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Insurer v Insured - Certainty is King 

by Paul Eccles

Published: March, 2017

Submission: March, 2017

 



The Court of Appeal has provided useful insight into the meaning of the phrase 'as soon as possible' in relation to insurance policy notification obligations. How will this decision impact upon both insurers and insured parties?


In Zurich Insurance plc v Maccaferri Ltd [2016] EWCA Civ. 1302, the issue before the Court of Appeal was whether the appellant insurers were entitled to reject liability under a combined product and public liability policy for an alleged breach of a notification condition precedent contained in the policy. The case required the court to consider whether the phrase 'as soon as possible after the occurrence of any event' was likely to give rise to a claim in the notification clause in the policy.


Insurers lost both the first instance trial as well as the appeal. The Court decided that insurers are at full liberty to express the conditions within their policies with as much specificity as they like and, as a result, 'such conditions should be clear in order to have effect' against the insured.


In this case, the ambiguity of the notifications clause was interpreted in the insured's favour especially when the potential effect of the condition was to exclude Insurer's liability for an otherwise valid claim.


Background


The claim arose from a related series of events in which an individual, Mr McKenna, suffered serious injuries to both eyes in an on-site accident involving a piece of industrial equipment during the course of his employment.


The equipment was originally provided by Maccaferri to the well-known building merchant Jewson Ltd, who in turn hired this out to Drayton Construction Ltd - the direct employer of Mr McKenna. The incident occurred in approximately September 2011 with witness evidence at the trial suggesting that Maccaferri were aware of its occurrence from around January 2012.


Mr McKenna made a claim for damages against Drayton Ltd in July 2012 as a result of the injuries he suffered during the accident. Drayton then issued an indemnity/contribution claim against Jewson in around March 2013 and Maccaferri were subsequently brought into proceedings via a Part 20 claim, made by Jewson, in July 2013. Maccaferri then notified their brokers and insurers, Zurich, of the incident.


In September 2015, Zurich refused to indemnify Maccaferri for the liability arising from the series of claims which, in turn, led to the present dispute.


Policy Dispute


The policy in question was a combined public and product liability insurance policy which covered the period from May 2011 to May 2012. The notifications clause stated that the insured must provide 'notice in writing to the insurer as soon as possible after the occurrence of any event'. Additionally, it stated that the 'insured shall also on receiving verbal or written notice of any claim intimate or send same or a copy thereof immediately [to the insurer]'.


The dispute concerned the timeframe in which Maccaferri notified the insurers of the claim. Zurich submitted that Maccaferri had failed to abide by the conditions of their policy and were therefore unable to be indemnified under it. This was denied by Maccaferri.


The Decision


The Court of Appeal held that there are two stages in deciding when an insured party is obliged to notify an insurer:


  1. there must have been an event (See Axa Reinsurance (UK) plc v Field [1976] 1 WLR 1026])
    and 
  2. the event must have been likely to give rise to a claim. 'Likely' has consistently been interpreted as meaning anything above 50% and not merely a possibility, as seen in judgments such as Layher Ltd v Lowe [2000] Lloyd's IR 510.

Upon objective assessment, the Court decided that the knowledge of the insured is an important consideration to account for when deciding whether they were aware of the likelihood that a claim would be made against them. In this respect, a considerable amount of time may pass between the incident occurring and a likelihood of a claim actually arising against the insured.


Lady Justice Black and Clarke LJ were not satisfied that there was a likelihood of more than 50% that a claim was to be brought against Maccaferri at the time of the accident; especially with witness evidence suggesting that Maccaferri were never under threat of a claim from Mr McKenna.


As a result, the Court suggested that 'as soon as possible' merely indicates a period of time in which the insured must notify the insurer, but that the main decision is based upon the test applied above. Additionally, the Court stated that the insurer is in no way hindered in their ability to specify detailed circumstances and conditions for notification clauses i.e. clarity is required for effectiveness (Reference was made to Royal & Sun Alliance v Dornoch [2005] EWCA Civ 238).


As such, the ambiguity in this case was interpreted against Zurich.


Impact


This decision will be welcome news to insured parties as it reinforces the need for clarity within insurance policies in order to be effective, should a dispute arise. It is beneficial to know that the Courts are willing to protect insured parties, with potentially ambiguous policies, when they face potential liability.


The decision also confirms that an obligation to notify only arises where there is a 50% (or higher) likelihood of a claim being made against the insured party.


It will still be prudent to assess all insurance policies in order to determine the exact obligations required for satisfaction, to avoid the policy protection becoming void, should an incident occur. Although a positive step, this decision is by no means a clear cut way to decide whether a duty to notify the insurer has arisen.


While being highly desired, but often difficult to achieve, this decision reinforces that clarity is king when it comes to contractual provisions.


We have an expert commercial insurance team who are skilled at interpreting contractual provisions in insurance contracts. Please contact paul.eccles@shoosmiths.co.uk for more information.


 


 

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