The risk that the event insured against will or will not happen necessarily depends on the subject-matter of insurance and its attendant circumstances, and the insurers, in accepting the insurance, are guided by the state of the subject-matter and the circumstances existing at the date of the policy.

The description inserted in the policy of the subject-matter and its circumstances, therefore, serves to define the risk undertaken by the insurers, and any alteration made during the currency of the policy which affects the subject-matter or its circumstances as so described is an alteration of the risk since the state of facts contemplated by the insurers no longer exists in its entirely.

There, is, however, no alteration of the risk where an alteration, though apparently on the face of it an alteration of the risk, is not a real alteration of the risk at all, but such an alteration as, on the true construction of the policy, might be taken to have been within the contemplation of the parties at the time when they entered into the contract.

Nor is there any alteration of the risk where the alteration does not affect the description in the policy, even though it increases the danger of loss, since the risk as defined in the policy remains the same.
Alterations of the risk fall into three classes:

1. Alterations in the subject-matter of insurance;
2. Changes of locality;
3. Changes of circumstances, such as, for instance, in the user of the subject-matter on in the trade or business carried on by the assured.

A. THE EFFECT OF AN ALTERATION

Sometimes the effect of an alteration is that the policy ceases to apply. This occurs where the identity of the subject-matter is destroyed.

In other cases the effect is that the operation of the policy is merely suspended.

1. Where the policy ceases to apply

Where the alteration destroys the identity of the subject-matter as described in the policy, there is not so much an alteration of the risk as the substitution of a different risk; the policy, therefore, ceases to apply in as much as the insurers have never undertaken the new risk.

Thus, in a burglary policy, a description of the locality, in which the property insured is situated, may form a necessary part of the description of the subject-matter, as, for instance, where property insured under a general description is described as being in a particular house or shop. In this case the property, on its removal from the specified locality, ceases to answer the description and the policy no longer applies.

Similarly, in fidelity insurance, a description of the employee’s office or duties may from a necessary part of the description of the subject-matter, and apart from any condition in the policy, a change in the office or duties described may involve the substitution of a different risk which the policy was not intended to cover.

A motor policy is usually identified with a particular vehicle, although the insured may be protected when he is driving another vehicle. But when the vehicle is sold, the insured is no longer covered whilst driving another vehicle.

In accordance with the same principle, a change in the constitution of a firm, or a change of business, may deprive the assured of his proction.

Where, on the other hand, the identity of the subject-matter is not affected, an alteration of the risk, whether in the subject-matter, its locality or circumstances, has, in general, no effect on the policy, and it is immaterial whether the assured is responsible or not for the alteration, or whether the alteration increases the danger of loss and, in fact, conduces to the loss. Any such alteration made during the currency of the policy is renewed; otherwise the renewal is void.

But although the alteration of the risk does not affect the identity of the subject-matter, the policy may still be avoided where:

a. The alteration is in breach of good faith, as, for instance, where it is made fraudulently with intent to defraud the insurers.
b. The alteration is a breach of a condition subsequent of the policy.

2. Where the alteration merely suspends the operation of the policy

There are certain cases in which the alteration does not affect the validity of the policy, but merely suspends its operation whilst the alteration continues. These cases are:

a. Where there is an express condition of the policy to that effect.
b. Where it is the intention of the parties that the policy should be suspended only, and not avoided.

(a) Express condition in the policy

Thus, a motor vehicle policy may contain a condition suspending its operation whilst the vehicle is under repair; or an employers’ liability insurance may be suspended whilst the insured’s employees are on strike.

(b) Intention that the policy should be suspended only

A policy which is intended to cover accidents happening only in a particular locality or in particular circumstances, necessarily ceases to attach upon a change of locality or circumstances, as the case may be.

If, subsequently, the original position is restored, a question may arise, in the event of an accident happening in the original locality or in the original circumstances, whether the alteration has put an end to the policy or merely suspended it during the continuance of the alteration. The answer to the question depends on the construction to be placed upon the language of the particular policy.
If the language used amounts to a condition alteration, the policy is avoided and does not reattach when the original position is restored.

In some cases, however, it is clear from the nature of the subject-matter that the alteration must have been within the contemplation of the parties, and the policy accordingly reattaches. Thus, if horses are insured whilst in a stable, their removal from the stable suspends the operation of the policy, but it reattaches on their return.

Similarly, an insurance against liability for accidents, whether to workmen or third persons arising out of work carried on at particular premises, does not cover accidents happening in consequence of work carried on elsewhere; but the fact that work may be carried on elsewhere does not affect the validity of the policy as regards accidents happening upon the premises specified.

