Maccaferri Limited v Zurich Insurance PLC [2015]

In this case, the Commercial Court provided useful guidance on the proper construction of a notification condition precedent in a public and product liability policy.

The case is also notable as the Court rejected the insurer’s argument that a duty of inquiry should be placed on the insured.

Background

An employee suffered a serious eye injury at work whilst using a Spenax gun. The employee sued his employer who, in turn, sued the Insured, Maccaferri Limited, who had hired the gun to the employer.

The employee’s accident occurred on 22 September 2011. The Insured received a solicitor’s letter almost two years later, on 18 July 2013, informing it that a claim was to be brought against it by the employer. The Insured notified its public and product liability insurer, Zurich a few days later on 22 July 2013.

The Insurer declined to provide an indemnity on the basis that the Insured had failed to comply with a condition precedent relating to notification which said:

“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 Insured should have given notice by October 2011 (shortly after the accident occurred) or by June 2012.

The Insurer also argued that the use of the words “as soon as possible” indicated that the obligation to notify arises when an Insured could with reasonable diligence discover that an event was likely to give rise to a claim. The Insurer argued that this wording put an obligation on the Insured to proactively investigate whether a claim was likely, which the Insured here had failed to do.

Decision

In both instances, the Court (Mr Justice Knowles) rejected the Insurer’s arguments and found for the Insured. The Insurer was therefore obliged to indemnity the Insured.

Mr Justice Knowles held that the notification requirement of an event “likely to give rise to a claim” meant that there needed to be at least a “fifty percent chance that a claim against the Claimant would eventuate”. The Court held that the wording was merely a reference to the promptness with which notice should be given and did not indicate an implied duty of reasonable inquiry. Mr Justice Knowles held that there was “no room…for…a continuing or “rolling assessment” of claims being made against the Insured.

Applying the terms of the policy to the facts of the case, Mr Justice Knowles held that at the time of the accident, there had not been at least a 50% chance that a claim against the Insured would eventuate; it had only been a possibility. The accident could have been as a result of the fault of the gun, the fault in the use or no fault at all. The Court also found that the reference to the likely involvement of the Health & Safety Executive or forensic testing on the gun did not indicate that there was anything more than a possibility of a claim. The Court broadly accepted that a claim might still have been likely if it were a bad or vexatious claim, but this would depend upon the facts and did not aid the Insurer here.

Comment

This decision serves as a useful reminder for both insurers and policyholders that it is important to set out notice provisions in detail so as not to leave room for interpretation in the event of a dispute. This is particularly crucial when notifications are expressed to be a condition precedent, where any failure to comply means that the insurer can legitimately refuse a claim.

Parties must also consider carefully what wording to use in a notification clause. It is possible that this case may have been decided differently if the Insured was obliged to notify an event which “may give rise to a claim” as opposed to an event which was “likely to give rise to a claim” or a “circumstance” as opposed to an “event”.

This case will provide some comfort to policyholders when they are faced with an event where causation is not immediately ascertainable - there is no duty on a policyholder to proactively investigate. However, it will be interesting to see how the Court intends to reconcile this with the new duty of fair presentation under the Insurance Act 2015. This new duty will require policyholders to present every material circumstance which would influence the judgement of a prudent insurer or put the prudent insurer on notice when assessing a risk.