The English High court's decision in McManus & Ors v European Risk Insurance Co i indicates that the blanket notification of claims (or of circumstances which might give rise to a claim) is likely to be sufficient to trigger an insurance policy. It also highlights the need for an insured to promptly notify claims or circumstances when they first discover them.
This case concerns an English law firm's (McManus Seddon Runhams) (the "Firm") blanket notification to its professional indemnity insurer of circumstances which might give rise to a claim (the "Notification Letter"). The notification related to of all of the files/matters of another partnership that had recently been acquired by the Firm.
The Firm's professional indemnity policy relevantly required that it notify the insurer of any claim "first made against any Insured during the period of insurance" or any "circumstances of which any Insured first becomes aware during the period of insurance".
The Notification Letter stated that the Firm had discovered shortcomings and inadequacies with the files of the acquired partnership. It then went on to:
- describe a number of claims made against the acquired partnership (as already notified to the insurer) and listed off files/matters that had similar characteristics to those giving rise to the claims;
- enclose a report from a consultancy firm engaged to investigate the acquired partnership's files (which detailed the problems identified with 32 such files);
- cite a judgment of the Solicitors Disciplinary Tribunal against former members of the acquired partnership;
- explain that an internal investigation had confirmed that inadequate working practices had been "extremely common" or "endemic" within the acquired partnership;
- conclude that it is likely that "every file" of the acquired partnership contains examples of malpractice, negligence or breach of contract; and
- notify each and every file of the acquired partnership as a circumstance which could give rise to a claim.
The insurer accepted the notification of those files identified in the consultancy firm's report. However, it rejected the rest of the files notified on the basis that the Firm did not "identify the specific incident, occurrence, fact, matter, act or omission which would give rise to a Claim on each individual file".
In this context, the Firm sought a declaration that all of the relevant files had been validly notified under the insurance policy.
The Court held that the Notification Letter satisfied the requirements of the policy and the insurer had been wrong to reject the notification of the acquired partnership's files. It followed the decisions of J Rothschild Assurance plc & Ors v Collyear & Orsii ii and HLB Kidsons v Lloyds Underwriters iii, to conclude that:
"provided circumstances exist which may give rise to a claim, and provided
those circumstances are notified, then any future claim arising out of those
circumstances must be paid out by the insurer at risk at the time of notification
whether or not the particular transaction or possible claimant has been identified
at the time of notification."
On this basis, the Court affirmed the principle that (subject to the express terms of the policy) an insured is not obliged to make a separate notification for particular clients, transactions or matters. It ruled that the Firm could issue a blanket notification and was only required to inform the insurer of the general factual circumstances which might give rise to a claim.
Despite this conclusion, the Court did not consider it appropriate to grant declaratory relief to the Firm. The Judge determined that it would be premature to make a declaration regarding the Firm's rights and should only do so if and when a claim arises under the policy.
What it means to you
The case has potentially significant consequences for both insureds and insurers.
For insureds, it confirms that blanket notifications and general descriptions of circumstances are likely to be acceptable for the purposes of most professional indemnity / errors & omissions policies (and possibly many other liability policies).
While this provides insureds with greater flexibility, it also reinforces the need to make prompt notifications of any circumstances which might give rise to a claim. Insurers may rely on this decision (and those cited above) to argue that notifications must be given when an insured first discovers that there might be an issue. The potential impact is that an insured could be denied cover if it fails to notify any circumstance within the time required by the policy. It highlights the importance of an insured adopting strong risk management procedures and working closely with its broker and/or legal counsel to identify matters for notification.
On the other hand, the case highlights that an insurer needs to be cautious when rejecting a notification of circumstances. If an insurer does not understand the notification or the potential basis for a claim to arise, it should seek further information from an insured before communicating its position under the policy.
i EWHC 18 (Ch)
ii  C.L.C. 1697. In this case, the English High Court accepted the blanket notification of future claims arising from the insured's sale of pension schemes. That notification was accompanied by a regulator's bulletin and a report commissioned by the regulator, which identified industry wide practices of mis-selling.
iii  EWCA Civ 1206, the English Court of Appeal upheld an accounting firm's notification of a large number of client files based on a staff member's general observation that the tax avoidance products provided to such clients may be ineffective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.