Non‑invalidity clauses and tenant “additional premium” duties: when a tenant’s undisclosed risk change can still found liability despite defective landlord insurance

Note: The provided text states that this opinion contains an error and has been superseded by [2026] CSOH 71. This commentary addresses only the reasoning appearing in the provided text, [2026] CSOH 70.

1) Introduction

In Bellshill Property LTD v (First) Borland Insurance LTD, (Second) Tradebe Healthcare National LTD and (Third) Grupo Tradebe Medioambiente SL [2026] CSOH 70 (Outer House, Court of Session), the pursuer (the landlord) sought over £5.2m for loss following the total destruction by fire of an industrial unit. The first defender was the insurance broker. The second defender was the tenant operating a clinical waste process; the third defender guaranteed the tenant’s lease obligations.

The insurer declined indemnity. At debate, the tenant and guarantor argued the landlord’s case against them was irrelevant: the “loss” sued for was the absence of insurance proceeds, but (they said) the policy failed for reasons unrelated to the tenant (fair presentation failures; an electrical inspection condition precedent).

The key issues for the court were:

  • Insurance causation and relevancy: whether any breach by the tenant could have caused or materially contributed to the landlord’s inability to recover under the policy.
  • Construction of key policy terms: particularly the “heating process” exclusion and “non‑invalidation” protections.
  • Lease construction and mutuality: whether the landlord’s own insurance failures excused the tenant from lease duties.
  • Whether a relevant case remained: not that the tenant caused avoidance of the existing policy, but that notice from the tenant would have enabled a different valid insurance solution to be put in place before the fire.

2) Summary of the judgment

Lord Sandison refused to dismiss the action against the second and third defenders at debate and allowed the case to proceed to proof before answer. However, his Lordship’s reasoning substantially narrowed the viable route to tenant/guarantor liability:

  • On the pleaded facts, the tenant’s undisclosed use of gas burners did not cause the existing policy to be avoided as against the landlord’s interest; the policy’s non‑invalidation protections would have prevented that (had fire cover otherwise been in force).
  • In any event, as at March 2021 (when gas burners were introduced), fire cover had already ceased due to a condition precedent requiring an electrical inspection by 7 February 2021.
  • After the fire, the insurer was entitled to avoid the policy ab initio because the presence of composite panels had not been disclosed (supported by an express composite panels endorsement).
  • The “heating process” exclusion did not exclude cover for destruction of the building merely because the tenant’s waste processing involved heat; it targeted damage to the insured property itself while it was undergoing a heating/production/treatment process.
  • The landlord’s only arguable tenant-breach route lay (potentially) in the lease clause preventing uses that might make an additional premium payable unless agreed and paid—because, if notified, the landlord might have arranged different valid insurance in time.

3) Analysis

3.1 Precedents cited (and how they shaped the reasoning)

(a) Lease “insurance scheme” cases

  • Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211: cited by the tenant/guarantor to support the familiar proposition that where a lease creates an insurance scheme, the landlord’s fire loss is intended to be met by insurance rather than tenant damages, avoiding “double indemnity”. Lord Sandison treated the lease insurance provisions as a coherent scheme, but the debate in this case turned less on the “no recourse” principle and more on what obligations still meaningfully operated when cover had failed, and whether any tenant breach could be causative of the landlord’s uninsured position.

(b) Construction of insurance contracts

  • Re United London and Scottish Insurance Co Ltd [1915] 2 Ch 167 and Financial Conduct Authority v Arch Insurance (UK) Limited [2021] UKSC 1: relied on (in submissions) as affirming orthodox contextual construction (reasonable person with background knowledge). The court ultimately emphasised context and purpose, while also observing the policy wording was generic and carelessly assembled, making hyper‑literal parsing less useful in places.
  • Glenfiddich Wind Ltd v Dorenell Windfarm Ltd [2025] CSOH 62: cited for the role of context and commercial purpose in construction.

