Zurich Insurance PLC v MacCaferri Ltd [2016] EWCA Civ 1302

Summary

Insurers lost an appeal of a judgment rejecting their interpretation of a condition precedent to liability which required the giving of notice “as soon as possible after the occurrence of an event likely to give rise to a claim”. Insurers argued that notice had to be given when the insured learned of the event and realised (or ought to have realised) that it was likely to give rise to a claim. However, the Court of Appeal held that there was no event to be notified unless it could be said that it was likely to give rise to a claim at the time it occurred, based on an objective assessment taking into account the actual knowledge of the insured. The clause did not therefore require the Insured to undertake a rolling assessment of the likelihood that a claim would result from the event.

Background facts

The Insured hired out a Spenax gun (described by the Appeal Court as a “giant stapler”) to a builder’s merchant who then hired it out to a building contractor. On 22 September 2011, an employee of the contractor was seriously injured by a clip fired from the gun when he attempted to move it. The Insured was informed of the accident on 28 September 2011, but the first instance court found that at that time it was no more than a possibility that the gun was to blame. The employee began proceedings against the building contractor in or around July/August 2012, to which the Insured was eventually joined on 12 July 2013. It then notified Insurers of its combined Public and Products Liability policy on 22 July 2013. Insurers refused an indemnity on 25 September 2013 based on the following 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…” (emphasis added)

It was common ground that:

  1. Per Axa Reinsurance (UK) Plc v Field[1] , an “event” is something happening at a particular time, in a particular place and in a particular way.
  2. Per Layher Ltd v Lowe[2], an “event likely to give rise to a claim” means an event with at least a fifty per cent chance that a claim against the Insured would eventuate.

Insurers submitted 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 i.e. the Insured’s duty to notify arose when its state of knowledge was such that it could notify. It argued that this meaning was supported by the obligation to give full particulars, which implied a duty of inquiry.

The Insured submitted that the condition could only apply if there was the occurrence of an event which had the characteristic that it was likely to give rise to a claim at the time. The phrase “as soon as possible” could do no more than specify how soon after the event notice had to be given, yet Insurers’ contentions required it to do “double duty”.

Judgment

The Court of Appeal held that the Insurers’ interpretation of the condition was “strained and erroneous”. Clearer words would have needed to be used to achieve that meaning. The Court also referred to previous authority[3] indicating that the time for assessing whether an insured must notify an occurrence as one likely to give rise to a claim, is immediately after it occurred (although that is not an occasion “limited to the exact moment”). Further, the Court confirmed that the assessment of whether a claim was likely to arise is an objective assessment based on the actual knowledge possessed by the Insured.

Comment

As ever, courts are reluctant to enforce breaches of conditions precedent unless clear wording is used, particularly where the effect of the breach does not result in prejudice to insurers. It is almost never the case that the breach of a notification clause will have that impact.

The Court did not give examples of the sort of wording that would be required to have the effect that Insurers contended for in this case, but it did note that there are clauses which would do so, particularly in professional liability policies. Notification provisions in professional liability policies usually refer to “circumstances” rather than “events”. Unlike an “event” which English case law confines to something occurring at a particular time and place and in a particular way, “circumstances” are not so finite and can thus evolve. As such, it may be that whilst a particular set of circumstances is not likely to give rise to a claim initially, they may change so as to trigger a duty to notify at some later point. It could thus be argued that where circumstances must be notified as opposed to an event, the Insured is more likely to have to perform a “rolling assessment” of whether they are likely to give rise to a claim.