EWCA Civ 1206 http://www.bailii.org/ew/cases/EWCA/Civ/2008/1206.html
The Court of Appeal dismissed the majority of Kidsons’ appeal concerning notification of circumstances under their claims-made professional indemnity policy. Many claims were made against Kidsons concerning their failed tax schemes after the policy expired. Kidsons sought to rely upon a purported notification of circumstances under the deeming provision of the policy, GC4, which stated:
“The Assured shall give to the Underwriters notice in writing as soon as practicable of any circumstance of which they shall become aware during the [policy period] 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 have been made during the [policy period]".
The Court of Appeal upheld Gloster J’s finding that notification under GC4 was a condition precedent to liability. Underwriters’ entitlement to avoid liability where notification was not given in accordance with GC4 was not affected by the Minimum Terms of the Institute of Chartered Accountants of England & Wales (ICAEW) since they do not apply to conditions precedent to liability.
As for the four purported notifications, the Court of Appeal differed to some extent from Gloster J’s analysis. In particular, they favoured a more flexible and objective approach to the content of an effective notification, since GC4 merely required a notification to be made in writing, “a fairly loose and undemanding test”, as soon as practicable. On this basis, the second presentation was held to be an effective notification, contrary to the view of Gloster J, who had held that a notification should be in terms which leave the reasonable recipient in no reasonable doubt that it is purporting to notify a circumstance that might give rise to a claim.
While it is now clear that a notification is to be construed objectively, what is unclear is the extent to which Gloster J’s detailed guidance about notification is still valid since the Court of Appeal did not comment on the detail. Insureds should be cautious about assuming that a relaxed approach to notification is appropriate. As Kajima UK Engineering Ltd v Underwriter Insurance Company Ltd illustrated earlier this year, an insured may need to make further notifications as it becomes aware of further circumstances which might give rise to a claim.
For further guidance about this decision, please refer to the briefing on our website at http://www.mills-reeve.com/design/framesetnews.asp?page=article.asp?id=899.
Comment: in Kidsons the notification clause was not stated to be a condition precedent, whereas other clauses in the policy were. The same situation arose recently in Aspen Insurance UK v Pectel, where again the court held that the notification clause was a condition precedent (http://www.bailii.org/ew/cases/EWHC/Comm/2008/2804.html). The claim arose out of a fire in a tunnel in March 2004. The defendant insured was a sub-contractor engaged to remove asbestos from the tunnel. Although it was obvious that a claim might be made against the insured, it did not notify insurers Aspen about the fire until the contractor sought to lay blame upon the insured in March 2007. Teare J held that the insured should have notified by early April 2004, since the clause required “immediate written notice” and the fire was an occurrence that gave rise to a real risk that the insured might claim an indemnity under the policy in respect of claims made against it in connection with the fire.
In concluding that notification was a condition precedent to the insurer’s liability to indemnify, the judge was influenced by the general observance clause 13 which stated:
“The liability of Underwriters shall be conditional on the Assured paying in full the premium demanded and observing the terms and conditions of this insurance.”
He concluded that the relevant part of clause 13 should be construed purposively, and not literally, so as to read:
“The liability of the underwriters to indemnify the assured in respect of a claim for an indemnity shall be conditional upon the assured observing the terms and conditions of the policy with regard to that claim.”
The effect of this construction was to avoid the draconian result that underwriters would be relieved of all liability under the policy and not just liability in respect of which there was failure to comply with the notification clause.