Loyaltrend v Brit involved a claim for property damage and business interruption arising from subsidence. Loyaltrend sought to recover under their insurance policy with Brit. Brit's denial of the claim was upheld because Loyaltrend had failed to comply with a notification clause that was found to be a condition precedent. This decision by the Commercial Court is interesting as it follows a line of recent authorities on notification clauses in liability policies, however it reinforces the need for policyholders to be aware of the terms of their notification obligations within all types of policies.
Loyaltrend Limited was a company trading as a fashion clothing retailer under the name "Question Air". It had a lease of a shop comprising of the ground floor and the basement. Problems arose with cracks in the outer walls from the middle of 2003 and continued until at least 2006.
The First Defendant (Creechurch Dedicated Limited) insured Loyaltrend for the year 11th December 2002 to 10th December 2003, the Second Defendant (Brits UW Limited "Brit") for the period 11th December 2003 to 10th December 2004 and the Third Defendant (Catlin (Five) Limited) from 11th December 2004 to 10th December 2006. Loyaltrend discontinued the proceedings against the First and Third Defendants deciding to pursue only Brit.
The general conditions of Brit's policy provided at Condition (1) that compliance with the policy conditions was a condition precedent to insurers' liability. Condition (5) stated that "the insured shall give immediate notice to the insurers… on the happening of any injury or damage in consequence of which a claim is or may be made under the policy".
A survey of the building in January 2003 identified no signs of cracking or movement. However, by late summer 2003, cracks began to appear at the front of the building. By November 2003, significantly more cracking and signs of movement were evident. Cracks continued to develop until December 2006 with the vast majority of the damage occurring from October 2004 to Spring 2005. Loyaltrend notified Brit of the damage in August 2005. It appears from the judgment that after becoming aware of the potential notification issue Loyaltrend also contended that some communication with Brit in August 2004 constituted notification.
One issue in the case was whether Loyaltrend had made effective notification of the subsidence damage as required under its policy.
Judge Mackie QC held that the obligation to notify arose in November 2003. Although accepting that material damage did not take place until 2004, and that there was a "step change" in the state of the property in October 2004, the judge found that the seriousness of the damage was apparent in November 2003 and it was evident then that repair work was necessary. At this point, Loyaltrend had already appointed an engineer to look at the problem, a surveyor had inspected the shop and informed the landlord's insurers and there was written evidence of the severity of the damage from this time. The Judge held that Loyaltrend should have notified Brit at this time but failed to do so.
Loyaltrend argued that notification had been made in August 2004 and that this was not in breach of its notification obligations. However, Judge Mackie QC rejected this argument as correspondence demonstrated that Loyaltrend's notification had occurred in August 2005 and that it was only once it became aware that there were different insurers for different years that the alternative argument was put forward that notification was in August 2004. Upon holding that notification was not made until August 2005, the Judge had no difficulty in finding that this was in breach of Condition (5) of the policy and therefore Brit was entitled to deny the claim.
We consider the Loyaltrend decision raises three points for policyholders:
- The Judge accepted without comment that the wording of Condition (1) had the effect of making the following procedural terms conditions precedent. Policyholders must therefore be wary of this type of general wording and not simply rely on the wording of the notification clause itself to determine whether it will be treated as a condition precedent.
- The Judge reiterated that the test for whether notification should be made was objective not subjective. This follows the authority of Laker Vent Engineering Ltd v Templeton Insurance Ltd, which decided that the question of whether notification should have been made depended on whether a reasonable person would have considered a claim likely to arise from the circumstances in question.
- Where notification is an issue, insurers will probably request and obtain full disclosure of the policyholder's records and/or those of its agents. It was the existence of correspondence referring to the severity of the damage from autumn 2003, which persuaded the judge's decision in this case. Implications are:
- The policyholder must ensure that it notifies its insurer immediately of any circumstance which occurs in both liability and property policies. It is best to be cautious and notify, even if the circumstance does not come to anything.
- In order to avoid any doubt as to whether notification was given, it is advisable for the policyholder to seek confirmation that its notification has been received and accepted as such.
- Following recent cases in the liability insurance field policyholders should be wary of using "laundry lists". It is best to notify circumstances and claims throughout the policy period to avoid risking a gap in coverage.