June 19, 2015

Conditions Precedent - MacCaferri v Zurich Insurance (High Court)

Judge construes a notification condition precedent in a policy

This case was appealed to the Court of Appeal. See related content for further details.

A worker was seriously injured whilst using a tool which had been hired from the claimant. The claimant was insured under a public and products liability policy issued by the defendant insurer.

The policy contained the following notification condition precedent ("CP"): "The Insured shall give notice in writing 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 Insured shall also on receiving verbal or written notice of any claim intimate or send same or a copy thereof immediately to the Insurer and shall give all necessary information and assistance to enable the Insurer to deal with, settle or resist any claim as the Insurer may think fit".

The accident occurred in September 2011. However, the claimant only received a solicitors' letter informing it that a claim was to be brought against it in July 2013, and notification was made shortly thereafter. The insurer argued that notice should have been given far earlier. It sought to argue that the use of the words "as soon as possible" in the notification CP indicated that the obligation to notify arises when an insured could with reasonable diligence discover that an event was likely to give rise to a claim. Coupled with the obligation to give full particulars, it was argued that the insured was under an implied duty to be proactive and make inquiries (and for that reason, notification was not required "immediately" – even though the insured was required to send the written notice of a claim immediately).

That argument was rejected by Knowles J. The phrase "as soon as possible" referred only to the promptness with which notification had to be made. However, notification was only required when an event was "likely" to give rise to a claim and this meant at least a 50% chance of a claim being made against the claimant (see Layher Ltd v Lowe [2000]). There was no need for the insured to carry out a "rolling assessment" of the likelihood of a claim.

Although the judge accepted that a claim may still be likely even if it is a bad claim, that was not a relevant argument given the facts of this case. At the time of the accident, there had been a possibility (but not more) that the tool was faulty, but there had been other possibilities too, such as a fault in the way in which the tool had been used. Although the accident had been serious, the judge concluded that "seriousness does not increase the likelihood that the allegation would be that there was a fault in the [tool]. At least in context, the likelihood of a claim cannot simply be inferred from the happening of an accident".

Accordingly, the notification CP had not been breached.

COMMENT: Prior cases regarding the meaning of "as soon as possible" in a notification condition have focussed on the reasonableness of the time taken to notify by an insured once it has become aware of a relevant loss/event etc. This case rejects the idea that the phrase imports an obligation to make further reasonable inquiries. However, the overall conclusion in the case may appear harsh given decisions in other cases such as Alfred McAlpine Plc v BAI [1998], where it was concluded (and upheld on appeal) that notification had not been made "as soon as possible" in circumstances where the insured could have had (but did not in fact have) full details of the accident within a few days of its occurrence (notwithstanding that no claim was advanced by the third party for several months).