A restaurant on a flood-prone street took water twice within three years. The first flood ruined stock, kitchen equipment and flooring, and the insurer paid the claim in the ordinary way that a material damage policy responds to flood as an insured peril: an adjuster inspected the damage, the loss was assessed against the schedule, and the business was reimbursed. The second flood, on a similar street, in a similar season, produced a similar bill. This time the insurer refused to pay any of it.

The same peril, a different answer

Nothing about the flood itself explains the difference. Floodwater does not become less covered the second time it happens, and the policy wording covering escape of water and flood had not changed between the two events. What had changed sat in the renewal documents issued after the first claim: the insurer had attached a new condition to the cover as the price of continuing to insure a property it now knew was exposed to flooding.

What changed between the two claims

That condition was a warranty, a term the reader will meet properly in the next section, alongside its rule under the Insurance Act 2015. In outline, it required the restaurant to have specific flood-resilience measures in place. When the second flood arrived, the insurer's investigation turned first to whether that condition had been met. The claim was refused on that finding.

That is the shape of the case: two floods, one insurer, one peril, and two outcomes that turn entirely on a document signed between them. What a warranty actually requires, and what happens to cover when it is breached, is set out in the section that follows. What the restaurant could have done differently, and what that would have cost against what the refused claim cost, comes after that. Readers wanting the underlying mechanics of how material damage cover treats flood in the first place can see what each cover actually does, and the term itself is entered in the glossary.

A warranty in a business insurance policy is a promise about a fact or an ongoing state of affairs that the insurer has made a condition of cover. A clause requiring flood barriers to be fitted and deployed whenever a flood warning is issued is a warranty of this kind: it does not describe what the building looked like on day one, it commits the policyholder to keeping something true throughout the policy year.

What breach suspends

Before the Insurance Act 2015, breach of a warranty could discharge the insurer from all liability under the whole policy from that moment on, under the old rule in the Marine Insurance Act 1906, s.33(3), even once the business had put matters right. Section 10 of the 2015 Act changed that for commercial policies. A breach of warranty now suspends the insurer's liability. Under Insurance Act 2015, s.10(2), the insurer has no liability for any loss occurring, or attributable to something happening, while the breach continues, and the suspension is limited to that period.

This reform applies to commercial, or non-consumer, insurance contracts. A private individual insuring their own home or car sits instead under the Consumer Insurance (Disclosure and Representations) Act 2012, which deals with misrepresentation on a different basis and does not carry the same warranty-suspension mechanism. A restaurant's material damage and business interruption cover falls under the 2015 Act, so the rules described here are the ones that apply.

What reinstatement means in practice

Reinstatement means the policyholder stops being in breach, and cover resumes for losses that happen after that point, under Insurance Act 2015, s.10(3). For a warranty requiring an ongoing state of affairs, such as flood barriers fitted and deployed on warning, the breach ends the moment the barriers are back in place and being used as the policy requires. No agreement from the insurer and no new policy document is needed for that. What reinstatement does not do is reach back and cover a loss that occurred during the gap. If the barriers were left undeployed for a fortnight and a flood happened in that fortnight, the insurer's liability for that loss stays suspended even though the warranty was later put right. Only losses that occur after the fix are covered again.

Where section 11 might help, and where it usually does not

Insurance Act 2015, s.11 gives the policyholder one further argument: if the breached term was not one that could have increased the risk of the loss that actually happened, in the way it happened, the insurer cannot rely on the breach to refuse the claim. It is worth knowing this route exists, because it does real work in some disputes. It does less work here. Where the warranty is specifically about flood resilience and the loss is a flood, the breach and the loss are the same risk, and s.11 does not reach a claim of that kind.

The term warranty is defined again, alongside related terms such as condition precedent, in the glossary. How an insurer sets a warranty like this in the first place, and what it is pricing for when it does, is covered in how an underwriter quotes a business insurance policy.

The measures a flood warranty typically lists

A flood-resilience warranty in a policy covering flood-exposed premises rarely reads as a general instruction to take reasonable care. It lists specific, checkable measures the policyholder must have in place and keep in place for the life of the cover: air brick covers or flood guards fitted to every ground-floor opening, non-return valves on foul and surface water drains, demountable flood boards or barriers stored on site and ready to fit when a flood warning is issued, electrical sockets and consumer units raised above a stated height, and a written flood plan setting out who closes the premises and when. Some policies go further and require the equipment to be tested on a set schedule, with a record kept of each check.

What compliance would have cost against what the claim was worth

None of these measures is expensive on its own. Flood boards, air brick covers and non-return valves are typically a one-off purchase and an afternoon's fitting, followed by an occasional service check. Set against that is the position a business is left in once a claim is refused for breach of the warranty: stock, fit-out and lost trading fall to the business itself, in full, because the insurer's obligation to pay was suspended from the moment the condition stopped being met. That asymmetry is the reason warranties exist in this form. They let the insurer price the policy against the resilience it assumes is actually there.

The evidence that actually decides it

The practical question for a business is whether it can show, with invoices, photographs or service records, that each measure was in place and working on the day the water came in. A barrier bought and never fitted, or a non-return valve installed and never checked, leaves nothing to point to when the loss adjuster asks. The glossary entry on warranties sets out how this differs from an ordinary policy condition, and the guide to getting the right quote covers how underwriters price flood exposure in the first place.