(c) Non‑invalidation clauses

  • The Seashell of Lisson Grove Ltd v Aviva Insurance Ltd [2011] EWHC 1761 (Comm) and Ansari v New India Assurance Limited [2009] EWCA Civ 93: central to the non‑invalidation dispute. The tenant/guarantor relied on Seashell (especially at [30] and [38]) and Ansari for the proposition that landlord/non‑occupier interests are protected where increased risk is unknown. The landlord argued (contrary to Teare J’s approach in Seashell) that the clause required discovery/notification before loss. Lord Sandison preferred Teare J’s approach and held there was no warrant to limit the clause to pre‑loss notification, and that such a limitation would undermine the clause’s commercial purpose.
  • Greenock Steamship Co v Maritime Insurance Co Ltd [1903] 1 KB 367 and Colinvaux's Law of Insurance: deployed in submissions about the function of non‑invalidation wording and the allocation of risk; the court’s reasoning strongly aligned with the idea that such clauses allocate unknown occupier‑risk to the insurer until discovery.

(d) Causation authorities (multiple causes; “but for” limits)

  • Financial Conduct Authority v Arch Insurance (UK) Limited [2021] UKSC 1: cited (in submissions) for the inadequacy of “but for” in scenarios like two independent fires; also for the general proposition that “but for” usually governs.
  • Baker v Willoughby [1970] AC 467, Williams v The Bermuda Hospitals Board [2016] UKPC 4, Heskell v Continental Express Ltd [1950] 1 All ER 1033, Performance Cars Ltd v Abraham [1962] 1 QB 33, McGhee v National Coal Board [1973] 1 WLR 1, Hotson v East Berkshire Health Authority [1987] AC 750, and Wardlaw v Bonnington Casting Ltd 1956 SC (HL) 26: these authorities were extensively debated in submissions about concurrent/successive causes and material contribution. Lord Sandison’s ultimate route was more concrete: he fixed the causal baseline by determining what cover existed (or did not exist) at key times, then asked whether the tenant’s breach could plausibly be causative via a counterfactual “alternative insurance” pathway.

3.2 Legal reasoning

(A) Sequencing and “what cover existed when”

A distinctive feature of the decision is its insistence that causation be analysed against the legally operative insurance position at the relevant times:

  • Fire cover ceased on 7 February 2021 due to an electrical inspection condition precedent (endorsement “PD 85”). Accordingly, when the tenant introduced gas burners (March 2021), there was already no fire cover—for reasons unrelated to the tenant.
  • Post‑fire, the insurer’s avoidance ab initio was justified at least on the undisclosed composite panels, reinforced by “PD 7 – Composite Panels Condition”.
  • The insurer’s asserted reliance on gas burners as a fair presentation issue at inception was rejected: burners were not used at inception, and there was no renewal/variation; other policy clauses about alteration/change were not relied upon and did not justify avoidance ab initio (though they might have supported cancellation/termination prospectively).

(B) The “heating process” exclusion—narrow, property‑focused reading

The landlord argued that an exclusion for fire resulting from heating processes removed cover where the fire was caused by gas burners used in drying. Lord Sandison rejected this on ordinary language: the exclusion addressed “Damage to that part of the Property” caused by fire resulting from “its” undergoing a heating/production/treatment process. Here, the thing being heated/treated was waste, not “part of the Property” (the building). The court endorsed the standard distinction between:

  • damage to an item being intentionally heated/processed (excluded), and
  • spread to the rest of the premises (covered).

(C) Non‑invalidation—protection even where loss occurs before discovery

The court construed the non‑invalidation protections (Clauses 3 and 4 of “Property Damage”) as allocating the risk of unknown occupier conduct to the insurer, and refused to imply a requirement that the insured must discover and notify the issue before any loss occurs. Commercially, the court reasoned, the risk must lie somewhere while unknown; placing it on the insurer is consistent with the insurer’s business model and the policy’s purpose—subject to the insured disclosing once aware, and subject to the insurer’s ability to cancel going forward (general condition 15).

(D) The tenant’s lease duties: Clause 1.2 versus Clause 1.3, and mutuality

The landlord relied on the tenant’s duties not to invalidate insurance (Clause 1.2) and not to change use in a way that might increase premiums without agreement/payment (Clause 1.3). Lord Sandison held:

  • Clause 1.2 (invalidate insurance): on the pleaded facts, the tenant’s undisclosed burners did not “invalidate” the insurance (and, practically, fire cover had already lapsed for landlord‑side reasons).
  • Clause 1.3 (additional premium): it was at least arguable that introducing gas burners was a use that “might” make an additional premium payable, triggering a duty to agree to pay it first.

