If something goes wrong in your business, don't forget to think about possible insurance cover. Could you have an insurance claim? If so, you need to notify your insurer - and quickly.
When something goes wrong, the first reaction within a business is often to try to fix the problem, be it by seeking to placate an aggrieved customer, repairing damage that has been done or assessing the company's position as a possible defendant in legal proceedings.
All of these are important steps - but it is just as important to dust off any relevant insurance policies and check the notification provisions. Might you have an insurance claim? If so, you will almost certainly have to notify your insurer - and quickly. If you delay, you may find that the insurer is not obliged to cover any loss that arises.
What does the notification clause say?
There will be a notification provision somewhere in the insurance policy. Read this carefully. It may require notice of a possible claim to be given within a certain number of days – or, more often, "immediately" or "as soon as possible". Neither have a hard and fast meaning (it will all depend on the relevant circumstances), but on any view the message has to be – act fast.
Most policies require notice to be given of "any occurrence" or "any circumstance" which "may" or "is likely to" give rise to a claim or loss. The precise wording will vary and will inevitably give rise to debate as to whether what has happened is enough to trigger the notice provision.
Some guidance on the point was given by the Court of Appeal in HLB Kidsons v Lloyd's Underwriters  EWCA Civ 1206. Rix LJ noted that:
"Any ambiguity rests in the ambiguity of identifying the relevant "circumstances"...the two questions will be: (i) Have such circumstances come to the attention of the insured... so that he can be said to be aware of them? (ii) Are such circumstances such that they "may give rise to a loss or claim against them"? The latter question is an objective one; the insured may have his own views about the complaint, but the question has to be looked at objectively."
Toulson LJ made a similar point:
"...the right general approach to a policy clause which entitles an insured to give notification of a circumstance which may give rise to a claim, and thereby cause the risk to attach to that policy, is to treat the right itself as subject to an implicit requirement that the circumstance may reasonably be regarded in itself as a matter which may give rise to a claim."
At its root, therefore, the question is an objective one with a touch of reasonableness to it. The best advice is always to err on the side of caution. It is better to notify a circumstance that never gives rise to an insurance claim than to hesitate and risk putting cover at risk.
Importantly, notification clauses are often expressed to be conditions precedent to cover. This means that, if they are not properly complied with, an insurer will quite legitimately be able to walk away from the claim. The clause itself need not even use the words "condition precedent." For example, there may be a clause elsewhere in the policy which renders the notification provision a condition precedent. Check in particular for any catch-all provision which states that the insurer's liability generally is conditional on the insured observing all the terms of the policy. The court held in Aspen Insurance and others v Pectel Limited ( EWHC 2804) that this was enough to render a notification provision a condition precedent to cover. The courts tend to be sympathetic to an insurer's need to investigate claims at an early stage, and as a result they do not like to see an insurer deprived of the opportunity by reason of the insured's delay.
Other points to consider (and again, check the wording of the clause):
- Who needs to be given the notice? Is it the insurer's head office even though you only ever deal with a local branch? If there are multiple insurers, do they all need to be informed? You may normally only deal with the broker, but be careful not to assume that telling the broker is enough. A good broker will help to ensure that notification is correctly effected, but mistakes can happen and it is best to check that the right parties are notified.
- Does notice have to be given in writing? This will almost certainly be the case and in any event is important in setting down a paper trail.
- Are there any other contractual requirements to meet?
Content of a notification
The policy may prescribe a particular form for making a notification. If not, then bear the following points in mind:
- The content of a notification should be unambiguous and never misleading.
- It should be clear to the recipient that it is a formal notification, being made pursuant to a specific policy on behalf of specific entities.
- Details about the circumstance being notified are of course also required. Think carefully about how the relevant matters are described. If a notification is too vague, an insurer may not accept it. If it is too specific, it may not capture all relevant issues.
- Does the notification have to be made under more than one policy? For example, it is not uncommon where a claim is being made to have to notify both the professional indemnity policy and the D&O policy.
If new issues emerge, they may not be covered by the initial
notification. Consider whether another notification is
The importance of getting these points right cannot be over-estimated - but they are easily overlooked when attention is (understandably) focussed more on the underlying problem than a possible future insurance claim.
What else can be done?
- Remind yourself of the terms of a your insurance policies from time to time – and in particular the terms of the notification provisions.
- Inform everyone in the business of the importance of raising potential "circumstances" immediately, so decisions can be made about notification at an early stage. Consider producing a summary of key policy terms for circulation. Many employees will have no idea of the types of insurance cover a business has, let alone the obligation to notify.
- Ensure that there is a clear procedure for reporting problems internally, so potential "circumstances" don't fall through the cracks without being reported.
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.