The Court of Appeal recently handed down its judgment in the Kidsons case1. In 2007 the High Court held that Kidsons, a former firm of accountants, failed to adequately notify its professional indemnity insurers in relation to a number of claims involving tax planning advice. See our November 2007 Update for a report on the first instance decision.
The issue was whether Kidsons had adhered to the terms of its policy. The notification clause required Kidsons to notify underwriters “as soon as practicable of any circumstance of which they [the Insured] 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 expiration of the [policy period] shall be deemed for the purpose of the Insurance to have been made during the [policy period]”.
A Kidsons employee had highlighted a number of issues regarding the implementation and design of a number of tax planning products to senior Kidsons employees. Kidsons later purported to make a number of notifications of circumstances.
The Court of Appeal largely upheld the High's Court decision, but its judgment addressed two important issues: first, how to make a valid notification and secondly, when a notification needs to be made (ie when did the circumstance arise).
Rix LJ held that a valid notification required that the recipient be left “reasonably clear” that the communication was intended to be a notification of circumstances. Kidsons had made a valid notification based on Rix LJ’s formulation, but the notification referred only to the “implementation” of their tax planning schemes, failing to cover the schemes’ inherent merit or design. This in turn has created fresh uncertainty as to which claims, or parts of claims, are covered, dependent on the distinction (if any) between design and implementation.
On the second issue, the parties in Kidsons agreed on the circumstance which required notification. However, the Court of Appeal commented on this point, stating that the requirement to notify “as soon as practicable of any circumstance of which they [the Insured] shall become aware” was an objective determination. Rix LJ doubted whether the internal concerns raised by the employee, without objective support, such as counsel’s opinion or an internal investigation, were enough to equate to a circumstance when taken in isolation.
The Court of Appeal’s judgment remains pro-insurer but serves as a stark reminder to notify circumstances fully and soon after a 'circumstance' arises.