Exploring issues of notification (Zurich Insurance PLC v Maccaferri Ltd)

Ben Lynch, barrister at Fountain Court Chambers, examines the recent outcome in Zurich Insurance PLC v Maccaferri Ltd and explains that the significant issue in the case was not about circumstances or claims, but rather the notification of an event that is likely to give rise to a claim.

Original news

Zurich Insurance PLC v Maccaferri Ltd [2016] EWCA Civ 1302, [2017] All ER (D) 33 (Jan)

The Court of Appeal Civil Division held in dismissing an appeal by the insurers, that the insurers were not entitled to rely on a condition in the insurance regarding notification of event. The question to be considered was whether when the event occurred (an occasion not limited to the exact moment) it was likely to give rise to a claim. That would depend on whether in the light of the actual knowledge that the insured then possessed a reasonable person in his position would have thought that it was at least 50% likely that a claim would be made.

How does this case impact the law on notification of circumstances and/or claims in policies?

This is an important question because the case was not in fact concerned with the notification of either circumstances or claims. Rather, it focussed on the notification of ‘the occurrence of any event likely to give rise to a claim’. While Zurich sought to argue that the notification clause in question gave rise to a ‘rolling obligation’ on the insured to notify matters to the insurer (in a manner similar to the notification of circumstances under ‘claims made’ to a professional indemnity insurance policy), the Court of Appeal rejected this construction.

As one might expect, it was crucially important in this case to have regard to the precise words used in the notification clause. The insurance policy in Zurich Insurance PLC v Maccaferri Ltd was a combined Public and Products Liability policy. Clause 1 of the policy’s Conditions provided that the due observance of the conditions by the insured, insofar as they related to anything to be done and complied with by the insured, was to be a condition precedent to any liability of the insurer to make payment under the policy. Clause 2 of the Conditions provided that 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.’

There had, in fact, been two Court of Appeal cases in 2000 that had considered a similar wording (see LayherLtd v Lowe [2000] and Jacobs v Coster (t/a Newington Commercials Service Station) and Avon Insurance (Third Party ) [2000] EWCA Civ 3042). As a result of this, it was held to be common ground that ‘an event likely to give rise to a claim’ means an event with at least a 50% chance that a claim against the claimant would eventuate (see Layher at para [512] and Jacobs at paras [12] and [14]). It was also common ground that in order for the condition to apply there must be an event, for example, something happening at a particular time, in a particular place and in a particular way (please see Axa Reinsurance (UK) Plc v Field [1996] 1 WLR 1026 at para [1035]).

The Court of Appeal in Zurich Insurance v Maccaferri posed the question at para [17] as follows:

‘An event may occur which gives rise to a claim which is brought against the insured well over a year or more later. The insured may know of the event at the time it occurs or in the immediate aftermath and that it is likely to give rise to a claim against him. If so, he must give notice to the insurer. But he may not know of the event, or the details of the event, until some considerable time after the event occurred; and when he knows about it, or something about it, he may or may not appreciate that it is likely to give rise to a claim against him. What then is his obligation under the clause?’

The case, therefore, turned on the notification of a ‘type’ of event (namely, one likely to give rise to a claim) and the requirements of the clause in that regard. The case was not directly concerned with the notification of claims or of circumstances.

However, Zurich argued that in Layher the notification clause required ‘immediate’ notice, which was different to the condition in the Zurich policy, which required notice ‘as soon as possible’. Zurich argued that where immediate notice is not required, it would be absurd if the insured did not have to give notification as soon as he became (or should have become) aware of an event that was likely to give rise to a claim. Such a requirement would have been similar in certain respects to a clause requiring notification of circumstances in a claims-made policy. Zurich argued that the true meaning of the clause must be that, if the insured did not know of the event when it occurred, they must nevertheless give notice of it to the insurers when they becomes aware of the event, and that it was likely to give rise to a claim, or when they ought to have become so aware. Thus, one can see that Zurich drew a comparison with notifications of circumstances.

