Insurance disputes which turn solely on the question of notification do not come along very often. This is one reason why the litigation between chartered accountants, HLB Kidsons, and their professional indemnity insurers, has attracted so much attention. In court, Kidsons was required to argue the toss with its professional indemnity insurers as to whether it had effectively notified insurers of circumstances concerning flawed tax avoidance schemes marketed to its clients. All the claims which were ultimately brought against Kidsons were received after the expiry of the policy, and the policy was on a claims-made basis, so the issue was purely, in the words of the Judge, " a contest about notification".
The end result, as we now know, is that the Court at first instance held that a notification had been made to insurers, albeit not to the whole market, and only of limited circumstances; the Court of Appeal allowed that a wider range of circumstances had been notified, but otherwise left the Judgment at first instance broadly intact. However, Kidsons was a case decided on a particular policy wording and on its particular facts. Are there any general points of principle that can be take away from the decision?
One point which has caused some debate is that the assured's obligation to notify circumstances to insurers "as soon as practicable" was construed by the Court as a condition precedent to insurers' liability. This was despite the fact that the requirement was not expressed to be a condition precedent. On the face of it, this seems inconsistent with themodern approach which requires conditions precedent to be expressed in clear language, given the draconian effect which non compliance can have for the policyholder. Moreover, the clause containing this provision directly followed a condition which was expressed to be a condition precedent. It would therefore be reasonable to assume that the words "condition precedent" had been deliberately omitted by the draftsman for a reason.
The clause in question said "The Assured shall give to the Underwriters notice in writing as soon as practicable of any circumstances of which they shall become aware during the period specified in the Schedule which may give rise to a loss or claim against them. Such notice having been given any loss or claim to which that circumstance has given rise which is subsequently made after the expiration of the period specified in the Schedule shall be deemed for the purpose of this Insurance to have been made during the subsistence hereof".
This meant, the Court decided, that if the assured became aware of circumstances during the policy period but failed to give notice to insurers "as soon as practicable", there would be no cover for the claim. In other words, proper notice was a condition precedent to liability.
To understand the Court's reasoning, however, it is important to appreciate firstly, that it was not in issue in the case that the policy allowed circumstances to be notified to underwriters after expiry of the policy – provided the assured was "aware" of circumstances during the currency of the policy. This may be surprising to those in the professional indemnity market who are perhaps more familiar with policies where notifications must be made within the policy period. However, against that background, the Court was not prepared to place a construction on the policy which permitted the assured to know about circumstances which might give rise to a loss but only disclose them to insurers at any time of his own choosing after expiry of the policy. The Court's view was that such a construction might rob the policy of its claims-made features. This was the logical stepping stone for the Court's conclusion that notice to insurers must be given "as soon as practicable" and as a condition precedent to insurers' liability.
It was also important to the Court's approach that the clause which provided cover in respect of notified circumstances operated by way of an extension of cover. Claims which arose after expiry of the policy were, prima facie, outside the scope of the insuring clause which provided an indemnity only in respect of claims made during the policy period. However, such claims would be covered under the extension provided they arose from circumstances of which the assured became aware during the policy period. The Court's reasoning was that the assured had no contractual right to an indemnity for post-policy period claims. Therefore, if an assured wished to have the valuable benefit of an extension of cover which otherwise would not exist, it was incumbent on the assured to give the requisite notice.
In short, commercial reasoning seems to have informed the Court's interpretation of the clause as a condition precedent, rather than a new judicial approach to the construction of these conditions.
"Laundry lists" and circumstances
Another issue which was the subject of debate in the case was what it actually means for an assured to be "aware" of circumstances which may give rise to a claim. This is a question which will be familiar to insureds considering whether or not to notify circumstances as their professional indemnity policy nears expiry. The Court of Appeal found this to be a two fold requirement - that the assured has an awareness of circumstances coupled with a degree of crystal ball gazing as to whether that circumstance will give rise to a claim. On that analysis, the Court suggested that where an insured tries to notify a circumstance which is too vague or remote to be reasonably capable of being regarded as a matter which might give rise to a claim, an insurer would be entitled to refuse to accept it as a notification. The term "laundry list" was not specifically used in this part of the Judgment, but the Court expressly had in mind notifications by the insured at the end of the policy period given in the widest possible terms for which there may be no real justification.
Kidsons' problems with its notification arose from rather unusual circumstances. Some of the letters which Kidsons sent to its insurers, and later sought to rely on as notifications, had been deliberately couched in a low key way so as not to cause ripples with insurers. In part, this was because Kidsons had concerns about their poor claims record and the prospect of higher premiums at renewal. In part, it was because there was some doubt as to whether there was any coverage at all for the activities of the Kidsons' vehicle which had marketed the tax avoidance schemes, and so the early communications from Kidsons were an attempt to test the water. Although these tactics did not reflect well on Kidsons, the Court of Appeal expressed doubts as to whether the subjective intentions of an assured had any relevance to the question of notification. However, the Court readily accepted that when an insured is notifying circumstances which may give rise to a claim under the policy, he must ensure that the notification is a fair, if summarised, presentation of what the insured knows. It was not argued out in Kidsons, but it is clear from the Judgment that an assured who chooses to be economical with the truth with his insurers runs the risk that the notification should be treated as invalid.
The following market
The Kidsons case also highlighted the position of the following market with respect to notifications. It is not unusual for there to be a delay in the presentation of claims by the broker to the following market and the expert evidence in Kidsons was to the effect that in practice the following market tends not to take any point on delays in notification. However, the following market is entitled to take the point if it so chooses, and it did so in the Kidsons' case, where the delay in notification by the broker to the following Lloyd's market was some three months. This, the Court found, was not notice given "as soon as practicable".
The Kidsons case provides an interesting case study of what can go wrong with notifications but it does not represent a new approach to the construction of conditions precedent. As far as notifications are concerned, the practical advice to assureds has not changed - if in doubt, notify. A notified circumstance which never gives rise to a claim will be forgotten about. On the other hand, a notified circumstance which does give rise to a claim will usually (and self evidently) justify having been notified. As far as insurers are concerned, the case illustrates that, while the courts will not readily deprive an assured of its cover, there are some circumstances which will warrant taking a notification point against the assured. The lesson for brokers is to observe the notification requirements in the policy when presenting claims to the following market, as well as to the lead, or otherwise ensure that an alternative arrangement for notifying the following market has been agreed.
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