Originally published Summer 2004
Insurance policies often require immediate notice of an incident that could lead to a claim, but this need not be regarded as a condition precedent or pre-condition. The idea is to let the insurer know that a claim may be on its way and not necessarily a sign that it’s time to investigate or deny cover.
Pinsents was recently involved in a case where a defective industrial floor was installed at a factory, requiring significant funds to put it right. The project managers became insolvent but they had insurance cover in place. Judgment was obtained against them and attempts were made to enforce this against the insurers in line with the Third Parties (Rights against Insurers) Act 1930.
Cover denied
The insurers tried to deny cover on the grounds that a condition precedent in the policy had not been complied with. Six weeks before the claim was actually notified to insurers, a report on the state of the floor was published, stating that the specification had not been complied with. It was more or less accepted that this amounted to late notification of a circumstance, but not a condition precedent, despite the clause expressly saying so.
Insurers’ liability
If a condition precedent exists, insurers will not be liable for any loss occurring before the requirements of the condition precedent have been satisfied, in this case, the immediate notification of a circumstance.
However, simply calling a clause a condition precedent will not be decisive, especially when this label is attached indiscriminately. Given that there would be little or no prejudicial effect of a breach of an immediate notification clause pointed against this clause being a condition precedent. Also given that the clause required immediate notification, it was a ridiculous effect if it was a condition precedent. Taken literally, a delay of one day would have provided insurers with a complete defence.
Whilst insurance policies often require the immediate notice of a happening that might lead to a claim, most are unlikely to be regarded as a condition precedent. To summarise, the function of the notice is to advise the insurer that a claim may be coming and the insurer will be able to investigate once he knows that a claim will be made.
It was on this basis that Pinsents was able to achieve a favourable settlement for our client, but given the time and costs involved in achieving this result, businesses are advised to let their insurers know promptly of any a circumstances that may lead to a claim.
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.
