Conditions

‘the question of whether or not a particular term or requirement in an insurance policy is a condition precedent to the liability of the insurer usually arises in the context of clauses in the insurance contract governing claims procedure and, in particular, the form and time within which notice of loss must be given, the particulars and mode of proof of loss required, and arbitration clauses. Generally, the onus of proving breach of a procedural condition is upon the insurer unless it is clear from the contract of insurance that performance is a condition precedent to any claim by the insured’: Potter LJ in Virk v Gan Life Holdings plc [above]

Waller LJ:

‘The judge numbered the two sentences separately for convenience 1 and 2, and it is convenient to refer to them in the way that the judge did as 13(1) and 13(2), but it must be remembered that they are not so divided in the policy.

The question in broad terms is whether NCM are entitled retroactively to cancel cover in respect of goods despatched prior to May 1998 for which they had received and accepted both the applicable declaration and the premium. NCMs case on construction of Article 13 is that (1) the failure to make a nil declaration and/or the failure to pay premium are conditions precedent to any liability on their part, and that includes liability on contracts other than those in relation to which the failure was relevant; and (2) that such a breach of a condition precedent also gave them the right to retain any premium paid and to give notice terminating the policy and all liability under it. On NCMs construction, not only are they entitled to defeat the claims of which notice of loss has been given but not paid, in addition they can obtain repayment of a claim already paid.

KWP argue that Article 13 must be more narrowly construed. They suggest Article 13(1) suspends NCMs liability where there has been a failure to pay premium or render due performance and observe a stipulation in the policy or the proposal in so far as the failure relates to the particular contract in relation to which KWP were making a claim. Before the judge KWP contended that Article 13(2) was expressly limited to Article 13(1) by the word also. Their submission thus was that the proper construction of the two sentences read together was that Article 13(1) having automatically suspended liability in respect of the goods to which the assureds default related, Article 13(2) gave underwriters in addition the option to terminate only the same liability which had been suspended under the first sentence — namely a liability in respect of the goods to which the assureds default related.

The judge accepted KWPs construction of Article 13(1) but he did not accept their submission as to the proper construction of Article 13(2)…

The facts of this case would demonstrate that NCMs construction of Article 13 is not an attractive one. It follows from their construction that if NCM foresaw six or seven claims in the pipeline likely to lead to serious losses as the six month period ran out, they can serve a notice of termination by reference to a minor breach of a stipulation in relation to some totally unconnected contract. Mr Spearman QC [counsel for NCM] recognised the onerous nature of the clause on the facts of this case but submitted that the words of Article 13 were clear and it is for that reason he submitted that the judge was wrong in his construction of Article 13 and should have gone further than he did and allowed NCM to have repayment of a claim that they had already made…

Article 13(1)

It seems to me clear that the construction placed on the first sentence of Article 13 by NCM must be rejected. The reasons given by the judge are, as it seems to me, compelling.

First, as the judge said, if NCM are correct in their construction, they are under no liability to pay any claim until after the expiry of the policy period and after full compliance with the insured of all that may be required of it. Mr Spearman sought to argue that it was not intended that NCM would not pay before the end of the contract period; their submission was that payment would be made during the currency of the contract but a breach of a condition precedent after payment would entitle NCM to return of their money. That, as it seems to me, would not give the normal meaning to condition precedent and does not seem to me to be an answer to what prima facie would result from a natural meaning being given to those words.

Secondly, the judge refers to the draconian effect of a failure to comply with Article 4(d). That Article provides that NCM shall not be liable where (KWP) have not complied with the terms and conditions of the credit limit, or where (KWP) has not established a credit limit before the date of ascertainment of loss. The judge pointed out that on NCMs interpretation of Article 13, in addition to not being liable in relation to the particular contract, NCM would have the right to terminate under Article 13. Mr Spearmans answer as per paragraph 16.2 of his skeleton is that it might be possible to read Article 4 (where the effect of a failure is expressly spelled out) as a situation to which Article 13(1) did not apply. Whether that is so or not, as Mr Mildon [counsel for KWP] pointed out, there are numerous other conditions breach of which would have the same draconian effect. For example if there has been a failure under Article 7(A), to give notice of an overdue payment from a buyer, that too could be relied on by NCM on their argument not only as an answer in relation to the particular contract under consideration but also as suspensive of the liability to meet any other claim…

In any event there is no doubt that it is the unreasonable results which the construction proposed by NCM would produce that persuaded the judge that if there was a different tenable construction that should be preferred. In my view the construction adopted by the judge, and as submitted by KWP, is the correct construction of the first sentence.

