UK: BLG Construction and Property Professionals´ Briefing - Notification Under The Spotlight

Last Updated: 12 November 2008
Article by Patrick Perry and Jonathan Scragg

Professionals engaged in the construction and property sectors will know that the landscape has been changing over the course of the last 18 months. The economic climate is deteriorating and there has already been a significant downturn in the property development sector. This will bring greater pressure on funding and profit margins for larger construction projects and is likely to increase the risks in relation to the solvency of suppliers and sub-contractors.

We expect these factors will exacerbate the number of claims and disputes within the industry, which in turn will likely lead to an increase in the incidence of construction and property professionals turning to their indemnity insurance for protection.

On renewal

Laker Vent Engineering Ltd v Templeton Insurance Company Ltd (2008)

The insured, Laker Vent, notified its insurers, Templeton, of a claim which took the form of an arbitration that had arisen under a construction contract between Laker Vent and a third party contractor. Laker Vent sought an indemnity from Templeton in respect of its legal costs arising out of the arbitration. Templeton rejected the claim on the grounds that Laker Vent had knowingly failed to disclose a material circumstance (the escalation of the dispute) prior to renewal of the policy, and said that this failure meant that Laker Vent had not adhered to the contractual notification procedure under the policy, which entitled Templeton to decline cover.

The High Court rejected Templeton's arguments and found in Laker Vent's favour. Laker Vent was entitled to insurance cover since, at the time of renewal, it owed Templeton the usual duty of disclosure as codified by statute and imposed by the general law. The fundamental question was whether the various matters of which Laker Vent was aware before renewal amounted to circumstances which were so material that they would have affected the judgment of a reasonable insurer in fixing the premium or determining whether he would take the risk. The Court considered that, at the point of renewal, Laker Vent's relationship with the third party contractor had not deteriorated sufficiently to qualify as a material circumstance.

In a note that will strike a chord with many construction and property professionals, the Court observed that it was inevitable for complex construction contracts to be vulnerable to a variety of disputes and that an insurer should, therefore, be aware of the general risks that arise from such contracts. The Court said that something more substantial was required before warranting disclosure to insurers as a material problem; and in applying Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd (1995), the Court said that even if the matters relied upon by an insurer were material, the mere fact that they were not disclosed would not necessarily entitle the insurer to avoid the contract of insurance as it was necessary for the insurer to show that he had been induced to enter into the policy by the non-disclosure.

When circumstances exist that might give rise to a claim

HLB Kidsons v Lloyd's Underwriters (2007) and Kajima UK Engineering Ltd v Underwriter Insurance Company Ltd (2008)

In Kidsons, the insured firm of accountants sought an indemnity from their insurers in respect of claims arising out of tax avoidance schemes. The policy contained a deeming provision that "the Assured shall give to the Underwriters notice in writing as soon as practicable of any circumstance of" a claim. The insured made an initial communication to the insurers of what was described as "material information" in relation to the schemes in August 2001, and subsequently made more expansive notifications. The insured contended that the claims arose out of circumstances which had been notified during the policy period. The court held that Kidsons had failed to make a valid notification of circumstances and that, consequently, the claims were not covered under the policy.

In Kajima, the policy included cover for circumstances "which might reasonably be expected to produce a claim" that were notified within the period of insurance. The claimant insured contractor employed to design and build a block of pre-constructed apartments notified the defendant insurers that the apartments were settling and moving excessively. The notification referred to other possible damage and to the fact that an investigation was underway. Further issues arose with the apartments in subsequent years and a coverage dispute arose as to the extent to which claims relating to defects discovered after the February 2001 notification fell within the scope of the original notification. The court held that the notification was only effective in relation to the specific circumstances notified and a number of the claims arising were not covered.

Taking Kajima and Kidsons together, the following principles emerge:

  • Any claim for which indemnity is sought must arise from the notified circumstances. There must be a causal, as opposed to coincidental, connection between a notified circumstance and a later claim;
  • The wording of the notification will be construed objectively, having regard to the factual context in which it was made. What an insured may have intended (but failed) to notify by the wording used is immaterial;
  • An insured must be subjectively aware of the circumstances it is seeking to notify and the possibility that they might give rise to a claim; and
  • General "hornet's nest" notifications can be made but they are subject to the "awareness" requirement.

Kajima and Kidsons both emphasise the need for insured professionals to consider carefully the extent of problems they seek to notify, and to ensure that this is properly reflected in the wording used in the notification. This is especially important for construction and property professionals who may find themselves involved in complex projects that deteriorate, but which subsequently evolve in different (and often unforeseen) directions, due often to the multiple number of parties and issues involved. In such situations, insured professionals may need to make additional notifications as their understanding of a troublesome matter develops so as to ensure that appropriate insurance cover is available should a troublesome matter later develop into a claim.

An appeal in Kidsons has recently been heard, and the Court of Appeal's judgment is expected shortly.

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