B. IMPLIED CONDITIONS AS TO MAKING ALTERATIONS

The description in the policy of the subject-matter usually includes statements as to locality, user, or other circumstances, which are not required for its identification, and an alteration in the circumstances described does not, therefore, prevent the subject-matter from being identified.

It is necessary to consider with what object such statements are inserted in the policy, and how far they prohibit an alteration in the circumstances describes.

The following cases may be distinguished:

1. Where the policy contains an express condition against alterations.
2. Where there is no express condition against alterations.

1. Where the policy contains an express condition against alterations

Where the policy contains an express condition against alterations, the statements in the description define the risk undertaken by the insurers and furnish the standard by which any subsequent alterations are to be measured.

They are not in themselves contractual; if they are accurate at the time of insuring, the assured has discharged his obligation and is not precluded by their presence in the policy from making alterations. Any alteration, therefore, to be prohibited, must fall within the scope of the express condition; any other alteration may be made with impunity.

2. Where there is no express condition alterations

Where there is no express condition against alteration, the effect of a statement in the description depends upon whether it is to be construed as a mrer representation or as amounting to a contract that the circumstances shall remain as described throughout the duration of the policy.

A statement in terms referring to the future, if construed as a mere representation, is a representation of an intention honestly entertained at the date of the policy and nothing more; it does not prohibit the assured from changing his intention and thereby bringing about an alteration in the circumstances describes.

If, on the other hand, the statement is construed as contractual, it is an undertaking by the assured that the circumstances shall continue as described, and any alteration therein is prohibited.

A statement not in terms referring to the future, if construed as a representation, is fulfilled at the date of the policy and is not affected by any subsequent alteration; if, on the other hand, it is contractual, it must be construed as co-extensive with the risk, unless there is something to limit its duration, and any alteration in the circumstances described must, therefore, be regarded as prohibited during the currency of the policy.

Whether in a particular case the statement is a representation or contractual is a matter of construction, to be determined with reference to all the circumstances of the case; the fact that it is inserted in the policy does not prevent if from being construed as a representation.

A statement expressing a future intention, or a statement which merely assists in the identification of the subject-matter, or which adds a detail to its description or is otherwise a natural adjunct of the description, is, in the absence of anything pointing to a contrary conclusion, to be regarded as a representation.

If, however, the statement does more than amplify the description of the subject-matter and adds a description of circumstances which it is unnecessary to mention unless the statement is intended to be contractual, it is difficult to avoid the conclusion that it was so intended, since there is otherwise no apparent reason why it should have been inserted in the policy, and it must therefore be construed as prohibiting any alteration in the circumstances described during the currency of the policy.

C. EXPRESS CONDITIONS AS TO MAKING ALTERATIONS

The policy usually contains a condition by which the making of subsequent alterations affecting the subject-matter is either prohibited altogether or more or less restricted.

The effect of the condition depends on its terms. Usually, the policy is avoided by a breach of the condition; but in some cases it is so framed as merely to suspend the policy whilst the alteration continues. Where the policy is avoided by the breach, it is immaterial to consider, in case of loss, whether the loss is attributable to the prohibited alteration or not, since the policy has ceased to be operative.

By the terms of the condition the effect of the breach is usually limited to the property affected by the alteration; otherwise, the policy may be avoided as a whole.

The policy is not, however, avoided ab initio, the avoidance takes effect only from the time of the breach. The assured therefore remains entitled to enforce the policy in respect of any claim which has already arisen.

There is no breach of condition if the alteration which is made is not of such a character as to be covered by its terms, since such conditions asr strictly construed. Where, however, the alteration is, in fact, a breach of the condition, the purpose for which it was made, or the fact that it was made without the assent or even the knowledge of the assured, cannot be taken into consideration.
The types of prohibition or restriction

The prohibition or restriction may be confined to a particular class or classes of alterations specified in the policy, or may be so wide as to cover alterations of any nature whatsoever.

The different forms which the condition may take may be classified under the following heads:

a. Conditions prohibiting alterations absolutely.
b. Conditions prohibiting increase of risk.
c. Conditions prohibiting alterations without notice.
d. Conditions prohibiting increase of eisk without sanction.

(a) Conditions prohibiting alterations absolutely

By such a condition the making of alterations is prohibited absolutely. The prohibition may be:

i. General, extending to any alteration whatsoever; or
ii. Qualified, prohibiting alterations of the kind or kinds specified.