Article 13(2)

Before the judge as already indicated Mr Mildon was arguing for what became his secondary position before us. He was suggesting that the first sentence of Article 13 was suspensive and that thus the link between that sentence and the second sentence should drive the court to construe terminating the policy and all liability under it as terminating the particular liability in relation to which there had been a breach of condition precedent. The suggested benefit to NCM on that construction of the second sentence was to allow them to terminate liability where there had been a breach without leaving KWP an opportunity of remedying the breach. I, like the judge, cannot accept that construction. The benefit to NCM is somewhat nebulous, since in most instances the breach of the condition precedent would have involved a failure to do something within a timescale, which would of its nature not be remediable. In addition, the words termination of the policy are difficult to read simply as termination of the particular liability in relation to which a condition precedent had been breached.

Mr Mildon’s primary argument before us, he frankly accepted, was not put to the judge. It seems that the judge raised the question whether there was not some position between the views being contended for by the two sides. Clearly some argument was addressed to the judges suggestion but perhaps not formulated with any precision. The judge ultimately preferred a construction which was less extreme than that which was being contended for by NCM, but felt driven to a result which he clearly did not feel was satisfactory, but was not that being put forward by KWP. He put the matter this way: —

In his primary argument before us Mr Mildon drew attention to certain features, as he would suggest, of the second sentence of Article 13 which were as follows: —

a.     It applies to liabilities of the assured as well as underwriters: ie., termination is mutual

b.     It permits underwriters to retain any premium already paid

c.     It refers to the termination of the policy

d.     It is linked back into Article 13(1) by the word also and by the repetition of condition precedent.

…Mr Mildon thus submitted that it must be contemplated that albeit the policy is to be terminated, some liabilities among what might at first sight appear amongst all liability will not be terminated. He submitted thus that former liabilities which have crystallised into payments are not terminated so as to bring into being an obligation to return claims paid. He would thus submit that the extreme position contended for by NCM should be rejected, as it was by the judge. He would thus further submit that if liabilities of both NCM and KWP are to be terminated it cannot have been intended to terminate KWPs obligations to assist in recovery, and make repayment under Articles 7B–G. He would submit that present liabilities that have already accrued in the sense that they have arisen out of the performance by one side or the other of its obligations are not liabilities as that word is used in the second sentence. Liability he would suggest is not intended to encompass any more than what the parties would expect from a termination of the policy, as opposed to a termination of the cover already provided.

Mr Spearman submitted that what the second sentence entitles NCM to do on its plain words is to serve a notice terminating the policy when there has been a breach of any condition precedent to any liability. The sentence further provides that all liability will be terminated. He thus further submitted that if the claims of which notice has been given are only payable once the six month period has expired, and if the period has not expired as at the date of the notice, the notice must terminate NCMs liability to pay.

He accepted that as the facts of this particular case show even on the judges construction, the provision can be viewed as extremely beneficial to the insurer, enabling the insurer to pick a minor breach of condition on some contract quite unrelated to the claims that have been notified and are about to crystallise, and bring to an end all obligations to pay the substantial claims. But he says the insured should have appreciated that fact. He suggests that it is extremely uneconomic for insurers to have to chase up insurers for minor sums and that a provision as draconian as this one is necessary to keep insureds in line.

Conclusion

It seems to me that NCMs construction of the second sentence produces such an unreasonable result that if a more palatable construction is tenable that has to be preferred. It is unlikely in the extreme that the parties, if they applied their mind to Article 13, would have contemplated that a minor breach of a stipulation in the eleventh month of the policy would entitle NCM to bring the contract to an end, retain all the premium, not pay the claims in relation to which it was simply the six month period which had yet to expire, and (on NCMs most extreme case) be repaid the claims already paid. Furthermore, it cannot seriously be suggested that it is necessary to have such a draconian provision in the policy in order to keep insureds in line.

If the meaning of the second sentence were as suggested by NCM, there would seem to be no need for the first sentence. That sentence, and many of the other provisions, would have to be construed as simply providing for a fall back position in case the extreme position was waived by NCM.

