UK: Court Of Appeal Reins In "Kidsons" On Circumstantial Notifications

Last Updated: 7 November 2008
Article by Nik Carle

The decision last year in H L B Kidsons-v-Lloyd's Underwriters and Others, made unhappy reading for policyholders and imposed a very strict approach to complying with notification provisions in 'claims made' PI policies. This week, however, the Court of Appeal has swung the law back in favour of insureds, as Nik Carle now reports.

A reminder of the facts in Kidsons

Kidsons ran a specialist business that marketed tax avoidance schemes to clients. In 2001, a Kidsons employee signalled some worries about the merits and implementation of these tax schemes and in response, in August of that year, Kidsons wrote to their broker saying: "...the Inland Revenue, if minded, could be critical of some procedures followed in certain cases...".

There were then two follow-up communications to Underwriters. The first, at the beginning of October 2001, enclosed a claims bordereau report and then, at the end of March 2002, Kidsons' next letter warned: "...in some instances there might be procedural difficulties involving...each scheme and this might lead to the possibility of criticism in the future."

The notification provision at the heart of this case was General Condition 4 ("GC4"), which is largely standard – of course - in these sorts of PI wordings:

"...The Assured shall give to the Underwriters notice in writing as soon as practicable of any circumstance of which they shall become aware during the [policy period]...which may give rise to a claim or loss against them. Such notice having been given any loss or claim to which that circumstance has given rise which is subsequently made after the expiration of the [policy period] shall be deemed for the purpose of this Insurance to have been made during the subsistence thereof."

In the High Court, Mrs Justice Gloster had held that strict compliance with GC4 was required if notifications were to be effective, notwithstanding that this provision was not explicitly described as a condition precedent.

Further, the August and October communications could not amount to valid notifications – the Judge said – because they were "insufficiently clear and unambiguous to constitute notice of a circumstance giving rise to a claim under GC4", as "...far too vague and nebulous..." and further, they did not include an identification of any error, act or omission or possibility of any claim nor did they identify any specific products or procedures in question.

Finally, whilst the March 2002 letter was a proper notification in principle, it could not be viewed as having been given "as soon as practicable" coming – as it did – some four months after Kidsons' first awareness of the matter and three months after their PI policy had expired.

The Court of Appeal's ruling

The Court of Appeal found that the October 2001 presentation was an effective notification for the purposes of GC4 and rejected the Judge's reasoning on this footing:

"The question for present purposes is what the letter said, not what the letter did not say. It was presented as a matter of the claims side of things. The letter did not say that any claim had been made, indeed it said that no claim had been made, and therefore the essence of it must, at any rate in theory, have been to provide information of a circumstance which might give rise to a claim. That is what the bordereau confirmed, when it was headed 'Claim circumstance notification bordereaux'."

"GC4 says nothing about how a notification is to be made, other than that it must be in writing and given as soon as practicable after awareness of circumstances which may give rise to a claim. That is, on the face of it, a fairly loose and undemanding test. It is quite unlike other possible notice requirements which might specify more precisely what a notice must contain and/or when it must be given. Both the requirement of awareness, and the test that a claim 'may' arise, are open-textured. Moreover, if circumstances arise where notification should be given, the Assured is required to give notice...: it is not in his option, as many contractual notices might be. The Assured is thus put in danger of either being required to give notice at a time when the circumstance of which he is aware require investigation before he can speak precisely about them, or of being told that he has failed to give notice at all as soon as practicable. Moreover, the authorities on such clauses do not seem to demand great specificity...".

Scope of notification

However, the scope of that October notification was limited: the Court of Appeal did not accept Kidsons' case that the entirety of the business' 'fiscal engineering' work was included but rather, only those matters relating to the implementation of certain products. This was what a reasonable person would have been given to understand on receipt of the notification.

Awareness: subjective and objective elements

As to establishing 'awareness' for the purposes of GC4, the Court looked at the process of deciding about what "may give rise to a loss or claim ..." in this context. Whilst accepting that this was an entirely objective question (and not dependent on the insured's subjective thoughts at all), Underwriters argued that the concept of awareness still necessitated (on the insured's part) some subjective element of belief in the possibility of a loss or claim in relation to relevant circumstances.

Underwriters position, namely, that Kidsons were not 'aware' for these purposes of the relevant circumstances, was rebuffed by the Court of Appeal. All the parties were prepared to treat the original concerns expressed by the employee as being the 'circumstances' in question – and as Kidsons were clearly 'aware' of these concerns - the analysis could readily end abruptly there.

'As soon as practicable ...': condition precedent effect and interplay with institute anti-avoidance provisions

The Court of Appeal supported the Judge on this front: in the judgment, there is a lengthy and useful exploration of the interaction between the compulsory "General Institute Conditions" in the wording and the effect of the condition precedent features in GC4.

In short, the 'as soon as practicable' component in GC4 was to be afforded condition precedent status and nothing in the General Institute Conditions served to affect that conclusion.

Comment

The first instance decision in Kidsons set the odds against policyholders in a significant way and it is perhaps no surprise that the Court of Appeal has trimmed some of the extremes here.

This latest review (the Judgment runs to 48 pages), following on from Kajima UK Engineering v The Underwriter Insurance Co earlier this year, is surely going to be an important blueprint for PI insurers aiming to adopt robust and sustainable protocols when considering notifications generally.

There is still plenty to draw from Kidsons that is helpful for insurers but they will not be able to take notification points with quite the same confidence in future.

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
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.