Abstract

When successive claims made policies covering mitigation costs have a notification of poltential claims extension, there may be an issue as to whether a notification uring one policy as to potential third party liability also amounts to notification of potential liability under that policy or whether notification under a later policy is effective.

Article

A deeming provision in successive claims made policies whereby any claim arising from circumstances known to the insured and notified to the insurer in the policy period are deemed to have been made in that period, will be construed according to its commercial purpose, namely, to provide an extension of cover for all claims in the future which flow from the notified circumstances. Otherwise, claims made policies for successive policy years would have an unexpected and inappropriate gap in cover because of the insured’s obligation to disclose the circumstnces on renewal and the possibility of the insurers of such circumstances of which the assured was aware at the end of the earlier policy year, renewing insurer’s exclusion of any claims arising from them or demanding a commercially unacceptable premium.

 

When successive policies are written on a claims made basis and containing this deeming provision, each providing cover for both third-party liabilities and the costs of remedial works intended to mitigate the risks of claims, triggered by the insured’s notification to the insurer, if under the first policy there is notification which triggers the third-party liability cover but not notification of the circumstances which would trigger the mitigation cover, the latter would not fall for cover under the first policy. If then there is notification of the relevant circumstances during the period of the second policy, the mitigation would be covered by it. If the first notification refers to both, this precludes its triggering the cover in respect of the second policy, and the limit of cover under the first policy may be engaged. 

 

One issue towards this may be whether a notification in respect of the liability cover also triggered the mitigation cover, and if not, whether there was notification under the latter, which requires a determination as to what amounts to a notification, and the construction and study of the candidates for that status, as determined. For mitigation cover, that potential claim rather than the mitigatory work or the decision to undertake it must objectively arise from circumstances notified during the policy period under which indemnity is claimed. mitigatory work, arose from the circumstances notified. This is not a distinction without a difference: Euro Pools plc (In Administration) v Royal & Sun Alliance Insurance plc [2018] EWHC 46 (Comm).

 

Such a notification requires that the insured must be aware of the circumstances; and if it has been a proper, any consequent claim arising from them with a causal rather than coincidental link will be deemed to have been made within that period of cover: Kajima UK Engineering Limited v The Underwriter Insurance Company Limited [2008] EWHC 83 (TCC), which also considers other relevant principles.

 

Notification as soon as possible of full details in writing is important since it enables the insurer to take such immediate appropriate steps as they think fit to minimise or avert potential loss. It is a condition precedent to the right. But it may refer to a general hornet's nest and is not limited to the particular, and the test of materiality is low. There need be only a possibility of claims in future, and the presence of "reasonably" does not affect this. Although the insured be aware of circumstances which might reasonably be expected to give rise to a covered claim, that does not predicate a need to know or appreciate their cause or all causes, of the potential claim, or their possible consequences. Thus, a notification may be effective though it had not even referred to the transaction from which the later claim arose or identified a defect in relation to its handling as likely to give rise to a claim. But there must be some causal rather than merely coincidental, link between the notified circumstances and the later claim: Kajima (supra).

 

It is a matter of conventional interpretation and analysis of therequirements for notification: J Rothschild Assurance Plc v Collyear [1999] 1 Lloyds Rep IR 6; HLB Kidsons (A Firm) v Lloyds Underwriters Subscribing to Lloyds Policy No 621/PKID00101 [2008] Lloyd's Rep IR 237; McManus v European Risk Insurance Co [2013] Lloyd's Rep IR 533; Euro Pools (supra). There must be an awareness of a circumstance, which is a pure matter of fact. And it must be one which may give rise to a claim against the insured. But it is not a matter of simple knowledge, a question of fact rather than one of estimation. A circumstance may be too vague or remote to be reasonably regarded as a matter which might give rise to a claim. Or it might generate different views as to a real possibility of one. Or it may be such that any reasonable person in the insured's position would recognise a real risk, an objective measure, which is the correct one: Kidsons (supra) at [134] – [142].

 

As to the scope of a notification of circumstances, it usually covers the defects causing and the symptoms and consequences of them, but the problem should not be over-analysed by dissecting its every potential cause as a different notifiable circumstance.