It is clear to me, and I agree with the judge, that the most extreme position contended for by NCM can be rejected. On any view the second sentence was not intended to relieve NCM from a liability already incurred, so as to entitle NCM to repayment of claims paid. Claims already paid are no longer a liability, and there is no reason to strain the policy wording so as to produce, as NCM would suggest, the equivalent of avoidance ab initio in reliance on some minor breach of a stipulation late on in the policy…’

Buxton LJ:

‘I agree with Waller LJ as to the correct approach to what has been called Article 13.1 of this singularly ill-drafted clause. I regret that I am unable to agree with him as to Article 13.2.

The point is a short one, and does not admit of much elaboration. The words “and all liability under it” must be given some force. Mr Mildon was reduced to saying that they were a belt and braces provision: that is to say, mere surplusage. The same, unacceptable, outcome flows from the construction of that phrase as limited to liabilities flowing from the continuation of the policy: because the previous phrase in the clause terminates the policy and therefore excludes any need to provide, indeed any possibility of providing, for liabilities arising on its continuation. What by its plain wording the clause provides is that the written notice terminates the insurer’s liability under the policy: and that must mean not only purely future but also contingent liabilities, since the insurer is protected from entirely new liabilities by the termination of the policy.

That no doubt produces unattractive, or potentially unattractive, results under Article 1.B of the policy, which happens to be this case, if it is clear that the period of grace will not result in payment being forthcoming. That problem does not arise under any of the other sub-heads of Article 1, such as insolvency of the buyer or political moratorium on debts, which do not involve a period of suspense. And however unattractive the result in a particular case, that result cannot be allowed to force on the contract a meaning that its words will not bear.

I therefore consider that the judge was right in his construction of the clause. I would dismiss the appeal.’

Peter Gibson LJ:

‘This appeal raises a short but difficult question of construction of two sentences in an insurance policy…

In the circumstances it is not surprising to find Mr Spearman insisting that the clear words of Article 13 should be given their natural and ordinary meaning while Mr Mildon submits that an over literal approach is inappropriate where the consequences can be seen to be so extravagant. The court is entitled to look at those consequences because the more extreme they are, the less likely it is that commercial men will have intended an agreement with that result. But the court is not entitled to rewrite the bargain which they have made merely to accord with what the court thinks to be a more reasonable result, and the best guide to the parties intentions remains the words which they have chosen to use in the contract.

Mr Spearman’s primary submission was that because the due payment of all premiums and the due performance and observance of every stipulation are a condition precedent to any liability on the insurers part, the failures by the insured entitled the insurer not merely to terminate the policy and all liability under it for the future but also to recover moneys paid out before that termination. Like my Lords I cannot accept that submission, essentially for the reasons given by the judge. In particular I am unable to agree that the parties thereby intended that throughout the term of the policy claims met by payment by the insurer could be reopened in the event of any subsequent breach. The language of Article 18 which, where it applies, expressly provides for the refund of any payment made under the policy, may be contrasted with the language of Article 13. I entirely agree with what Waller LJ has said on the construction of Article 13(1).

The more difficult question is the meaning to be given to Article 13(2)…

I can accept that all liability under the policy does not include liabilities which have crystallised and been paid. It is inappropriate to refer to terminating such a liability. Indeed it may be questioned whether it is a liability at all once it has been discharged. I can also accept that if a liability has accrued unconditionally, for example if the insurer has delayed payment after it became due, it will not be caught by the termination. It cannot have been contemplated that the insurer could benefit from its own breach. But it is hard to see how all future or contingent liabilities under the policy are not terminated on the plain wording of the clause…[T]he concluding words of Article 13(2) cannot refer to liabilities flowing from the continuation of the policy or be limited to entirely new liabilities as protection from them is achieved by the termination of the policy.

Further, if all liability under the policy is to be construed as not including a contingent liability in respect of which obligations under the policy have been fulfilled, which obligations have that character? Is it sufficient that the insurer has made a declaration or must he also have paid the premium? I find it difficult to see how on the language used it is possible to distinguish between contingencies affecting the insureds liability. The more natural way of construing Article 13(2) is to treat all contingent liabilities as falling within all liability under the policy and so as terminated.

