The English High Court (the Court) recently held that blanket notification of circumstances which might give rise to a claim was sufficient notification to bring the claims within the operation of a professional indemnity insurance policy in place at the time of notification.
The case contains important lessons for both insurers and insureds in Australia, as the findings of the Court may influence the approach a court in an Australian jurisdiction will take to determine the validity of a blanket notification.
More than what you bargained for…
In October 2010 McManus Seddon Runhams (McManus) absorbed a conveyancing law firm, Sekhon Firth.
By mid May 2012 a total of 17 claims had been made, directed to McManus as the successor practice of Sekhon Firth, in relation to alleged breaches of fiduciary duty.
McManus arranged for a sample of Sekhon Firth’s files to be audited by a consultant. McManus also reviewed 110 other files. The audit revealed a course of conduct amounting to breach of duty. Ex-employees of Sekhon Firth also informed McManus about ongoing issues with the way files were managed.
McManus concluded that there was a risk of negligence claims being brought against McManus in relation to Sekhon Firth’s mismanagement of files.
The blanket notification
McManus had taken out a professional indemnity insurance policy with European Risk Insurance Co (ERI). On 21 September 2012 McManus sent a notification to ERI titled ‘Blanket notification of circumstances which may give rise to claims’ (the Letter).
The Letter referred to the 17 claims (which had been previously notified to the insurer), the similarities between these claims and the other files reviewed by McManus and a consultant, and the comments from ex-employees of Sekhon Firth. McManus concluded that the practices which were the subject of the 17 claims appeared to be part of Sekhon Firth’s standard practice, and there were potentially 5,000 matters or more that contained these breaches of duty. McManus gave notice in relation to each and every file as follows:
… each and every file...should properly be notified to you as individually containing shortcomings on which claimants will rely for the purposes of bringing claims.
ERI rejected the notification in the Letter in respect of all claims but the 32 files examined by the consultant. While ERI accepted that the 32 files examined indicated there were circumstances that could give rise to a claim, ERI argued there was no valid notification of the remainder of the 5,000 or more files as McManus had not identified: …the specific incident, occurrence, matter, act or omission which would give rise to a claim on each individual file.
The Court concluded that the Letter constituted a valid notification, even though the specific issues contained in each individual file was not identified. The Court held that if an insured notified its insurer of the circumstances giving rise to a claim or potential claim, then all future claims arising out of those circumstances should be dealt with by the insurer.
The Court’s findings were consistent with two other cases relating to blanket notifications: J Rothschild Assurance plc & Ors v Collyear & Ors  CLC 1697 and HLB Kidsons (a firm) v Lloyd's Underwriters  EWCA Civ 1206.
The case is authority for the contention that blanket notifications that identify the circumstances giving rise to a claim or potential claim can be a valid notification, even if such identification is in general terms.
Insurers should consider the potential implication of this case when determining whether to reject the validity of a blanket notification on grounds of generality. This case is the third of a string of English cases indicating that a blanket notification may be valid provided the circumstances of the claim risk are adequately identified. It may be prudent to request the insured to provide the further information required and in the interim reserve rights in relation to indemnity.
That said, insureds should also be mindful that a court finding of valid notification will not result in automatic cover. The Court did not provide the declaratory relief sought by McManus, even though the notification was deemed valid. Rather, the Court held that each claim-made notification was to be considered on a case-by-case basis.