Notification of Insurance claims – the scope of notification required

Euro Pools Plc v Royal & Sun Alliance Insurance Plc [2019] EWCA Civ 808

The Court of Appeal in England and Wales has recently considered the question of what (and how much) information must be provided to validly notify an insurer of a potential claim.

Background

Euro Pools specialised in the installation and fit out of swimming pools with an air-driven system of movable booms to divide a pool into different zones.

Euro Pools held professional indemnity insurance with Royal & Sun Alliance (RSA) for the policy years 30 June 2006 to 29 June 2007 (First Policy) and 30 June 2007 to 29 June 2008 (Second Policy). The policies were in much the same terms and on a ‘claims made’ basis, with a limit of indemnity of £5 million. The policies included a notification of circumstances condition which required Euro Pools to notify RSA “as soon as possible after becoming aware of circumstances … which might reasonably be expected to produce a Claim ... for which there may be liability under this insurance”. If Euro Pools did so, then the claim was deemed to be made in the first year of notification.

Problems arose in 2007 when Euro Pools became aware that the movable booms and platforms in their pool system were not functioning effectively. It identified the problem as a failure of the bracing of the stainless-steel air tanks in the system. Euro Pools notified RSA in February 2007 that the steel tanks were not working, and of the proposed solution to replace the steel tanks with inflatable air bags. Euro Pools advised RSA that they did not expect the problem to exceed the self-insured amount.

In June 2007, Euro Pools completed a renewal form for renewal of the First Policy with RSA. In response to a question “Are you aware of any circumstance which may give rise to a claim?” Euro Pools responded, “tanks on booms but we are fixing these with inflatable bags”. Euro Pools asked that the matter be “logged on a precautionary basis should there be any future problems”.

By mid-2008, problems were occurring with the inflatable air bags Euro Pools had been installing as a solution to the original problem. In May 2008, Euro Pools informed its broker of the failure of the air bags and that it was proposing to replace the system with a hydraulic system. Euro Pools then carried out remedial work.

RSA confirmed that it would cover the costs of installing the hydraulic systems as mitigation costs but considered that the claim had been notified under the First Policy. The remedial costs exceeded the First Policy’s limit.

Euro Pools contended that its further notification in May 2008 brought the claims for installation of the new hydraulic system under the Second Policy, and that there was no causal connection between the initial notification and the later failure of the inflatable air bags.

The Court of Appeal’s decision

The issue that arose in the Court of Appeal was whether the mitigation costs fell within the policy period for the First Policy or the Second Policy.

The Court of Appeal held that the mitigation costs fell under the First Policy. The Court found that the February 2007 notification, whilst it only related to the steel tanks, was applicable to the later problems.

In reaching its decision, the Court of Appeal ruled that, in order to give valid notice of circumstances to the insurer, the insured must be aware of the circumstance in issue but there was no requirement that the insured be aware of the full cause of the problem or its extent, nor of the solution.

The insured must only have a reasonable expectation that the circumstances in question may produce a claim under the policy. The issue of whether the policy responds is determined when a claim is made against the insured by a third party.

The Court of Appeal also held that if a problem was validly notified as a circumstance in the first year, then that initial notification captured all subsequent claims connected with the circumstances and so there could not be a valid notification in subsequent policy years.

Comment

The decision provides useful guidance to insurers regarding the notification of circumstances under a professional indemnity policy, particularly where related claims arise in different policy periods.

Angus Wakeman comments that “the illuminating aspect of the decision is the Court’s express recognition of the validity of a ‘can of worms’ or ‘hornet’s nest’ style notification. Insurers will need to be alive to the practical reality that claims can take many varied forms. While it will remain a question of fact and degree, the reasoning in Euro Pools, reinforces that a notification can capture subsequent and specific claims, where there is a strong enough connection.”

Angus Wakeman is a Senior Associate at Fee Langstone