I dislike the notion that an insurer will by contract be entitled both to retain a premium and to be released from the cover which that premium was intended to purchase. But I cannot say that a contractual provision to that effect triggered by the default of the insured is so outrageous that effect cannot be given to the ordinary meaning of the language of the policy in order to achieve a less harsh result.

With regret therefore I would dismiss this appeal.’

Waller LJ:

‘…the issue on the appeal, relates to a condition in a policy of insurance requiring the insured to give notice of any occurrence which may give rise to a claim “as soon as possible…in writing, with full details”. BAI submitted before the Judge that the condition was a condition precedent, and that failure to comply relieved the insurer from any liability. Alternatively they submitted that the failure to comply amounted to a breach of the insured’s duty of good faith or amounted to a repudiation of the contract of insurance, and that the insurers avoided the contract or accepted such repudiation and that on that basis there was no liability under the policy.

The plaintiffs (McAlpine) submitted that if there was a failure to comply with the condition that simply gave rise to a right to damages, and that BAI had failed to establish any such claim.

Colman J preferred the arguments of McAlpine. BAI appeal against that judgment. By a supplemental skeleton argument they did however make clear that they did not seek to disturb the Judge’s finding that the condition did not constitute a condition precedent…

The law

As the Judge commented, the law as to the effect of notice clauses of this nature is remarkably unsettled. But at least on one point there was no argument before us because there was no challenge to the Judge’s finding that condition 1(a) was not a condition precedent.

Once that point is disposed of, the question is what remains, having regard to the fact that at least by the time these proceedings had been commenced BAI did have full details of the incident from McAlpine.

If BAI could establish a repudiation of the contract of insurance or a failure to act in good faith, and establish that they accepted that repudiation or avoided the contract, then they would be entitled to resist liability. This is their pleaded case.

As to breach of good faith, I am at present not absolutely clear what is alleged. There is no allegation of dishonesty. It is not said, for example, that personnel within RCCL, knowing that the incident might lead to a claim under the policy with BAI, deliberately decided to conceal the fact that the incident had taken place in order to make it impossible for BAI to investigate the claim. I assume that all that is relied on is the non-supply of full details…

[W]e come unhesitatingly to the conclusion in the present case that no enlargement of the duty not to make fraudulent claims, so as to encompass claims made “culpably”, is warranted…In our judgment there is no warrant for any widening of the duty so as to embrace “culpable” non-disclosure. Either it does not enlarge the scope of fraud, in which case it is not needed, or it does, in which case the extent of the enlargement is unclear and the concept should be rejected.

In my view mere negligence in supplying details of a claim cannot constitute a breach of the obligation of good faith…

As regards repudiation of the contract as a whole, as the Judge pointed out it is not easy to contemplate that a failure to comply with an ancillary provision relating to one claim under a policy could amount to a repudiatory breach of the whole contract of insurance. He said:

What however is argued is that “prejudice” suffered by the insurer can turn a breach into a repudiatory breach…

I do not myself think that the choice should necessarily lie between a construction which would involve condition 1(a) being a condition precedent, and condition 1(a) simply giving rise to a claim for damages. It seems to me that once a condition such as condition 1(a) is construed as something less than a condition precedent, it will still be important to ascertain precisely what its contractual effect is intended to be and what the effect of a breach of that term will be. For example, if no details of the incident in relation to which RCCL was making its claim were ever supplied, despite the insurers’ requests for them, would BAI still be bound to pay, and simply be left with a remedy in damages for breach of the condition? Certainly if the consequences for BAI were that they had been seriously prejudiced, it seems to me unreasonable that that should be so. Accordingly it seems to me one should consider the possibility that a breach of condition 1(a) might in some circumstances be so serious as to give a right to reject the claim albeit it was not repudiatory in the sense of enabling BAI to accept a repudiation of the whole contract. The very fact that condition 1(a) is aimed at imposing obligations in relation to individual claims which BAI might be obliged to pay, ought logically to allow for the possibility of a “repudiatory” breach leading simply to a rejection of a claim…

