Abigail Smith and Kaarthinga Manimaran | SDV Fenchurch
At their core, non-invalidation clauses (“NICs”) recognise an important commercial reality: an insured cannot control everything that happens at its premises.
In the event that an insured finds itself in breach of a condition or warranty owing to events that have increased the risk of damage to its property, but which were outside its authority, knowledge or beyond its control, a NIC may prevent the insurer from avoiding the claim. For that reason, they’re an important tool in an insured’s coverage arsenal.
Although there is relatively little caselaw on NICs, their purpose was recognised in The Seashell of Lisson Grove Ltd v Aviva Insurance Ltd [2011] EWHC 1761 (Comm) (on which we wrote a previous article – The Good, the Bad & the Ugly: #26 The Good: The Seashell of Lisson Grove Ltd v Aviva)
“If the assured becomes aware that he has breached a warranty which has resulted in an increased risk of damage and immediately informs the insurers of it and pays the additional premium the insurance will not be invalidated by the breach of warranty. The insurer will not be able to deny liability for any loss which is subsequently caused by that breach of warranty.”
This article considers the purpose and interpretation of NICs in the context of the property damage claims to which they are most often relevant.
Broad application to misrepresentation, non-disclosure and breach of warranty
An example of a standard NIC wording might be:
“This insurance shall not be invalidated by any act or omission or by an alteration whereby the risk of damage is increased unknown to or beyond your control provided that immediately you became aware thereof shall give us notice and pay an additional premium if required.”
Whilst the precise interpretation of an NIC will turn on the wording used, in Seashell, the Court held that “any act, omission or alteration” applied to any misrepresentation, non-disclosure or breach of warranty by the insured.
That is an important clarification for policyholders. Imagine a landlord’s policy has a NIC, and a tenant uses the property for unlawful purposes without the landlord’s knowledge or control, and which increases the risk of a loss. Following a fire at the property, the landlord could deploy the NIC because the activity was something of which he had no knowledge or control, and which materially increased the risk of the fire.
Following Seashell, an NIC might be important in a number of scenarios. For example:
- An insured has warranted that it will maintain a working intruder alarm at all times. However, a lightning strike causes a power cut and the intruder alarm is made inoperable during a theft.
- A property insurer imposes a hot works condition requiring the completion of a hot works permit and fire watches during and after the works. The insured company has implemented a written hot works procedure and requires staff to sign acknowledgement forms confirming their understanding and compliance with it, but an employee nevertheless carries out welding in breach of the procedure and causes a fire.
- When completing proposal forms to insure a multi-let building, the property manager states that “all units are occupied.” Unknown to the board, one tenant has vacated shortly before renewal, and the property is therefore partially vacant. A fire later destroys part of the premises.
The knowledge test
In terms of whose knowledge counts, the issue is not expressly considered in the context of NICs. However, the authorities suggest that knowledge is held by the insured’s controlling mind:
“In the case of a company information known to an individual within the company’s organisation will be regarded as in the possession of the company itself only where that individual is part of the company’s controlling mind, although the rule of imputation may vary depending upon the information in question and the role of the individual within the company in relation to that information.”
– D-0107 of Colinvaux & Merkin’s Insurance Contract Law
There is little guidance on whether “knowledge” refers to actual knowledge (what the insured in fact knew) or constructive knowledge (what the insured ought to have known). In the authors’ view, however, a NIC would be of limited value if it could not operate in circumstances where an insured ought to have known of the relevant facts. Accordingly, the better interpretation is that it is the insured’s actual knowledge that matters.
What does “immediately” mean in this context?
A further question is what is meant by a requirement to notify insurers “immediately” upon acquiring knowledge of a material act, omission or alteration. The courts have generally resisted a literal interpretation of the term. In Zurich Insurance plc v Maccaferri Ltd [2016] EWCA Civ 1302, the Court of Appeal confirmed that a requirement to notify “immediately” must be interpreted objectively and in its proper commercial context, rather than by reference to an unrealistically strict standard requiring instantaneous notification. So, the question is not whether notice was given at the first possible moment, but whether it was given as soon as reasonably practicable in the circumstances. As was held in Zurich v Maccaferri:
“I do not accept Zurich’s construction of the condition. This is a condition introduced by Zurich into its policy which has the potential effect of completely excluding liability in respect of an otherwise valid claim for indemnity”
Subsequent decisions concerning insurance notification conditions have likewise emphasised the importance of prompt compliance, whilst recognising that an insured may require a reasonable period to investigate the relevant facts before notifying its insurers.
Archer v R ‘n’ F Catering Ltd [2025] EWHC 1342 (KB), sheds additional light on the modern interpretation of the term “immediately”. In particular, the judgment reflects the reality that modern methods of communication have significantly reduced the time ordinarily required to give notice. As a result, policyholders may be expected to communicate materially more quickly than would previously have been the case:
“In an era of telephone and email communication, none of those time periods equates to action taken as soon as reasonably possible.”
Conclusion
Ultimately, NICs are not a cure-all, and their application will always depend on the precise policy wording and the particular facts. However, where a breach of warranty, misrepresentation or non-disclosure arises from circumstances outside the insured’s knowledge or control, they may provide a valuable route to preserving cover.
Policyholders facing a declinature should therefore consider such clauses. However, they should also bear in mind that NICs usually require them to notify insurers “immediately” upon becoming aware of the relevant breach. In this context, “immediately” is generally understood to mean with all reasonable expedition in the circumstances, rather than instantaneously.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.net.