If a clause in an insurance contract is clearly labelled as a condition precedent, then that clause must be performed before the reinsurer is obliged to indemnify the reinsured under the contract. This issue most frequently occur in relation to claims related clauses in ARPI. A typical clause might be as follows: “It shall be a condition precedent to liability attaching under this contract that the assured notifies the insurer immediately of any claim…”
If the assured fails to notify the insurer immediately then the insurer has the right to refuse to pay a claim but not to reject subsequent losses where the assured has complied properly with the provision. As a breach of this condition results in a dramatic remedy as with warranties, the courts are very strict in their construction. Although the term may be described as a condition precedent, the court may decide that it in fact is not! If the parties intend to rely upon a description of a term which has a particularly drastic legal effect, it must be used precisely and with care, otherwise the court will construe it against the party for whose benefit it was inserted. In other words, the courts have a similar attitude to such clauses as they have to exclusion clauses.
For example, in the case of Re Bradley and Essex and Suffolk Accident Indemnity Society [1912] 1 KB 415, the assured effected a Workmen’s Compensation policy with the insurer and in the policy it was stated that it was a condition precedent for the assured to keep a wages book. It was also stated that all of the other conditions were conditions precedent! The court held that it was impossible for some of the conditions to be conditions precedent.
The courts can look behind the label and in this case the wages book requirement was not, on its true construction, a condition precedent.