James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
In a recent Court of Appeal case an insurance company lost an appeal against a judgment rejecting its interpretation of a condition precedent in a policy which required notice to be given “as soon as possible after the occurrence of an event likely to give rise to a claim”.
The insurance company said that notice had to be given when its insured learned of an event and realised (or ought to have realised) that it was likely to give rise to a claim. The Court of Appeal decided that there was no event to be notified unless the event could be said to be likely to give rise to a claim at the time it occurred, and that view was to be based on an objective assessment taking into account the actual knowledge of the insured. The court said that clause in question did not require the Insured to undertake a rolling assessment of the likelihood that a claim would result from the event.
The Insured had hired out equipment to a builders’ merchant which had in turn hired it out to a building contractor. An accident occurred on 22 September 2011, when an employee of the contractor was seriously injured whilst using the equipment. The insured was informed of the accident on 28 September 2011, but the lower court decided that at that time it was no more than a possibility that the equipment was to blame. The employee began a claim against the building contractor in 2012, and the insured was added to the action on 12 July 2013. It then notified the insurer on 22 July 2013. The insurer refused an indemnity on 25 September 2013 based on the condition precedent to liability, “The Insured shall give notice in writing to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof…”
The insurer argued that the effect of the phrase “as soon as possible” meant both that notice had to be given within that period after the event and that the Insured had to give notice when it could with reasonable diligence have discovered that the event was likely to give rise to a claim.
The insured argued that the condition could only apply if there was an event which appeared that it was likely to give rise to a claim at the time. The phrase “as soon as possible” did no more than specify how soon after the event notice had to be given.
The Court of Appeal said that the insurers’ interpretation was “strained and erroneous”. Clearer words were needed to achieve that meaning. The Court said that the assessment of whether a claim was likely to arise is an objective assessment based on the actual knowledge possessed by the Insured.
The courts have a reluctance to enforce breaches of conditions precedent unless clear wording is used, especially if the effect of the breach does not result in prejudice to insurers.
Notification provisions in professional indemnity policies usually refer to “circumstances” rather than “events”. Unlike an “event” which occurs at a particular time and place and in a particular way, “circumstances” are not so definite and can evolve. It might be argued that where “circumstances” must be notified, the insured is more likely to have to perform a “rolling assessment” of whether they are likely to give rise to a claim.
Please contact James Staton, Partner, Litigation for further details