Most commercial leases contain insurance obligations that are designed to protect the parties’ separate interests, as do most insurance policies. One such insurance provision, which is designed to protect the interests of landlords and their lenders, is a non-invalidation clause. This prevents an insurance policy from being invalidated by any act or omission that increases the risk of premises being damaged or destroyed. However, non-invalidation clauses also stipulate that the insured must not authorise and must notify the insurer on becoming aware of any such act or omission. In addition, the insured must meet the cost of any additional premium require to keep the policy in force.
The Court of Appeal decision in Ansari v New India Assurance Ltd [2009] EWCA Civ 93; [2009] PLSCS 61 is a reminder that non-invalidation clauses do not relieve property owners of responsibility for their premises. The case concerned a building that was protected by a sprinkler system. The landlord claimed under the policy following a damaging fire. It subsequently came to light that the sprinkler system had been turned off and that the landlord had frequently visited the premises and had been aware that the system had not been operating for a considerable time.
The landlord’s policy provided that insurance would cease in the event of any material alteration to the premises or to the business carried on there or in the event of any material change in the facts notified to the insurer before the inception of the policy. The insurer claimed that there had been a material alteration or change about which it had not been notified (because it had been informed that the premises were protected by a sprinkler system) and cancelled the policy.
The Court of Appeal ruled that the insurer must have understood that the sprinkler system might be turned off temporarily, for maintenance or repairs or for other reasons. However, it could not be taken to have contemplated that the system would be turned off indefinitely. Consequently, a material change had occurred, which should have been notified to the insurer. The landlord had failed to inform it of the position and was not entitled to the protection of the non-invalidation clause.
Property owners must disclose all material circumstances to their insurer before buying insurance, so that the insurer can decide whether to accept the risk and fix the premium. In addition, property owners have a continuing responsibility to inform insurers of any material changes. Consequently, where properties are let, landlords should extract covenants that tenants will not to do anything to invalidate the insurance and also to notify the landlord of any changes that might affect the landlord’s policy. Landlords should notify their insurer as soon as they become aware of any such changes or if changes are brought to their attention in some other way, for example, as a result of a visit to or an inspection of the premises.
Allyson Colby is a property law consultant
