UK: Coverage Issues – Ensuring Early Preservation Of Policy Points

Last Updated: 12 March 2008
Article by Nik Carle

Kosmar Villa Holidays Plc-V-Trustees Of Syndicate 1243 (Court of Appeal, 29 February 2008)

The Court of Appeal has ruled supportively for Underwriters in this important case about the taking, investigating and waiving of policy points.

Kosmar, a specialist travel operator, had arranged public liability insurance for its business over the period 2001-2002. In August 2002, one of Kosmar's customers ('the Claimant') suffered very serious injuries after diving into the shallow end of the swimming pool at a resort in Kavos. Significantly, Kosmar did not notify its Underwriters about this incident until over a year later, at the beginning of September 2003.

This delayed notification led to some involved litigation. A General Condition within the relevant insurance policy provided that:

"The insured shall immediately after the occurrence of any Injury or Damage give notice in writing with full particulars thereof to insurers."

At the High Court trial, it was accepted by all concerned that condition precedent status attached to this requirement for 'immediate' notification. However, had Underwriters effectively waived compliance with the condition precedent by corresponding with Kosmar and the Claimant's solicitors, during mid-September 2003, in the manner that they did?

The evidence revealed that, during the middle part of September 2003 ('the September dealings'):

  1. Underwriters' wrote to Kosmar with 25 background questions concerning the incident generally;
  2. Underwriters also wrote to the Claimant's solicitors to inform them that they were Kosmar's liability insurers and to advise that they were investigating the matter with a view to providing their views on liability. They also asked about the Claimant's current position and any plans to obtain medical evidence;
  3. Underwriters had initially written to Kosmar, without applying any reservation of rights at all to observe that: "We should probably win this case...". They also added that they had decided not to deny liability just yet (in respect of the Claimant's claim) and that they proposed to "await [Kosmar's] reply to [Underwriters'] various requests ...".

Some 2 weeks later, on 30 September 2003, Underwriters wrote again to Kosmar, now reserving their position on grounds of the General Condition and the issue of late notification.

It is relevant to say that there was something of a history between the individual Underwriters in this case (who had dealt with Kosmar's business for some years through different cover-holder schemes) and Kosmar's legal manager and broker. The parties had tried to streamline claims handling procedures so that Kosmar could improve its claims record and drive down premiums. The Underwriters, too, were keen to secure Kosmar's business. It was recognised that it would be unduly burdensome for Kosmar to have to give immediate notification of every occurrence, whether minor or not and in response, Underwriters agreed that only cases that were not 'clear cut' on liability would have to be referred through immediately.

In the period before the key September 2003 notification, there had been 16 other claims notified through to Underwriters by Kosmar. Interestingly, all of those carried with them a delay of 2-5 months after the incidents in question had happened. Underwriters had not, however, rejected any of those prior claims on grounds of late notification or otherwise.

High Court

At first instance trial, Kosmar argued that the prior claims history (before September 2003) had effectively estopped Underwriters from taking the condition precedent point, on the subject case, for late notification. The Judge decided that Underwriters' treatment of those other claims evidenced that they were taking no more than a case-by-case approach. In short, it was decided that the payment of some prior claims, irrespective of Kosmar's non-compliance with the notification provision, could not be said to give Kosmar carte blanche for the future.

The Trial Judge had then turned to Underwriters' conduct in relation to the September dealings. Could this amount to an 'unequivocal communication' of Underwriters' election to waive compliance with the condition precedent requiring immediate notification. He found for Kosmar on this point, deciding that the relevant communications demonstrated "objectively or unequivocally the making of an informed choice by [Underwriters] to deal with [the Claimant's] claim."

The Judge also ruled for Kosmar on the issue of Underwriters 'knowing all they needed to know' by the point of first notification in September 2003 and therefore, a reasonable time to make their election had passed by the point of their taking up the September dealings.

Finally, at trial, the Judge looked at whether Underwriters' behaviour - after first notification in September - could constitute an estoppel and/or an affirmation. Kosmar's arguments were, however, rejected on both of these bases.

So, the Judge decided Kosmar was entitled to an indemnity from Underwriters but only on the footing that there had been a waiver of the policy point by election, coupled with an unequivocal communication of a decision to deal with the Claimant's claim (and thereby, they accepted liability for it, the Judge found).

Court Of Appeal

The Court of Appeal decision contains a very lengthy academic discussion on the doctrine of waiver by election contrasted with waiver by estoppel.

On appeal, Underwriters contended that the Judge had been wrong at trial to rule that a breach of condition precedent was something different to a breach of promissory warranty in the present context.

Underwriters also maintained that their September dealings were not unequivocal and that being seen to 'handle' a claim for a short period of time was not necessarily inconsistent with a repudiation of liability.