In considering this question, and on referring to a textbook on reinsurance law not cited to us at the original hearing, Butler & Merkin Reinsurance Law para C4.3–07, I noted a case referred to in the footnotes which appeared to have addressed this problem. That case Trans-Pacific Insurance Co (Australia) Ltd v Grand Union Insurance Co Ltd (1989) 18 NSWLR 675…a decision of Giles J, seemed to me to assist…That case was concerned with a marine reinsurance second surplus treaty. On the placing slip had been added the words “(d) claims cooperation clause”. No such clause however had ultimately been spelt out in the reinsurance treaty. That treaty enabled certain risks to be ceded to the treaty. The parties had at all times conducted themselves upon the basis that the treaty gave rise to binding obligations between them and in relation to one particular claim the reinsured had refused to provide further information pending acknowledgement of liability by the reinsurer and consequent thereon the reinsurer had purported to avoid the whole treaty. However at the hearing the reinsurer abandoned the argument as to avoidance of the whole treaty and simply argued an entitlement to avoid liability in relation to the particular claim. Giles J held that there was no standard cooperation clause and that thus the slip should be read as stating and doing no more than stating that the reinsured should co-operate with the reinsurer in relation to claims. He further held that as a matter of construction the manuscript addition “claims co-operation clause” did not import a condition precedent to the reinsurers’ liability. Furthermore, although he did not expressly deal with the point, he did not construe the term as one entitling the reinsurer not to pay until there had been full compliance with the condition. That however as we shall see, was the effect of his judgment. It is fair to say that he also held that where there is a notification and a cession of a risk to a reinsurance treaty then upon “that act a separate contract of reinsurance in relation to the particular risk is concluded.” This point is understandably stressed by Mr Lynagh in his submissions on this authority. Giles J was thus able to approach the matter on the basis that the risk in relation to which the reinsurer was repudiating liability was a risk under a separate contract. He then considered the nature of the term in the reinsurance treaty and in his language concluded that it did not have the “essentiality” such that any breach would entitle the reinsurers to terminate their contractual obligation in relation to the claim being made. He then however continued…as follows:

Apart from illustrating obligations of a similar nature to the claims co-operation obligation being viewed otherwise than as essential, it may be observed that his Lordship envisaged that breach may have consequences for a particular cession or an individual claim. Thereafter he concluded:

Thus on the facts of the particular case he held that the reinsurer was not entitled to reject the particular claim.

It seems to me that condition 1(a) does not have what Giles J described as a quality of “essentiality” for the reasons he gave in relation to the co-operation clause in that case. He said that it must have been obvious that there could be major or minor failures to co-operate, disagreement on what did or did not amount to co-operation, or breaches which could be readily rectified without any prejudice to the reinsurer. The same goes for the supply of details. Indeed this case exemplifies how a breach may be major or minor in that certainly some details were supplied to BAI and details which would have been sufficient to enable BAI to make such enquiries as it needed.

I see no reason however why condition 1(a) should not be construed as an “innominate” term as per Hong Kong Fir Shipping (sup) where the consequences of a breach may be so serious as to entitle BAI to reject the claim albeit the breach is not so serious as to amount to a repudiation of the whole contract. Mr Lynagh submits there is no support in the judgment of Giles J for the proposition that the consequences may be so serious as to give a right to reject the claim. I accept that Giles J took the view that there was a separate contract of reinsurance in relation to the risk the subject matter of that case, and thus did not decide the point. But I do think the inference to be drawn from the passage quoted…of Giles J supports the view that I take. I accept Mr Walker’s submission in this regard. It seems to me that the payment of individual claims are severable obligations and that where an insured is bound to carry out one obligation in order to receive the benefit of the insurer’s obligation by implication the insured is accepting that if he fails in a serious way to carry out his part of that bargain he will not receive what he has bargained for.

Thus the correct analysis of condition 1(a) I would suggest should be as follows. Compliance with condition 1(a) is not by the policy made a condition precedent to liability, thus it is not enough for BAI to establish a failure to supply full details as soon as possible in order to resist the claim. That much is conceded.

Condition 1(a) is however an innominate term. Breach of it, however serious, would be unlikely to amount to a repudiation of the whole contract of insurance. Furthermore, it is not a term the breach of which, or any breach of which, would entitle the insurer not to pay the claim because that would simply make it a condition precedent. But, in my view, a breach which demonstrated an intention not to continue to make a claim, or which has very serious consequences for BAI, should be such as to entitle BAI to defeat the claim. If a term is a condition precedent to liability, any breach defeats liability but does not lead to a repudiation of the whole contract. I see no reason why although a term is not a condition precedent so that any breach defeats liability, it cannot be construed as a term where a serious breach defeats liability.

