The Importance of Proper Notifications…
Welcome to our May 2019 newsletter & another month just about over. Goodness the year is about half way through. In every letter we send our clients whether renewals or any other communication, typically I include, generally in paragraph three, a reminder of an insured duty of disclosure requirements under virtually every policy of insurance.
When you, as an insured, become aware of a potential problem with your work or products, & this could give rise to a policy obligation to notify insurers of possible circumstances which may give rise to a claim, careful consideration of the scope & wording of the notification is required (particularly with a developing problem).
If the notification is too narrow, future claims may fall outside the notification. If too wide, only those issues validly notified may be accepted by the insurer, whilst insurers in subsequent years may exclude all circumstances previously notified. The recent decision of the UK Court of Appeal in the following case has provided some further guidance on the scope of notifications.
Euro Pools Plc (In Administration) v Royal & Sun Alliance Insurance PLC (2019)
The Euro Pools case concerned problems with pools installed by Euro Pools. In February 2007, Euro Pools notified Royal & Sun Alliance Insurance PLC (RSA) of issues with the moveable booms in the pools not rising & falling properly. At the time, it was thought there was a problem with the booms which could be modified, within the insured’s excess, by the introduction of inflatable bags.
A further notification was made to the subsequent policy year when it was discovered the steel tanks in the booms required replacement. Euro Pools argued this was a separate problem & fell to the later policy year (& an additional limit of indemnity).
The UK Court of Appeal, overturning the High Court’s previous decision, held that when notifying circumstances an insured does not need to know the cause of a problem, the extent of a problem or the solution for the problem. The insured need only be aware there is a problem. Once notified, any subsequent claim will fall within that notification.
On this basis, the Court considered the notification of problems with the booms in the earlier policy year was wide enough to capture the later notification with respect to the replacement of the steel tanks in the booms. The Court confirmed, whilst an insured must know of a circumstance to validly notify it, “hornet’s nest” notifications are allowed & it is not appropriate to overanalyse the problem & view every potential cause of the problem as a separate circumstance.
There simply needs to be a causal connection (rather than a coincidental connection) between the notified circumstance & any future claims.
Whilst the issue of notification is fact specific, this decision highlights the importance of the scope & wording of notifications, under claims made policies, of circumstances which may give rise to a claim. Here, expanding the scope of the notification assisted the insurer by limiting the notification to one policy year. However, an expanded view of notifications will also assist an insured who notify of, say, a wall design defect but do not know of the exact design flaw.
Points to Remember
1) Where an insurance policy requires notification of circumstances which may give rise to a claim, there need only be the possibility of a claim in the future.
2) As long as the problem itself is notified, the exact cause or solution does not need to be known. It is advisable to set out the problem in as much detail as possible.
3) Notifications should be made as soon as possible and confirmation sought of the validity of the notification (although this may not be able to be determined).
I find these situations from a claim perspective fascinating. Particularly in relation as indicated, towards our duty of disclosure requirement which are what we call a condition precedent to liability under all policies. Should you have any enquiries regarding these developments, or just simply wish to check adequacy of your existing levels of indemnity, then please call us. We look forward to speaking with you all again soon.
With my best wishes & kind thoughts,