The occurrence of an accident does not necessarily amount to an “event likely to give rise to a claim” for the purposes of notification
Maccaferri Limited v Zurich Insurance PLC1
High Court, 19 June 2015
This case focuses on the scope of an insured party’s obligations when giving notice of a claim to an insurer. It draws attention to the fundamental principle that the obligation of the insured is determined by the precise contractual wording of the policy. It also provides guidance for the interpretation of two common contractual phrases. First, an event is “likely to give rise to a claim” only where there is at least a 50% chance of a claim resulting from it. Second, a duty of the insured to “notify as soon as possible” does not create a proactive duty of inquiry.
On 22 September 2011 Mr McKenna suffered a serious eye injury while using a Spanex gun to attach wire caging together. He sued his employer. The employer then sued the company that provided the gun under hire – Maccaferri Limited (the insured “Claimant“). The Claimant received a solicitors’ letter of claim from the employer on 18 July 2013. On 22 July 2013 the Claimant (via a broker) notified its insurer, Zurich Insurance Plc (the “Defendant“) under a public and product liability insurance policy. The Defendant refused to indemnify the Claimant, arguing that the Claimant had failed to comply with a condition precedent which stated that:
“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 Defendant argued that, for the notice to have been given “as soon as possible”, the Claimant should have given notice by October 2011 or by June 2012.
“Likely to give rise to a claim”
The judge confirmed that this precise wording referred to an event with at least a 50% chance that a claim against the policyholder, in this case the Claimant, would eventuate (followingLayher Ltd v Lowe and Jacobs v Coster2).
On the facts, when the accident occurred, this test was not satisfied. There had been an accident involving a gun hired from the Claimant of which the Claimant was aware. However the hired gun was only one possible cause of the accident. Other possible causes included a fault in the way the gun was used or a non-fault cause. As such, a claim against the Claimant was a mere possibility.
The likelihood of a claim depends on the facts of the case. The judge gave guidance on some factors which may or may not affect this likelihood.
- The seriousness of a potential claim does not increase the likelihood that the claim would eventuate.
- A claim may still be likely even if it is a bad or vexatious claim.
- Failings of the policyholder do not automatically make a claim more likely. In this case, it was noted against the Claimant that the warning labelling on the gun had been neglected, parts were routinely repaired rather than replaced and servicing processes were outsourced with minimal oversight. Nevertheless, on the facts this did not increase the likelihood of the claim to a 50% chance.
“As soon as possible”
The Defendant argued that the wording indicated that the obligation to notify arose when the policyholder could “with reasonable diligence” discover that an event was likely to give rise to a claim. This would have created a positive obligation on the policyholder to proactively investigate for possible future claims. The court disagreed. The judge stated that the wording referred only to the “promptness with which the notice in writing is to be given” once there had been an event likely to give rise to a claim. It did not create an obligation to conduct “rolling assessment of claim likelihood”.
There are three further broad points on notification procedure of which both policyholders and insurers should take note:
1. Precise wording defines notification obligation
The precise wording of the policy will set out the scope of notification obligations. Notification of events “likely” to lead to a claim sets the notification threshold as events with at least a 50% chance of a claim eventuating. Wording requiring the notification of events “which may” lead to a claim could also include events with a mere possibility of a resulting claim.
2. Conditions precedent or term of contract
If the notice provisions are conditions precedent to the policy and those provisions are breached, the insurer may refuse to indemnify the policyholder. If the notice provisions are not conditions precedent, but are simply terms of the contract, then the insurer is obliged to pay valid claims despite a breach of those provisions. The insurer may be entitled to damages for breach, but it is usually very difficult to prove loss.
3. Necessity for clear reporting lines
With the importance of notification “as soon as possible” of any event judged to be “likely” to result in a claim, it is particularly important that a policyholder has clear processes for reporting and communicating complaints and possible claims, so that these are dealt with quickly and by the right people.