Notification: when is an event "likely" to give rise to a claim?

In the recent case of Maccaferri Limited v Zurich Insurance PLC [2015] EWHC 1708 (Comm), Mr Justice Knowles held that the insurer's refusal to indemnify for alleged late notification was a "mistaken step". The decision provides useful guidance on the construction of clauses requiring notification of "any event likely to give rise to a claim". The case is also notable for Mr Justice Knowles' rejection of the insurer's arguments that a duty of inquiry should be placed on the insured.

Background

Mr McKenna suffered a serious eye injury whilst using a gun to attach wire caging together at work on 22 September 2011. Mr McKenna made a claim against his employer. His employer sued the company it had hired the gun from and that company in turn sued Maccaferri Limited (Maccaferri), who had provided the gun to it. Maccaferri received a solicitors' letter detailing the claim on 18 July 2013 and it notified its broker on 22 July 2013. The broker notified Zurich Insurance (Insurer), with whom Maccaferri had a public and product liability insurance policy (the "Policy").

The Insurer refused to indemnify Maccaferri on the ground of late notification of the claim.

The decision

1. Construction of the notification clause in the Policy

The first sentence of Clause 2 of the Policy stated:

"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".

Mr Justice Knowles, applying Layher Ltd v Lowe [2000] Lloyd's IR 510 and Jacobs v Coster [2000] Lloyd's Rep IR 506, commented that the notification requirement of an event "likely to give rise to a claim" amounted to an event with at least a "fifty percent chance that a claim against the Claimant would eventuate".

The Insurer argued that the use of the words "as soon as possible" indicated that the obligation to notify arose when an insured could with "reasonable diligence" discover that an event was likely to give rise to a claim. A further argument was made that the requirement for full particulars imported a positive duty of inquiry on Maccaferri.

Mr Justice Knowles rejected this construction and ruled that the words "as soon as possible" were merely a reference to the promptness with which notice should be given. Accordingly, the Policy did not require Maccaferri to undertake a "rolling assessment" of the likelihood of claims being made against it.

2. Applying the terms of the Policy to the facts

The Insurer argued that the first sentence of Clause 2 required Maccaferri to notify by October 2011 or June 2012 rather than the actual date of notification 22 July 2013. However, Mr Justice Knowles ruled that at the time of the accident in September 2011 there was only a possibility, and not a fifty percent change, that a claim against Maccaferri would eventuate.

This ruling was based on the fact that at the time of the accident, a fault with the gun was merely one possible cause of the loss but there were other potential causes, such as a fault in the way in which the gun was used, or even no fault at all.

Applying Jacobs, Mr Justice Knowles commented that the likelihood of a claim could not be inferred merely from the fact an accident had occurred, no matter how serious the accident. Accordingly the first sentence of Clause 2 was not engaged and Maccaferri was not required to give notice.

3. Maccaferri's Knowledge

Mr Justice Knowles also considered whether the knowledge of Maccaferri during the period from the date of the accident until the date of notification was sufficient to trigger the notification requirements in the first sentence of Clause 2.

Maccaferri's failings included providing an old and worn gun, failing to replace missing warning labels, replacing parts of the gun rather than buying a new one due to cost considerations and failure to provide proper oversight of the servicing of the gun. Further, reference was made to the likely involvement of the Health & Safety Executive and to forensic testing undertaken on the gun after the accident. Despite all of these factors, the judge decided that Maccaferri was not aware that an event giving rise to a fifty percent likelihood of a claim had occurred.

Maccaferri had sent a letter to the company to which it had hired the gun asking for information but had received no reply. Interestingly, Mr Justice Knowles stated that even if "reasonable diligence" was required on the part of Maccaferri, as suggested by the Insurer, the sending of this letter would have fulfilled that obligation.

The judge therefore ordered the Insurer to indemnify Maccaferri under the Policy, commenting that even if the decision to reject the claim may have been taken in good faith, it was a "mistaken step".

Comments

Although the decision focussed on particular facts of the case, Mr Justice Knowles' comments that the likelihood of a claim could not be inferred from the fact an accident had occurred and that the insured had no duty to proactively investigate the accident should provide comfort to policyholders confronted by an event where causation is not immediately ascertainable.

It is also important to note that this is a case about notification of an event that may give rise to a claim, as opposed to notification of "circumstances". The trigger for circumstances may be different, although this remains a complex area of the law.

In any case, the decision highlights the importance, both for insurers and policyholders, of setting out detailed notice provisions so as not to leave their construction open to the interpretation of the court in the event of a dispute at a later one.