Breach of warranty
Mr C had public liability insurance covering him for his work as a self-employed forestry consultant. His policy contained a warranty requiring him to notify the insurer immediately - in writing - of 'any occurrence which may give rise to a claim'. While Mr C was working on a large estate, a tree fell down and injured a third party. A few days later, Mr C heard that the third party was planning claim against the estate owner for his injuries. Nearly 18 months after that, the estate owner's insurer told Mr C that it would be passing on to him the third party's injury claim. Mr C contacted his insurer immediately. The insurer refused to meet Mr C's claim on the grounds that he had breached the warranty.
Mr C referred the matter to the Financial Ombudsman Service. The Ombudsman concluded that the insurer's actions had not been fair or reasonable. It should not have expected Mr C to have realised at the time of the original incident that he was potentially liable. Given that Mr C was self-employed, and had no employees, the Ombudsman decided to apply the terms of the statement of general insurance practice, even though this was intended for use only in consumer cases. The statement of practice barred the insurer from rejecting a claim where the loss would still have occurred even if the warranty had been complied with, or where its position had not been prejudiced by the failure to comply. The insurer was therefore asked to deal with Mr C's claim.
As a matter of strict law, the insurer was entitled to reject the claim. Had Mr C's business had a turnover of £1million or more he would not have been able to complain to the Ombudsman. Furthermore, it was entirely within the Ombudsman's discretion whether or not the statement of practice should be applied, since Mr C was not a private policyholder. The statement has, in fact, since been withdrawn, though it appears that the Ombudsman may still refer to it as an indicator of good practice.