Nevertheless, the Court of Appeal rejected Zurich’s construction of the condition, which it described as ‘a strained interpretation and erroneous’. Firstly, and importantly, the Court of Appeal stressed that the notification clause was a condition introduced by Zurich into its policy, which had the potential effect of completely excluding liability in respect of an otherwise valid claim for indemnity. The nature of the clause meant that ambiguity in its construction had to be resolved in favour of Maccaferri. The conclusion was that clauses such as these need to be clear if they are to have effect (see Royal and Sun Alliance v Dornoch  [2005] EWCA Civ 238, [2005] All ER (D) 160 (Mar)).

The Court of Appeal also stated that this was particularly so in circumstances where the context in which the clause was agreed was that Layher and Jacobs had been decided as they had. Although the wording in Zurich Insurance v Maccaferri was not identical to the wording in Layher and Jacobs, the two earlier cases indicate prima facie that whether or not there is an obligation to notify an occurrence (one that is likely to give rise to a claim) should be determined by reference to the position immediately after it occurs.

Furthermore, the Court of Appeal held that Zurich’s construction imposed an obligation to carry out something of a rolling assessment as to whether a past event was likely to give rise to a claim (and possibly as to whether an event had happened at all) as circumstances developed. The Court of Appeal noted that there are clauses that have that effect, particularly in claims-made policies insuring against professional liability, but they are not in this form. If that was what was intended, the insurers could be expected to have been more explicit.

The Court of Appeal concluded that the ultimate issue in question was whether, when the event occurred (an occasion not limited to the exact moment), it was likely to give rise to a claim. It was allowed that this determination would depend on whether, in the light of the actual knowledge that the insured possessed at the time, a reasonable person in his position would have thought that there was at least a 50% chance that a claim would be made. As can be seen in Zurich v Maccaferri, while reference was made to notification of circumstances clauses, it was done so to distinguish such notification clauses from the present clause.

Incidentally, Zurich also sought to rely on Verelst’s Administratrix v Motor Union Insurance Co [1925] 2 KB 137 in this case. In Verelst, the insured’s representative was aware of the relevant event (the death of the insured) soon after it had happened. The Court of Appeal rejected such reliance because, in Zurich v Maccaferri, the issues were whether an event with the relevant characteristic occurred, whose perception of the characteristic is material, and what that person needed to know for the obligation to notify to arise. Verelst’s case, conversely, gave a generous ambit to the words ‘all the circumstances’, but did not deal with the logically prior question as to whether a duty to notify had arisen at all.

Ultimately, Zurich’s submission that the notification clause in this case operated in a manner similar to clauses in claims-made policies insuring against professional liability was rejected. The fact that the case does not impact directly on notification of circumstances and/or claims is therefore a helpful and important point.

What principles and lessons can be derived for insurers and insured on the issue of late notification?

The key lessons to be extrapolated from Zurich v Maccaferri are three-fold. Firstly, insurers and the insured need to pay close attention to the precise words used in the late notification clause. Secondly, they must also recognise that conditions precedent such as these need to be clear if they are to have effect. Finally, they must always take relevant authorities that have addressed similar wordings into account.

Ultimately, both insurers and the insured will benefit from a close consideration of the terms of any notification clauses in their insurance policies, otherwise the consequences of a failure to make a proper notification can be draconian.

Will this case have an impact on the understanding of law in this area?

Zurich v Maccaferri gave helpful clarity regarding the Court of Appeal’s consideration of some common words. For example, the case considered the meaning of ‘event’, ‘likely to give rise to a claim’, ‘immediately’ and ‘as soon as possible’ in the context of notification clauses in insurance policies.

The case will therefore be of importance for insureds when considering whether or not to make a notification under an insurance policy. The case will also be of importance for insurers when considering whether to accept or reject such notification. These notification issues, of course, arise all the time and it will be helpful for insurers and insureds to read this decision closely to assist them with consideration of the above issues. It will also be important for insurers to draft their notification clauses clearly so that they and their insureds fully understand the requirements of the clause in advance of any notifiable event occurring.

Interviewed by Giverny Tattersfield.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

 

Filed Under: Insurance

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