What does notifying your Indemnity Insurers “as soon as possible” actually mean?
A recent Court of Appeal case has considered whether the insurers under an indemnity insurance policy were entitled to refuse cover where the policyholder had failed to report the incident in question for nearly two years.
The Facts in Zurich Insurance plc v Maccaferri Limited
The relevant section of the insurance policy read:
“The insured shall give notice to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof”.
The Defendant had loaned a tool to its customer in September 2011. A serious accident occurred shortly thereafter, but the Defendant did not notify their insurers at that point. In fact, they did not notify their insurers until July 2013, when proceedings were issued against the Defendant as a result of the accident.
The Court’s Decision
When considering whether the Defendant had complied with its obligations and, by association, whether the Claimant was entitled to refuse cover, the court held the key question to ask was, had the accident created circumstances that were likely to give rise to a claim. Applying a previous case “likely” was held to mean at least a 50% chance of a claim merely occurring, as opposed to actually successful.
In answering that question, the court had to consider what the Defendant actually knew at the time and whether, in view of what was known to the Defendant, it was objectively likely that a claim would arise.
The court of first instance had held that, in accordance with this test, there was not at least a 50% chance that a claim would eventuate, particularly in view of the fact the Defendant’s knowledge of the circumstances at that time were incomplete and unclear; the Defendant did not know, for instance, that somebody had been seriously injured in the accident, nor did they even know if the tool was at fault for that accident.
The Claimant’s Arguments
The court rejected the insurer’s case that the words “as soon as possible” meant that the Defendant had to notify them as soon as they could have, with reasonable diligence, learnt that the accident in question was likely to give rise to a claim; in other words, that the Defendant was under an obligation to carry out an investigation into and assessment of all of the circumstances before deciding whether a claim was likely to be put forward. This was considered to be too onerous and not in accordance with the wording of the policy.
Whilst this case was decided in favour of the Defendant, it is a useful reminder of the importance of reporting cases to insurers promptly. A failure to do so can easily cause a huge amount of stress - in not knowing whether liability for a significant sum will be covered – and also a great drain on the time and finances of the insured as the subsequent arguments, and potentially, litigation progress.
Whilst the “as soon as possible” wording in this case is currently fairly standard amongst insurers, this well publicised decision might result in amendments to future policies. The effect of that could be that any future delays on the part of an insured are fatal to any claim for indemnity under their insurance.For further information relating to this article, please contact Daniel Edwards or a member of the Dispute Management Team.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.