The Court of Appeal found for Underwriters on both of those issues.

When tackling these sorts of 'procedural' conditions precedent, the doctrine of election was not appropriate and issues over handling of a claim, or any unequivocal representation that Underwriters accepted liability, should be decided against the backdrop of estoppel (and not election) principles. This is how Lord Justice Rix articulated the point:

"Thus an insurer who begins to deal with a claim, even if, as I will assume for the moment, he thereby represents that he views that claim at that time as being, if good, a matter for indemnity under the policy, is not thereby required for all time to maintain his dealing with or conduct of the claim. He can leave it to his insured to conduct a defence, although he may turn out to be liable at the end of the day to indemnify his insured against both liability and the cost of defending liability. Moreover, he may discover matters which lead him to believe that the claim is not within the policy, and it remains open to him to withdraw his support for it. None of this fits happily with the idea that some dealing with the claim is an irrevocable election to accept liability for it under the policy so far as any procedural defect in it is known to the insurer."

The Court of Appeal went on to find that the September dealings were "far from unequivocal". Was it enough that Underwriters had behaved in a manner that gave the impression they were willing to deal with the claim? On this aspect, the Court of Appeal noted Underwriters had made it clear to Kosmar that – pending Kosmar's reply to their requests for further background information – any decision on liability in respect of the Claimant's claim was going to be deferred. It was also made plain that Kosmar would need to deal with Underwriters' queries before the matter could be moved forward generally.

The Court of Appeal's overview on this can hardly be described as sympathetic to Kosmar, the policyholder:

"Why should Kosmar objectively be justified in thinking that its late notification of a serious claim would be accepted, even though it was in breach of a condition precedent, when Kosmar had not answered [Underwriters] many questions about the incident, and had not begun to address the question which hung in the air – even if it was not specifically asked in writing by [Underwriters] until 30 September – as to why so serious an incident had not been notified for over a year? After all, there was no urgent need for any decision about the consequences of the breach of condition precedent. It is not as though [Underwriters] had even begun in any real sense to have undertaken the conduct of [the Claimant's] claim. No proceedings had yet been issued, and no solicitors had yet been instructed. Nothing had been taken out of Kosmar's hands. On the contrary, [Underwriters] still remained in Kosmar's hands for its understanding of the claim."

The Court of Appeal went on to reject the notion that, at the point of first notification (on 4 September 2003) Underwriters 'knew all they needed to know' to take a point on breach of condition precedent (and that thereafter, they were "...in the grip of an election if [they] acted inconsistently with a repudiation of the claim ...".

Rather, the fact that Underwriters had asked questions of its policyholder – and that no answers had been provided – demonstrated that Underwriters were "...still in the stage of assimilating the circumstances of the case ..."

Lord Justice Rix then went on to provide some detailed practical guidance, which is set to be regularly cite in future when coverage issues do surface between Underwriters and their policyholders:

"It would not be good practice for insurers to rush to repudiate a claim for late notification, or even to destabilise their relationship with their insured by immediately reserving their position – at a time when they were in any event asking pertinent questions about a claim arising out of an occurrence about which they had long been ignorant in the absence of prompt notification. Insurers traditionally armour themselves with all kinds of conditions precedent, but, in a relationship where there is trust, they are just as likely to forgo their strict rights. If they did not, the conduct of the insurance market might very well undergo considerable adaptation. Legal doctrine should not push insurers into over-hasty reliance on their procedural rights. No explanation for the very late notification of this serious claim had been vouchsafed to [Underwriters] and I do not see why any doctrine such as election which is concerned with maintaining a fair balance between the parties to an insurance should be used to put insurers, who have been kept in ignorance of a serious occurrence for a long period of time, into peril of being forced to accept a claim advanced in breach of condition precedent before they have been put in a position properly to understand the circumstances of the accident and of its late notification."

Lord Justice Rix was quick to apply some limits to this understanding view of Underwriters' position by warning that he:

"... would certainly not like to give the impression that insurers can equivocate for long while giving the plain impression that they are treating the claim as covered by their policy, especially at a time when a decision might be required, without running at least the risk that they will be treated as having waived some requirement of their contract or their right to avoid it. Moreover, there may well be express options given to insurers under their policy for the unguarded exercise of which is simply inconsistent with the right to decline cover."

Comment

Insurers can take some comfort from this decision, which appears to call for a more contextual analysis to these sorts of waiver issues. It is clear that, in itself, the asking of relevant questions about new notifications is always an important "first response" to employ. Ordinarily, if one can point to a course of reasonable investigation being started in this way, it will be difficult for policyholders to argue that insurers have somehow waived away their policy rights and entitlements.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions