When used in contract law, the word condition refers to an event, the occurrence or non-concurrence of which alters the previously existing relations of the parties by creating or extinguishing a legal duty.[1] A condition is different from a promise or warranty. When used in an insurance policy the condition imposes duties on the insured (the promisor) and gives a corresponding right to the insurer (the promisee). Breach of a condition gives the insurer legal justification for refusing to perform its obligations under the policy.
There are two types of conditions:
conditions precedent; and
conditions subsequent.
A condition precedent, as known in the law, is one which is to be performed before the agreement of the parties becomes operative. A condition precedent calls for the performance of some act or the happening of some event after the contract is entered into, and upon the performance or happening of which its obligation is made to depend. [Lake Co. v. Molan, 269 Minn. 490, 498-99, 131 N.W.2d 734, 740 (1964) (quoting Chambers v. Northwestern Mutual Life Insurance Co., 64 Minn. 495, 497, 67 N.W. 367, 368 (1896)).
When a contract contains a condition precedent, a party to the contract does not acquire any rights under the contract unless the condition occurs. [Aslakson v. Home Savings Association, 416 N.W.2d 786, 789 (Minn.Ct.App.1987); National Union Fire Ins. v. Schwing America, Inc., 446 N.W.2d 410 (Minn. App. 1989)]
The distinction is significant in the resolution of insurance disputes because it determines the allocation of the burden of proof. The insured has the burden of proving the fulfillment of a condition precedent. The insurer has the burden of proving that a condition subsequent has not been fulfilled in order to avoid liability.