UK: Time Limits For Complying With Claims Co-Operation Clauses

Claims provisions often impose obligations on the insured to notify insurers of a claim and to provide certain information. If such clauses are drafted as conditions precedent to liability the insurer is entitled to refuse to pay a claim, whether or not he has suffered any prejudice. In two recent decisions the Court of Appeal and the Privy Council considered claims provisions that required certain information to be forwarded to insurers and whether prejudice was a relevant factor.

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Claims provisions often impose obligations on the insured to notify insurers of a claim and to provide certain information. If such clauses are drafted as conditions precedent to liability the insurer is entitled to refuse to pay a claim, whether or not he has suffered any prejudice. In two recent decisions the Court of Appeal and the Privy Council considered claims provisions that required certain information to be forwarded to insurers and whether prejudice was a relevant factor.

Insurance contracts almost always contain claims provisions. These enable an insurer to

(a) investigate the circumstances that may give rise to a claim while the evidence is still fresh,

(b) accurately to value the size of any potential claim and

(c) to take a decision as to whether there is coverage.

Ordinarily the insured will be required to notify the insured within a certain time limit of circumstances giving rise to the claim (the notification clause) and in addition the insured will then have to co-operate with the insurers by providing certain information within either

(a) a reasonable time or

(b) a specified time (the co-operation clause).

These provisions are often drafted as conditions precedent to liability. Breach of such a condition entitles an insurer to refuse to pay a claim even if the insurer is unable to show that the breach has prejudiced his position (see Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd [1985]).

This article looks at two recent cases where the court considered the meaning of cooperation clauses, the case of Shinedean Ltd v Alldown Demolition (London) Ltd & Anr considered the type

(a) co-operation clause while Nasser Diab v Regent Insurance Company considered the type

(b) co-operation clause.

The case of Shinedean Ltd v Alldown Demolition (London) Ltd & Anr first came before the court in October 2005. HHJ Havery QC’s judgment raised eyebrows since it appeared to re-introduce the concept of prejudice into a claims co-operation condition precedent that required the insured to provide information to the insurers within a "reasonable time". However the matter was appealed recently and Lord Justice May who delivered the lead judgment appears to have re-established the commonly held view that in clauses such as these prejudice is not a factor which has to be taken into account in considering if the clause has been breached.

In April 2002 Shinedean Ltd employed a contractor (Alldown Demolition (London) Ltd) to carry out demolition and excavation works at No. 113 Kirkdale Road, Syndenham. As part of the works Alldown negligently excavated a hole beside No. 111 Kirkdale Road, which led to a loss of support to the adjoining property and significant damage to its flank wall. The property owners sued Shinedean who had to settle the undefendable resulting claim. Shinedean then commenced proceedings against Alldown to recover these sums. Axa were joined as Second Defendants in these proceedings.

The Shinedean policy contained a number of general conditions, one of which was a requirement (clause 3) that in the event of any loss, destruction or damage or any event likely to give rise to a claim, the insured should notify Axa immediately. This they did. There was also a requirement that Shinedean should deliver to Axa at the insured’s expense all such proofs and information relating to the claim as might reasonably be required. The provision stated that no claim was to be payable under the policy unless this provision was complied with – in other words it was a condition precedent to liability. The proofs and information were not sent to Axa until they were provided as an exhibit to a witness statement in the proceedings at the end of 2004, over two and half years after the claim was made.

HHJ Havery QC decided that the insured was impliedly required to comply with these conditions within "a reasonable time". Although he accepted that the information had been provided two and a half years after the notification he decided that there was no breach of reasonable time obligations to supply information and assistance because Axa had not been prejudiced in any material way by the delay. They were just as able to deal with the claim with the information reaching them when it did as if they had received it two years or more earlier.

This matter was re-considered by the Court of Appeal. Lord Justice May was persuaded that the key point about this type of provision was that insurers were entitled to have co-operation and relevant information in good time to be able to assess potential liability and to take appropriate action. Lord Justice May concluded that when considering whether a reasonable time has elapsed for the provision of information each case would be looked at on its own facts. In the circumstances of this case it was clear the documentation, being over two and a half years late, was not provided within a reasonable timeframe. However, he said that insurers were entitled to know where they stood and to receive the information in good time, whether they were prejudiced by the failure to achieve this or not. An insurer was entitled to say that if the provision was overdue that failure was a breach of a condition precedent to provide within a reasonable time.

During the course of his judgment Lord Justice May referred to the recent Privy Council case of Nasser Diab v Regent Insurance Company. In that case Regent Insurance Company provided Mr Diab with fire cover. The policy contained a condition precedent that any claim should be notified "forthwith" and that within 15 days the insured was to provide particulars of the loss. Whilst a claim was notified immediately, the insured failed ever to provide details of the claim. In the course of his judgment Lord Scott recognised that since it was nine years since the fire had arisen and Regent had never been supplied with the particulars of the loss, Regent was deprived of the opportunity to investigate or query the particulars and given the nine year lapse of time the failure could not be remedied. Consequently, the condition precedent had not been fulfilled. However, Lord Scott stated that "in a case where notice of a claim has been given forthwith to the insurer and where a claim in writing with the requisite particulars of loss and damage followed sufficiently promptly to enable the insurer to verify the claim as a good one, it is not obvious that a failure to deliver the claim in writing and the particulars within the specified period should be treated as relieving the insurer of any liability in respect of the claim".

These comments are obiter but suggest that strict compliance with a specified time limit in a fire insurance policy will not be regarded as necessary in all the circumstances. The Privy Council was not asked to consider this issue and so no assistance has been given as to what those circumstances are. In light of the Shinedean judgment it is likely that prejudice will not be one of these circumstances that will be taken into account.

These cases provide some guidance as to how condition precedent co-operation provisions should be construed.

• If a co-operation clause is a condition precedent, then the breach of that clause will allow Insurers to decline cover even if there has been no prejudice. The question, though, is when is there a breach?
• If a co-operation clause does not specify how long an insured has to provide claims information, a "reasonable time" will be given.
• That issue will be determined on the facts of the case.
• An insurer is entitled to relevant claims material in good time to assess a claim, whether or not his position is prejudiced.
• Lord Scott has indicated that strict compliance with a specified time limit in a fire insurance policy may not be regarded as necessary in all the circumstances. It is unclear what circumstances would be considered by the court in this type of case.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 12/09/2006.