The Commercial Court in Loyaltrend v Brit has recently provided further guidance on when Insurers can rely on late notification as a complete defence to a claim for indemnity. This decision follows on from the prominent cases of HLB Kidsons v Lloyd's Underwriters and Laker Vent v Templeton Insurance, which also addressed the question of late notification and what triggers an obligation to notify. The broad trend of these decisions has been to confirm Insurers' ability to rely on late notification to decline liability in certain circumstances.

Loyaltrend v Brit concerned a subsidence claim under a shop retail policy. The policy covered damage, resulting from a number of specified perils including subsidence, to the tenant's fixtures and fittings, trade contents and stock at the Insured's premises.

The policy required the Insured to give immediate notice on the occurrence of damage on which a claim was or might be founded.

The Insured first noticed crack damage in August 2003, but did not notify Insurers until August 2004 (at the earliest). The Insured stated it was only then that it became aware that the damage was the result of subsidence and that it might have a claim under the policy. The judge found against the Insured who should have notified the circumstance earlier. The test for whether a claim might be made was objective (confirming Laker Vent v Templeton Insurance) and what the Insured knew or thought with regard to the possibility of a claim being made was irrelevant to that question. On the evidence, the Insured should have known by December 2003 that the damage was sufficiently serious to warrant notification. This was because:

  • the Insured had appointed an engineer prior to then;
  • correspondence referring to the severity of the damage from September 2003 existed;
  • evidence recording location and seriousness of damage was documented; and
  • the Insured had notified its landlord's insurers in November 2003.

Therefore, Insurers' ability to decline indemnity due to breach of the notification provision was upheld.

Loyaltrend v Brit is good news for Insurers, confirming the trend over recent years that UK Courts appear increasingly willing, on the right set of facts, to consider notification clauses as providing Insurers with a defence to claims, where those clauses are conditions precedent.

To view the article in full, please see below:


Full Article

The Commercial Court in Loyaltrend v Brit has recently provided further guidance on when Insurers can rely on late notification as a complete defence to a claim for indemnity. This decision follows on from the prominent cases of HLB Kidsons v Lloyd's Underwriters and Laker Vent v Templeton Insurance, which also addressed the question of late notification and what triggers an obligation to notify. The broad trend of these decisions has been to confirm Insurers' ability to rely on late notification to decline liability in certain circumstances.

Before examining the decision in Loyaltrend v Brit it is worth noting that the courts have recognised that policy rules for the notification of circumstances to Insurers are important for the following reasons:

Reserving: By the end of a period of cover (or very soon thereafter) Insurers crave certainty in knowing what claims have been made against the policyholder and what circumstances might later turn into claims.

Investigation: Insurers want to be able to investigate circumstances at the earliest possible juncture so that they can act swiftly to minimise any potential exposure.

Future claims: Insurers want to avoid the uncertainty of long-tailed future claims arising out of unreported circumstances.

It is with this background in mind that the rationale of recent cases, which have given Insurers a degree of comfort, should be considered.

HLB Kidsons v Lloyd's Underwriters

The views of the Court of Appeal were not entirely consistent. Lord Justice Rix stated that there were subjective and objective elements. Whether or not the Insured was aware of the circumstance was a subjective issue. However, the assessment as to whether the facts "might give rise to a claim" was an objective question and so it was irrelevant whether the Insured believed that a claim might arise or not. In contrast, Lord Justice Toulson did not believe that the correct answer to the question was to say simply that the test was subjective or that it was objective. Nevertheless, the same result was reached by both judges – part of the notification was late and Insurers were entitled to refuse an indemnity for certain claims due to the Insured's breach of condition precedent.

Laker Vent v Templeton Insurance

The Court of Appeal considered a notification clause under which it was a condition precedent that the Insured gave immediate notice as soon as it was aware of a circumstance that had given, or was likely to give, rise to a claim. The court expressly approved Lord Justice Rix's reasoning in Kidsons and confirmed that whether a set of circumstances is likely to give rise to a claim is an objective question not to be determined by reference to the Insured's belief. On the facts of the case, the Insured had not notified late.

Loyaltrend v Brit

The recent case of Loyaltrend v Brit is consistent with this line of authority on the interpretation and application of notification provisions.

The case concerned a subsidence claim under a shop retail policy. The policy covered damage, resulting from a number of specified perils including subsidence, to the tenant's fixtures and fittings, trade contents and stock at the Insured's premises.

The policy required the Insured to give immediate notice on the occurrence of damage on which a claim was or might be founded.

The Insured first noticed crack damage in August 2003, but did not notify Insurers until August 2004 (at the earliest). The Insured stated it was only then that it became aware that the damage was the result of subsidence and that it might have a claim under the policy. The judge found against the Insured who should have notified the circumstance earlier. The test for whether a claim might be made was objective (confirming Laker Vent) and what the Insured knew or thought with regard to the possibility of a claim being made was irrelevant to that question. On the evidence, the Insured should have known by December 2003 that the damage was sufficiently serious to warrant notification. This was because:

  • the Insured had appointed an engineer prior to then;
  • correspondence referring to the severity of the damage from September 2003 existed;
  • evidence recording location and seriousness of damage was documented; and
  • the Insured had notified its landlord's insurers in November 2003.

Therefore, Insurers' ability to decline indemnity due to breach of the notification provision was upheld.

Comment

Loyaltrend v Brit is good news for Insurers, confirming the trend over recent years that UK Courts appear increasingly willing, on the right set of facts, to consider notification clauses as providing Insurers with a defence to claims, where those clauses are condition precedent.

Further reading:

Loyaltrend v Brit [2010] EWHC 425 (Comm)

Laker Vent v Templeton Insurance [2009] EWCA Civ 62

HLB Kidsons (a firm) v Lloyd's Underwriters [2008] EWCA Civ 1206

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 29/04/2010.