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One of the primary purposes of insurance is to give peace of mind, but those who do not read the small print can find that the cover that they have paid for is illusory. Exactly that happened in one case in which the High Court ruled that insurers were fully entitled to refuse to pay out after a hotel was destroyed by fire.
The company that owned the hotel claimed just under £1.75 million under a policy that on the face of it protected it against the risk of fire. However, the policy included a warranty, requiring that the hotel’s electrical wiring be professionally inspected and tested at least every five years. There was no evidence that such inspection or testing had been carried out within the five years before the start of the policy or at any time prior to the fire.
In those circumstances, the insurers declined to cover the company’s loss and the company launched proceedings, claiming that they were not entitled to do so. Following a preliminary hearing, the Court found that, on a true interpretation of the policy, the warranty had the effect of suspending fire cover until such time as the required inspection and testing were carried out.
Given that the warranty had not been complied with, the cause of the fire did not matter and there was no liability on the insurers’ part. The Court’s decision did not preclude the company from seeking compensation from the brokers who had arranged the policy, although they had denied negligence or breach of contract.