Insurance: notification of claim found to be a condition precedent to insurers’ liability

In a recent case, the court found that insurers’ liability was conditional on the insured complying with the notification provision in a policy. This was in spite of the fact that the notification provision was not expressly stated to be a ‘condition precedent’.

The combined liability policy in question included standard industry wording that the insured should give “immediate written notice with full particulars of any occurrence which may give rise to indemnity under this insurance”. There was also a general clause in the policy which stated the liability of insurers was conditional on the insured observing the terms and conditions of the policy.

The insured construction sub-contractor notified a claim in 2007, which related to a fire on a project in 2004. The insurers alleged that the insured had failed to comply with the terms of the policy because of a three-year delay in notifying the claim, and sought a declaration that they had no liability under the policy by reason of that failure.

The court agreed with insurers because

• The insured was obliged to give immediate notice of an occurrence that may give rise to an indemnity under the policy. The fire in 2004 was an occurrence which led to a real risk that the sub-contractor might seek indemnity under its policy.
• There was an objective commercial purpose in the notification provisions, namely to enable to insurers to investigate the potential claim at the earliest opportunity. This justified compliance with the notification provisions being a condition precedent to liability.
• Whilst the express words “condition precedent” are often used in such clauses, other drafting can have the same effect as long as it reflects the clear intention of the parties. The words used in this policy were clear, even though they didn’t use the term “condition precedent”.
• There must be a “conditional link” between the insured’s obligation (i.e. to give notice) and insurers’ obligation to pay the claim. Here, the parties intended such a conditional link.

From the perspective of the insured, this decision serves as a reminder that notification provisions in a policy must be followed rigorously and that cover can be lost totally if they are not.

From the perspective of insurers, this decision is a useful reinforcement of the fundamental importance attached to prompt notification by the Courts. We would, however, counsel some caution here: in general terms any insurer who wishes to ensure that a late notification condition is intended to operate as a condition precedent should, as a matter of good practice, use that term specifically in the relevant policy wording.

Further reading: Aspen Insurance UK Limited, Brit Insurance Holding Limited, DA Constable v Pectel Limited [2008] EWH 2804 (Comm)