In either case the making of prohibited alteration avoids the policy, and it is immaterial that the alteration is of a trivial character, or that it does not increase the risk, provided that it falls within the scope of the condition.

(b) Conditions prohibiting increase of risk

By such a condition the making of such alterations as increase the risk is prohibited. Provided that the identity of the subject-matter remains, the assured is not precluded from making any alteration, however extensive, so long as the risk is not thereby increased; for until there is an increase of risk, the condition cannot be broken.

Whether any particular alteration increases the risk is a question of fact, and must be proved by the insurers.

Whether any particular alteration increases the risk is a question of fact, and must be proved by the insurers.

To establish a breach of condition it is not, however, sufficient to show that the risk has been increased. The question remains whether the alteration falls within the terms of the particular condition employed.

Two classes of such conditions are to be distinguished:

i. Conditions which are so widely framed as to embrace any alteration whatsoever, and to avoid the policy, whether the alteration increasing the risk is permanent or temporary.

ii. Conditions which contemplate alterations of a permanent character only. Under such a condition a mere temporary alteration does not avoid the policy, even though it increases the risk and, in fact, causes the loss.

(c) Conditions prohibiting alterations without notice

By such a condition the making of alterations is prohibited unless notice is given to the insurers.

Two classes of such conditions are to be distinguished:

i. Conditions in which the prohibition is general in its terms, amounting to an asolute prohibition of alterations without notice
In this case any alteration, however immaterial, is, in the absence of notice, a breach of the condition, and avoids the policy.
The fact that it is of a temporary character or that the risk is not increased thereby cannot be taken into consideration.

ii. Conditions which define the classes of alteration which are not to be made without notice
No notice need be given when the alteration made does not fall within its terms; for in this case neither the alteration nor the failure notice avoids the policy.

(A) TIME FOR GIVING NOTICE

The time when the notice should be given, whether before or after the alteration is made, depends on the particular condition. The terms of the condition may be such as to permit of the notice being given after the alteration has been effected; in this case, unless the condition specifies a time within which the notice is to be given, it will be sufficient if given within a reasonable time. If notice is given within the requisite time, there is no breach of the condition, and the assured may recover, notwithstanding that the loss may have taken place after the alteration and before the notice. It is for the insurers to prove the absence of notice.

(B) SANCTION OF THE INSURERS

The condition may provide not only for the giving of notice, but also for obtaining the sanction of the insurers to the alteration. There may also be an express provision that such sanction must be obtained before the alteration is to be made; or the terms of the condition may contemplate the giving of the sanction afterwards. The assured cannot safely make any of the prohibited alterations without first obtaining the sanction of the insurers, unless the condition clearly contemplates that such sanction may follow the alteration. Even in this case it is more prudent for him to obtain it first. The sanction of the insurers may be refused altogether, or may only be granted in consideration of an increased premium. If, notwithsatanding the refusal of the insurers, the alteration is persisted in, the condition applies and the policy is avoided by the making of a probihited alteration.

The policy will similarly be avoided where the sanction is given in consideration of an increased premium, if such premium is not paid, since the terms upon which the sanction has been given have never been performed, and the sanction has therefore never taken effect.

Where, however, the condition provides that a breach is to avoid the policy only as regards that part of the subject-matter insured which is affected by the alteration, the policy will remain in force as to the remainder; but the insurers may, to meet such a case, by the terms of the condition, reserve the right to terminate the whole insurance effected by the policy.

The assured is not bound, on obtaining the consent of the insurers and paying the increased premium, if any, to make the alteration at once; unless a time is prescribed by the insurers, he may make it at any time during the currency of the policy. The condition may provide that the sanction of the insurers is to be signified by a memorandum indorsed on the policy. The insurers may, however, waive the necessity for this memorandum, or may be stopped by their acts or conduct from relying upon its absence.

(d) Conditions prohibiting increase of risk without sanction

By such condition, which is the one usually employed in practice, the prohibition is confined to the making of such alterations as increase the risk, and at the same time the obligation is imposed upon the assured of obtaining the sanction of the insurers.

To avoid the policy, therefore, it is necessary to show not only that the alteration in question increases the risk, but also that the sanction of the insurers has not been obtained. The condition usually provides that the sanction is to be signified by indrosement on the policy. This provision is an important factor in determining whether the particular condition avoids the policy in the case of alterations other than those of a permanent character.

Where, after an alteration increasing the risk has been sanctioned by the insurers, and duly indorsed on the policy, a second alteration is made which, though increasing the original risk, does not amount to an increase of risk compared with the alteration sanctioned, the policy is probably avoided.

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