Accountants, lawyers and other professional advisers in the West Midlands could be storing up trouble for the future by failing to notify their insurers of changes in their circumstances, according to Birmingham law firm Browne Jacobson. The recent case of HLB Kidsons v Lloyds Underwriters has served as a salutary lesson to insured firms that the consequences of anything less than full disclosure could be far-reaching.
The case involved a firm of accountants that marketed a number of tax minimisation products under a separate company name. Under the terms of its professional indemnity insurance, the firm was covered beyond the expiry of its policy against claims arising from incidents that had occurred within the term. However, in order to ensure it was fully covered, the firm was required to notify its insurers as soon as practicable of any situations that might foreseeably lead to a claim being made against it.
Derek Bambury, a partner who specialises in professional indemnity insurance at Browne Jacobson, said: “When it became apparent that a number of problems existed with the products it offered, Kidsons - unfortunately for them as things turned out - notified their insurers in vague terms. When Kidsons sought, after the currency of the policy, to claim indemnity against a number of claims, their insurers contested that the notification had been insufficient to fall within the terms of the policy.”
In judgement, Mrs Justice Gloster, DBE, held that whilst Kidsons might be deemed to have provided sufficient notification of two specific instances, they failed to meet the relevant criteria on the notification of a wider range of products.
The judgement is one that is ultimately being perceived as a ‘win’ for the insurance community, not so much for the specifics of the case, but more for the insight it provides on the importance of full disclosure.
Not only does the judgement give an indication of the way that judicial opinion is flowing, it also forms the basis of a checklist that insurers and their customers can rely on to verify whether or not notifications have been communicated in a manner that falls within the requirements.
Browne Jacobson has developed a notifications checklist that both parties can use to ensure they do not fall foul of the terms of use.
- What requirements must be satisfied for a notice to be valid and effective for the purposes of the relevant condition in the policy?
- As a matter of fact, of what circumstance or circumstances was or were the indemnified aware during the policy period;
- Does the particular communication satisfy the relevant requirements of the condition in the policy?
- If so, what, if any, circumstances does the particular communication notify?
- If none of the questions below can be answered in the affirmative, the communication is unlikely to be a valid notification:
- Do papers include identification of any error, act or omission, or potentially negligent or otherwise wrongful conduct on the part of the assured?
- Is the victim or possible claimants identified?
- Is there any mention of the possibility that a client or any assured, or other individual, might suffer loss as a result of any identified error, act or omission, or potentially negligent or otherwise wrongful conduct on the part of the assured?
- Is there a statement in the heading of any of the letters or in the body of the communications that the assured is in fact by means of those letters notifying a circumstance which may give rise to a claim?
Derek Bambury concluded: “This ruling has brought clarity to an area of insurance law that was frankly a grey area. It is now clear that firms need to abide by the letter and spirit of their PI contracts if they want to ensure cover is maintained and their businesses are adequately protected from claims.”
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