On mutuality, the court rejected an “all‑or‑nothing” absolution of tenant duties based solely on the landlord’s failure to maintain fire cover: the lease obligations had to be construed contextually against the insurance situation “from time to time”. The absence of fire cover did not obviously extinguish all tenant insurance‑related obligations, but it would affect what conduct could meaningfully be characterised as a breach in relation to “the insurance actually in place”.

(E) Causation route left open: the “alternative insurance” counterfactual

Having concluded the tenant did not cause the existing policy’s lack of response, the court identified the only viable causal pathway:

  • if the tenant had complied with Clause 1.3 and notified/engaged before deploying burners,
  • the landlord might have arranged valid cover (likely with a different insurer, possibly with additional precautions),
  • which might have responded to the eventual fire.

The court acknowledged this would be difficult to prove (involving multiple steps and market evidence), but held the pleadings were just sufficient to allow proof. That preserved the relevance of the claim against the tenant and (derivatively) the guarantor.

3.3 Impact (practical and doctrinal)

  • Non‑invalidation clauses in landlord/tenant contexts: The opinion reinforces that such clauses can protect a landlord/named insured against unknown occupier risk increases even if loss occurs before discovery, aligning with The Seashell of Lisson Grove Ltd v Aviva Insurance Ltd. This reduces the scope for insurers (and for tenants in contribution/defence arguments) to say that unknown tenant activity, by itself, defeats cover.
  • Strict effects of conditions precedent and endorsements: The analysis shows how an unfulfilled condition precedent can mean that, as a matter of contract, particular perils (fire) are simply not covered from a specified date—independent of later disputes about avoidance.
  • Tenant liability shifts from “you invalidated the policy” to “you deprived the landlord of the chance to procure different cover”: Where landlord‑side defects already prevent cover, a tenant’s meaningful exposure may lie in missed notification duties that would have enabled a new insurance arrangement. This reframes pleading and proof: the battleground becomes counterfactual insurance availability, pricing, underwriting requirements, and whether the parties would have acted to meet them.
  • Lease drafting and risk allocation: If parties intend that the tenant bears losses where landlord insurance fails for landlord‑side reasons, that likely needs clearer drafting than generic “invalidate insurance / additional premium” language.

4) Complex concepts simplified

  • Avoidance ab initio: the insurer treats the policy as if it never existed from the start (typically for serious pre‑contract disclosure failures). Here, composite panels were treated as a valid ground.
  • Fair presentation of the risk (Insurance Act 2015, s 3): the insured must disclose every material circumstance it knows/ought to know, or give sufficient information to put the insurer on notice to make enquiries.
  • Condition precedent: a contractual “must do X, otherwise no liability for Y” term. If unmet, cover for the specified peril can cease without any wrongdoing by the other contracting party.
  • Non‑invalidation clause: a term designed to stop an insurer refusing a claim due to acts/omissions of someone (often an occupier) that were unknown to the insured/interest-holder, thereby allocating “unknown occupier risk” to the insurer until discovered.
  • Proof before answer: a Scottish procedure where the case proceeds to evidence while legal pleas are reserved for decision after proof.
  • Mutuality: broadly, one party’s material breach can excuse the other’s performance; here the court treated the effect as nuanced and dependent on the contractual scheme and the “from time to time” insurance position.

5) Conclusion

On the provided text, [2026] CSOH 70 is notable less for imposing tenant liability outright and more for clarifying what cannot found such liability: the tenant’s undisclosed risk change did not “invalidate” the landlord’s policy interest where non‑invalidation protections applied, and the absence of cover was already driven by landlord‑side insurance failures (a condition precedent and avoidable non‑disclosure).

The remaining potential tenant/guarantor exposure was confined to a narrower, counterfactual case: a breach of the lease’s “additional premium” mechanism that (if proved) deprived the landlord of the opportunity to put in place alternative valid insurance before the fire. The case therefore proceeded to proof before answer.