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: " 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.


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.

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