An insured entered into an agreement in 2008 which arguably led to it entering into a further agreement in 2010. It was subsequently alleged that the insured had committed certain errors and omissions (namely, not taking adequate security) pursuant to the 2010 agreement. A claim was notified to insurers under a 2013/14 policy. Those insurers had provided continuous cover to the insured since 2009 (and also provided cover for 2014/15). The policy provided that there would be no cover for claims "arising from or in any way involving any act, error or omission alleged to have been committed prior to 5th June 2009" (the Retroactive Date Clause). It also made it a condition precedent to liability that notification of a Claim was made as soon as practicable (and in any event within 60 days) (Clause 14). A Claim was defined as including "a written demand for monetary damages or non-pecuniary relief". A further extension clause (Clause 5j, "Continuity of Cover") provided that where a policy was a renewal policy, coverage would be provided for claims or circumstances which should have been notified under the earlier policy (provided there was no interruption of the cover provided by the insurer).
Cooke J was required to decide the following issues:
- How should the Retroactive Date Clause be interpreted?
The judge held that the "words must be read in context and with an eye to their most sensible construction in the light of the nature and object" of the policy. He held that there must be "some causal connection, whether direct or indirect, to the claims and liability alleged in order for the exclusion to operate". Turning to the language used in the clause, he held that "act, error or omission" should be construed in accordance with the Wrongful Acts clause of this professional indemnity policy and so referred to "matters which could in principle create liability under the policy". The phrases "arising from" and "in any way involving" must have different meanings, otherwise the latter phrase would be left "without any real content" (or else the former phrase would serve no purpose if the latter phrase did not require any causal element at all).
Referring to earlier authority, the judge confirmed that "arising from" meant "proximately caused by" or "directly caused by" and went on to find that "in any way involving" therefore meant "indirectly caused by" in this context. In that way, "the two phrases are given recognisably distinct meaning and the clause hangs together as a whole". The clause therefore required some act, error or omission which is "genuinely part of a chain of causation which leads to liability for the claim in question".
On the facts of the case, the 2008 agreement was just the background or "historical context" which led to the 2010 agreement, but there was no causative connection between the earlier agreement and the alleged breaches of duty under the later agreement. Furthermore, the primary case pleaded against the insured did not allege wrongful acts prior to the Retroactive Date, and an alternative case was not being "actively pursued". Accordingly, the Retroactive Date Clause did not give insurers a defence.
- Was a written demand made against the insured 6 months before the start of the 2013/14 policy? At that time, the insured had received a letter from the claimant's solicitors reserving the claimant's rights and seeking an agreement of a protocol for a swift and effective recovery of sums. Cooke J noted that "there is no formality required for such a demand so long as it is in writing but there must be a demand". He held that this letter did not amount to a demand. Nor was a request for confirmation of agreement to the funding of the recovery strategy a written demand for monetary damages.
- Did the breach of the notification condition precedent (Clause 14) afford insurers a defence?
Cooke J held that it did not, when read in conjunction with the Continuity of Cover clause (Clause 5j). The whole point of Clause 5j was to extend cover to claims where there had been a breach of the notification CP in the prior year. Any breach of the CP would preclude the insured from recovering under the prior year (and, if insurers did not renew, there would be no cover later on either). However, where insurers did renew on terms which included Clause 5j, there would be cover for claims which should have been notified under the prior year.
Accordingly, the insured was entitled to declarations to the effect that the claim fell to be covered under the policy.