Kidsons, a firm of chartered accountants, sought a declaration from its professional indemnity insurers that they were bound to provide indemnity under its professional indemnity policy in relation to a number of claims against it relating to tax avoidance work.
Gloster J’s judgment is lengthy and far-reaching1. It identifies a number of lessons accountancy firms and other professional entities should bear in mind when notifying a claim under their professional indemnity policy.
Kidsons were required to notify underwriters “as soon as practicable” of “… any circumstance … which may give rise to a loss or claim against them. Such notice having been given any loss or claim to which that circumstance has given rise which is subsequently made after the expiration of [the policy period] … shall be deemed for the purpose of this insurance to be made during the subsistence hereof.”
The court held that this clause provided an extension of cover for claims made after the policy period, but that this extension was dependent on notice having been given “as soon as practicable”. In this instance it had not. Kidsons purported to notify the claims to underwriters in vague terms. The court found that Kidsons’ notification in relation to a majority of the claims was insufficient. Valid notice depends not on the subjective intention of the insured but on how the reasonable recipient would have understood the notice.
It is apparent from this case that the notification of a circumstance to insurers should include details of any error, act or omission, or potentially negligent or otherwise wrongful conduct. It should also identify the potential claimant or the victim and details of the loss they may suffer. Time for notifying the circumstance was held to run from the date the insured had all of the above information in order to notify the claim. Notice four months after that date was not notification “as soon as practicable”.
Gloster J also commented that knowledge of a circumstance by the partnership secretary or the relevant managing organ of a partnership can be attributed to all the partners in the firm. It is in the interests of all partners to ensure that adequate notification procedures are in place.
This is an insurer friendly decision, but watch this space as Kidsons has obtained leave to appeal.