UK: HLB Kidsons v Lloyd´s Underwriters & Others

Getting Claims Notification Right – Fair, Comprehensive & Comprehensible

The Court of Appeal recently ruled on Gloster J.'s detailed analysis of the claims notification provisions in a claims made PII policy. At first instance, Gloster J. held that the information provided to underwriters was insufficient to trigger the "deeming" provision of the firm's PII policy save to the extent of a limited category of claims. This provision deemed that claims made after policy expiry were covered if they arose out of circumstances which had been validly notified within the policy period. Gloster J.'s test for a valid notification, that it was, "sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt", was rejected on appeal as being of no great assistance. The Court of Appeal instead held that any notification should be "fair, comprehensive and comprehensible". Where does this leave both insureds and insurers going forward? What constitutes effective notification?

Both Judgments provide essential guidance on the factors to be considered when making a notification. In summary:

• What constitutes a circumstance which may give rise to a claim? Here the policy provided that notice must be given "of any circumstances which may give rise to a claim". On appeal, Toulson LJ. held that this involved "a degree of crystal-ball gazing, an estimation of the likelihood of a claim". There does not need to be a certainty or even a probability or likelihood of a claim, only that the prospects of a claim emerging are real as opposed to false, fanciful or imaginary.
• Who, in an insured organisation, is the knowledge holder for the purpose of a notification? This is a two stage test. First, is the Insured actually aware of the relevant circumstances? The Kidsons case concerned a partnership. It was held that once the partnership secretary had been informed, as he had been given full authority to deal with insurance matters, his knowledge was imputed to the entire partnership. As to the second test, whose state of mind is relevant in deciding whether a circumstance should be notified, it was held that the subjective view of the Insured would only be relevant in exceptional circumstances. The question would usually be what would a reasonable person in the shoes of the Insured have recognised as a risk of a loss or claim?
• What form should the notification take? Unless the policy provides otherwise there is no specific form. In practice wording should be used that is fair, comprehensive and comprehensible and which leaves the recipient in no doubt that the purpose of the communication is to notify a circumstance.
• To whom should the notification be made? Again any requirements in the policy should be followed. Assuming the policy is silent the test is whether an objectively reasonable recipient would consider the communication to constitute a notification. It is important to identify who exactly should receive the notification for it to be valid. Save where there are clear market agreements, the lead and all following underwriters should be notified.
• Breadth of the notification? A claim must be sufficiently casually related to the fact, event, happening or condition which comprises the notified circumstance, that it can be fairly said to have arisen out of it.
• Conditions precedent and the effect of delay. The Kidsons' policy provided that notice should have been given "as soon as practicable". Although it was accepted that this allowed the Insured a reasonable degree of latitude, it was held that a notification to underwriters further down the slip being both some months after the initial notification to the leading underwriters and post expiry of the policy was out of time. Here, although the giving of timely notice was not labelled a "condition precedent", it was held that the wording of the condition was such that timely notification must have been intended to be precedent to liability and the notice to the following market was therefore fatal to the claim (This final point has since been applied to a loss occurring wording in the case of Aspen v Pectel [2008] EWHC 2804 (Comm) where it was held that the Insureds failure to notify an occurrence promptly was a breach of a condition precedent).

HFW acted for HLB Kidsons. A small team, drawn from some of those involved in this case and others in the group would be delighted to present the issues, and advise on the implications of this. We are delighted to extend this offer to come and speak to your team, and to offer further guidence on this. Please let us know if you are interested in taking us up on this offer and the date and times convenient to you.

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.