It has not in fact been pleaded in this case that there was a breach with serious consequences entitling BAI to reject the claim as opposed to accept repudiation of the whole contract. However during argument some attention was focused on this aspect and it may be said that it formed part of the argument based on Taylor. On a proper understanding of Taylor it was however bound to fail unless BAI could demonstrate that there was a serious breach of condition 1(a) which had serious consequences and that in reliance on such a breach the claim had been rejected. In my view the breach of condition 1(a) in this case was very limited in that BAI had sufficient details to enable them to investigate the claim. Furthermore, by the time BAI had at least some details of the claim they had not suffered any irremediable prejudice…

Full details were ultimately supplied on any view by McAlpine and in so far as it was open to Mr Walker to argue that BAI were entitled to defeat the claim because full details had never been supplied by RCCL, (and I have some doubt whether on the pleadings it was so open), I would reject that argument. Thus, although going part of the way with Mr Walker’s submission on the Trans-Pacific Insurance case, I cannot accept his ultimate conclusion.’

Cozens-Hardy MR:

‘This is an appeal from a decision of Bray J, who has held that a particular condition in a policy is not a condition precedent.

The plaintiff, Bradley, is a currier and small farmer. His only employee was his son, who met with an accident on 15 February 1909, in respect of which he has obtained compensation from his father at the rate of 6s. per week. The propriety of this compensation is not questioned. The father claims under the policy which he effected on 31 March 1908. The proposal, which is to be “considered as incorporated in the policy,” stated the estimated number of employees as one to two, and their total estimated wages at £75. It gave other particulars, upon which no question arises, and at the end there is a statement that Bradley desired to effect an insurance “in terms of the policy to be issued” by the society against his statutory and common law liability, and he agreed to render at the end of each period of insurance a statement in the form required by the company of all wages actually paid and to pay premium on the wages paid in excess of the amount estimated above. The premium paid was 10s [50p]. The policy itself refers to the proposal, which is agreed to be the basis of the contract, and it witnessed that in consideration of the payment to the society of 10s. premium — which premium “is subject to adjustment as hereinafter provided” — for indemnity from 28 March 1908, to 1 April 1909. After stating the extent of the indemnity, which includes claims under the Workmen’s Compensation Act, there is a proviso in the following terms: “Provided always that the due observance and fulfilment of the conditions of this policy, which conditions are to be read as part of this policy, shall be a condition precedent to any liability of the society under this policy.” Then follow eight conditions.

Now it is perfectly clear that some of these so-called conditions are not and cannot be conditions precedent, although some of them may be and are conditions precedent. Nos 1 and 2, dealing with notices, may be conditions precedent. No 3, so far as any meaning can be attributed to it, seems to me not to be a condition precedent. The same remark applies to Nos 4, 6, and 7. The question in this appeal, however, turns upon condition 5. This is obviously that which is referred to in the policy itself in the words “subject to adjustment as hereinafter provided.” The first sentence is not a condition precedent. That says “The first premium and all renewal premiums that may be accepted are to be regulated by the amount of wages and salaries and other earnings paid to employees by the insured during each period of insurance.” The third sentence also is not. It says “The insured shall at all times allow the society to inspect such books, and shall supply the society with acorrect account of all such wages, salaries, and other earnings paid during any period of insurance, within one month from the expiry of such period of insurance, and if the total amount so paid shall differ from the amount on which premium has been paid, the difference in premium shall be met by a further proportionate payment to the society or by a refund by the society, as the case may be.” The second sentence is in the following words:

It is found by the arbitrator, who has made his award in the form of a special case, that this small farmer did not keep any wages book, and the question is whether this suffices to relieve the society from all liability, or whether it is merely a part of the provision for adjusting the premium and evidencing the amount of wages in respect of which premium was payable. Bray J has held that the policy holder is not disentitled to claim by reason of the omission to keep a proper wages book, and I agree with his decision.

