Condition Precedent - Notification

Following on from the recent Court of Appeal decision in H L B Kidsons v Lloyd's Underwriters and Ors [2008] the High Court has decided another significant notification case. In Aspen Insurance UK Ltd & Ors v Pectel Ltd [2008] EWHC 2804 Mr Justice Teare considered, as a preliminary issue, whether the notification provision in the Defendant's combined liability insurance policy, requiring immediate notification of an occurrence, was a condition precedent to the Claimant insurers' liability under the policy.

The Facts

The Defendant was a specialist contractor engaged by AMEC to remove asbestos from BT's Deep Level Tunnel facility in Manchester. On 29 March 2004 there was a fire in this facility which the Defendant was aware of. On 6 March 2007 AMEC sent the Defendant a copy of a letter from BT in which it was alleged that AMEC was, due to the Defendant's activities, liable for the fire.

The Defendant's broker notified the Claimant's agent on 22 March 2007, handing over a copy of the BT letter. The Claimants argued that they had no liability to indemnify the Defendant as notification of the occurrence (i.e. the fire itself) had not been immediate.

The Policy

The policy was made up of 3 sections: 1) employers' liability; 2) public liability; and 3) products liability. There were 13 general conditions applicable to the policy as a whole of which 2 were particularly relevant. Condition 4(a) required the Defendant to "give…immediate written notice with full particulars of…any occurrence which may give rise to indemnity under this insurance". Condition 13 provided that "the liability of Underwriters shall be conditional on…the assured….observing the terms and conditions of this insurance".

The meaning of Condition 4(a) was not disputed. It was common ground that "immediate" meant "with all reasonable speed considering the circumstances of the case" (Re Coleman's Depositaries [1907]). It was also agreed that "any occurrence which may give rise to indemnity under this insurance" meant that there must be a real as opposed to a fanciful risk of the underwriters having to indemnify the assured and that the court would apply an objective test in determining this, Teare J citing the Kidsons case (albeit the first instance decision) in support.

The Judgment

Considering the effect of Condition 13 when read in conjunction with Condition 4(a) Teare J held that it was clear that the parties intended there to be a conditional link between the assured's obligation to comply with Condition 4(a) and the underwriters' obligation to pay the claim in question. The judge agreed with the Claimants that the objective commercial purpose of Condition 4(a) was to enable insurers to investigate the potential claim at the earliest opportunity and that this justified compliance with Condition 4(a) being a condition precedent to a liability.

Teare J was not persuaded by the Defendant's submission that the effect of Condition 13 was to relieve underwriters of all liability under the policy and not just liability in respect of which there was a failure to comply with Condition 4(a). He regarded this as being a strict literal, as opposed to purposive, interpretation which did not give effect to the commercial intentions of the contracting parties.

A purposive construction of Condition 13 would make insurers' liability in respect of a claim for an indemnity conditional upon the assured having observed the terms and conditions "with regard to that claim". The judge also noted that if the parties had intended the effect of Condition 13 to have the draconian consequences suggested by the Defendant clear words would be required to achieve this which were absent from the policy in question.

In the present case, there was a sizeable time period between when the Defendant could have notified the Claimant and when it actually did. Teare J held that "A condition requiring "immediate notice" cannot be construed as requiring "notice, whenever given"". Therefore he concluded that insurers were entitled to decline liability in respect of claims arising out of the 2004 fire in Manchester.

Analysis

This decision is obviously of great practical significance to both insurers and assureds. Following on from the Kidsons case it seems that the English courts will not shy away from enforcing a notification provision which has the effect of denying an assured its cover. Significantly perhaps, the Claimants' straightforward, commercial approach was preferred over the Defendant's somewhat more technical arguments.

Whilst insurers may draw comfort from the decision (and may wish to review current notifications and their policy wordings accordingly), assureds will note that, to maximise their chances of successfully making an insurance claim, they should notify their insurers of a claim/occurrence as soon as they become aware of its existence.