In the case of HLB Kidsons v Lloyd's Underwriters subscribing to Lloyd's policy No 621/PK1D000101 & Others  EWCA Civ 1206, the Court of Appeal has given useful guidance on when notification of circumstances which may give rise to a claim is effective. Kidsons was a firm of chartered accountants who sold tax avoidance products through its subsidiary Solutions @ Fiscal Innovation Limited (S@FI). The defendant insurers had issued a professional indemnity insurance policy on a claims made basis to Kidsons for the period 1 May 2001 to 30 April 2002. The policy wording allowed cover to be extended to claims brought against Kidsons after the policy period had expired as long as the claim arose out of circumstances previously notified to the insurers of which Kidson had become aware of during the policy period. During the policy period, one of Kidson's employees raised concerns about a number of tax avoidance products sold by S@FI. Claims were then made against Kidsons by clients of S@FI after the policy period expired.
Kidsons alleged that it gave several notifications to its insurers which amounted to notification of circumstances which may give rise to a claim. The Court of Appeal was asked to review whether any of these notifications were effective. In deciding whether the notifications were valid, the Court of Appeal considered issues which are of importance when making such a notification. Lord Justice Rix held that a letter of notification which downplayed the risk of a potential claim and was sent to the placing underwriter (instead of the relevant person in charge of claims) was not valid notification. However, when Kidsons later sent the same letter to the relevant claims department along with a claim file and an accompanying bordereau, Lord Justice Rix held that this was effective notification of circumstances as the bordereau clarified and extended the letter. In deciding whether notification had been given, Lord Justice Rix made it clear that it was irrelevant to the question of notification whether Kidsons held a genuine belief that these circumstances might result in claims against Kidsons as, on all objective criteria, the letter and its enclosures (i.e. the claim file and bordereau) were intended to be a notification of circumstances. However, the notification of circumstances given was limited to that explicitly set out in the letter. In other words, the scope of the circumstances which may give rise to a claim could not be widened at a later date.
The case is a warning to insureds that, when making such a notifications of circumstances, certain standards must be met. First of all, the notification must be explicit as to the circumstances that are being notified. Lazily drafting such a letter may mean that the later claims do not fall within the notified circumstances and as such the claims may not be covered by the policy. Second, once this notification letter is drafted it must be sent to the right person. Third, the notification of circumstances must objectively look like a notification. In other words, the purpose of the letter (i.e. notification of circumstances) should be clear to the receiving party. Following these relatively simply rules may mean the difference between extending cover to such claims and finding yourself uninsured in relation to them.