I think the fifth condition is one and entire, and it is to my mind unreasonable to hold that one sentence in its middle is a condition precedent while the rest of the condition cannot be so considered. A policy of this nature, in case of ambiguity or doubt, ought to be construed against the office and in favour of the policyholder, and it seems to me unreasonable to hold that the office can escape from all liability by reason only of the omission to duly record in a proper wages book the name of every employee and the amount of his wages. This is only required for the purpose of the statement which, by the proposal, the insured agreed to render at the end of each period of insurance. In my opinion, it ought not to be regarded as in any sense a condition precedent, and it follows that, in my opinion, the appeal fails and must be dismissed with costs.’

Fletcher-Moulton LJ (dissenting):

‘…was compliance with clause 5 of the policy a condition precedent to the liability of the society under the said policy?

In my opinion, this question is purely a question of construction and is unaffected by the special facts of the case. But it may be well to state here one or two facts which were referred to in the arguments. They are as follows: The claimant signed in the first place a proposal for the policy, in which he stated that the estimated number of employees was one to two. He was a currier and farmer, and at the time of signing such proposal and during all material times he only employed one workman, namely, his son. The son’s wages were £1 a week and board. In chopping wood the son last his hand. No question arises about the injury or the amount of the compensation to be paid in respect of it.

…clause 5 (upon the interpretation of which the present case turns) is inserted in the policy as one of the conditions. These conditions are subject to a proviso which is in the following words: “Provided always that the due observance and fulfilment of the conditions of this policy, which conditions are to be read as part of this policy, shall be a condition precedent to any liability of the society under this policy.” Clause 5 reads as follows:

There is no ambiguity in the language of this clause, and it is found by the arbitrator, and is an admitted fact in this case, that the claimant kept no record whatever of the wages paid by him. If, therefore, the observation of this condition is a condition precedent to liability under the policy (as the language of the policy expressly declares to be the case), the society are entitled to our judgment. But on certain grounds, which I shall presently examine, the learned judge has found that the parties did not intend the observance of the condition to be a condition precedent to liability under the policy, and has therefore given judgment for the claimant, and it is from this judgment that the present appeal is brought.

Before dealing with the main point it is necessary to get rid of certain contentions which have been put forward during the argument, but which in my opinion have no real bearing on the question.

In the first place, much emphasis was laid on the fact that the claimant here was a currier and farmer employing only one, or at most two workmen. I cannot see what relevance that fact has. It might have some bearing on the interpretation of the phrase “duly recorded in a proper wages book,” inasmuch as a proper wages book for a large employer might be of a different kind to a proper wages book for a small employer. But in the present case it is found by the arbitrator that he did not perform this condition at all. No wages book was kept and no entry made, so that, however leniently the Court might be inclined to construe those words in the case of a small employer, it is impossible to say that he performed the condition. It is for this reason that I am of opinion that the case before us is a pure question of law, namely, the construction of the contract. And if we decide that the performance of this obligation is not a condition precedent in the present case, that ruling will apply to every policy of the society.

It was further sought to base an argument on the fact that there is no reference to this condition in the proposal form which was signed by the claimant. That is true, but I fail to see what bearing that has on the question before us. That proposal was only a proposal for a policy in the form used by the society. It did not purport to contain the conditions of the policy, and indeed it did not refer to any one of those conditions excepting the rendering of a statement in the form required by the company of all wages actually paid and the payment of premium on the excess over the estimate. It expressly states that signing the proposal form does not bind the applicant to complete the insurance. It is not, nor could it be, suggested that the applicant thought that the proposal form was the policy or included all its terms. But it is not necessary to enlarge on this point, because this is not a case in which the insured is disclaiming the policy as not being in accordance with that which he intended to enter into; he is himself claiming under the policy, and he cannot be allowed to claim under the policy and yet contend that he is not bound by its terms.

