non-compliance could not have increased the risk of fire in the circumstances. If successful, the insurer cannot rely on the breach and must pay the fire claim.
- Consumer policy: If the policy is consumer insurance, s.10 and s.11 do not apply; the question is whether the term is a true warranty and whether it is fair under the CRA 2015. A term refusing a fire claim because of an unrelated alarm breach is a strong candidate for unfairness.
This scenario illustrates why the IA 2015 reforms matter in practice and why IF1 questions test the interaction between the common-law, IA 2015, and consumer positions.
Key Takeaways
- A warranty is a continuing promissory term; at common law any breach allowed the insurer to avoid the policy from the date of breach, regardless of causation.
- The IA 2015 did not abolish warranties but reformed the business-insurance remedy: s.10 suspends liability, and s.11 prevents reliance where the breach could not have increased the risk of the actual loss.
- A condition precedent bars a claim if not met but does not discharge the whole policy; a condition subsequent terminates existing liability on a triggering event.
- A representation is a one-off statement of fact; under IA 2015 s.9 and CIDRA 2012 s.6 it cannot be turned into a warranty by a "basis of the contract" clause.
- The IA 2015 does not apply to consumer insurance; consumer terms are governed by CIDRA 2012 and the Consumer Rights Act 2015 unfair-terms regime.
Under the Insurance Act 2015, what is the effect of a breach of warranty in a business insurance contract?
Which Act governs warranties and representations in a consumer insurance contract, and what is its key effect?
Which of the following best describes a 'condition subsequent'?