I now come to the main question as to the due observance and fulfilment of clause 5 being a condition precedent to the liability of the society under the policy. It is clearly and unmistakably pronounced to be so in the policy itself, and I ask myself whether there is any reason why we should declare it to be otherwise. I can see none. The clause appears to me to be a most reasonable precaution necessary for the protection of the society and wisely made by it a condition precedent. By the scheme of insurance the premium is fixed not at the inception of the risk but after it is over, and the amount of the premium is calculated upon the total of the wages actually paid within the year. It follows that if there is any omission, either of persons employed or of wages paid to them, in calculating the adjustment, the society gets a diminished premium. By the time the adjustment has to be made the risk is over, and therefore it is directly to the interest of the insured to make such omissions. But if the insured is bound to keep a contemporary record of the names of his employees and the wages paid to them, there is no such temptation to him to fail in his duty, because the risk is not then over, and, as he wishes to be covered for all his employees, he necessarily has an interest in entering them as such at the time. It will be seen, therefore, that the duty of making contemporary records of the names of the employees and of the wages paid is a most valuable protection to the company against fraud or forgetfulness on the part of the insured. I may go further and say that it is in substance their only protection. It would be impossible for them actually to check the correctness of the statements as to the employees and their wages which are rendered to them by the insured at the end of the year, since they probably have many thousands of policies. But by making it a condition that all wages shall be duly recorded in a proper wages book, and that such wages book shall at all times be open to the inspection of the society, the latter has a really effective check upon the insured. It becomes much too dangerous to leave unrecorded the wages paid, and in this way the insured are spared the temptation of omitting to make records of wages paid to persons with regard to whom the risk is over, such as persons taken on temporarily whose period of service has expired. To my mind a provision such as this is precisely correlative to a condition that notice of an accident shall be given as soon as practicable. The latter protects the society from unfounded claims of liability by putting it in the best position for testing the justice of the claims, and the former protects the society from loss on its premiums by providing that it shall have the best material for checking their correctness. And these two conditions are alike in another respect. However vital to the society their observance may be, they can only be rendered effective by stipulating that they shall be conditions precedent, ie, that a plaintiff, in order to make good his claim, must aver and prove their performance down to the date of bringing the action. If they are merely independent obligations, the breach of which gives ground for a cross-claim in damages, they might as well be struck out of the policy, because from their nature it is impossible to establish the quantum of damage resulting from a breach. The condition therefore seems to me to be one of such a nature that it can be made, and would naturally be made, and by the language of the policy has expressly been made, a condition precedent, and, inasmuch as, ex concessis, it has not been performed in this case, I am of opinion that the liability of the society under the policy has ceased…’

For these reasons I am of opinion that the appeal should be allowed and the action dismissed with costs here and in the Court below.’

Farwell LJ:

‘Contracts of insurance are contracts in which uberrima fides is required, not only from the assured, but also from the company assuring. It is the universal practice for the companies to prepare both the form of proposal and the form of policy: both are issued by them on printed forms kept ready for use; it is their duty to make the policy accord with and not exceed the proposal, and to express both in clear and unambiguous terms, lest (as Fletcher Moulton LJ, quoting Lord St. Leonards, says in Joel v Law Union and Crown Insurance Co [1908] 2 KB 863, 886) provisions should be introduced into policies which “unless they are fully explained to the parties, will lead a vast number of persons to suppose that they have made a provision for their families by an insurance on their lives, and by payment of perhaps a very considerable portion of their income, when in point of fact, from the very commencement, the policy was not worth the paper upon which it was written.” It is especially incumbent on insurance companies to make clear, both in their proposal forms and in their policies, the conditions which are precedent to their liability to pay, for such conditions have the same effect as forfeiture clauses, and may inflict loss and injury to the assured and those claiming under him out of all proportion to any damage that could possibly accrue to the company from non-observance or non-performance of the conditions. Accordingly, it has been established that the doctrine that policies are to be construed “contra proferentes” applies strongly against the company…These considerations are particularly applicable to insurances under the Workmen’s Compensation Act; that Act has rendered it practically necessary for all who desire to avoid the risk of bankruptcy, and who cannot afford to be their own insurers, to insure. Tens of thousands of small shopkeepers with one assistant, lodging-house keepers and others with one “general,” small farmers, tenants of small holdings and the like with one man, are driven to insure. They receive a printed form of proposal, and it is reasonable to assume that they read and rely on it, and they receive in exchange for the form so supplied to and required from them a policy which they are entitled to assume and do assume, in most cases without careful perusal of the document, to accord with the proposal form. It is, in my opinion, incumbent on the company to put clearly on the proposal form the acts which the assured is by the policy to covenant to perform and to make clear in the policy the conditions, non-performance of which will entail the loss of all benefits of the insurance. It is contended that it is of the utmost importance to insurance companies that they should be able to defend themselves against frauds by inserting conditions precedent, such as keeping wages books, and the like. Be it so; there is no objection whatever to the insertion of such conditions, so long as the intending assurer has full