Blanket Notifications and Declaratory relief: European Risk Insurance Company v McManus

Summary

The recent decision of the Court of Appeal of European Risk Insurance Company v McManus [2013] EWCA Civ 1545 upheld the first instance decision which refused to grant declaratory relief in relation to a firm of solicitors’ blanket notification of claims to their professional indemnity insurer. The first instance decision also reinforces the position that blanket notifications will be construed in favour of the policyholder (which was not subject of the appeal).

The facts and the decisions

The Claimants/Respondents had been partners in high street practice, which had taken over a firm called Runhams which had itself taken over a firm called Sekhon & Firth. The firm was renamed McManus Seddon Runhams (“MSR”).

The insurance policy of MSR had been made through an agent with European Risk Insurance Company (“ERC”). It was a claims made policy and extended to predecessor practices.

In November 2011, MSR received a claim from a former client of Sekhon & Firth and thereafter 17 more claims. MSR instructed Corre Partnership to investigate which concluded that there had been a consistent pattern of breaches at Sekhon & Firth.

As a result of the investigations MSR sent a notification letter to European Risk which was headed “Blanket Notification of Circumstances which may give rise to claims”. The letter indicated that there we some 5,000 files or case matters which were being notified but it could not be ruled out that there were more.

ERC subsequently rejected the notification letter claiming that MSR had not “indentified the specific incident, occurrence, matter, act or omission which would give rise to a Claim on each individual file”.

MSR issued proceedings and sought among other things that they were entitled to a declaration that a valid notification of the circumstances had been made, and also sought a declaration that they were entitled to be indemnified against all claims arising out of such circumstances. ECR disputed that there had been a valid notification of circumstances by the notification letter.

At first instance, Ms Rose (sitting as a Deputy Judge of the Chancery Division) referred to J Rothschild Assurance plc v Collyear [1998] CLC 1697 and HLB Kidsons (a firm) v Lloyd’s Underwriters [2008] EWCA Civ 1206, and held at [43]:

“In my judgment, the key point arising from these authorities is that in both cases the notifications were held to be valid in relation to later claims that arose from the circumstances notified, even though the notification had not even referred to the transaction from which the later claim arose, let alone identified a defect in relation to the handling of that particular client as likely to give rise to a claim by that client”

Ms Rose found that the stance taken by ERC in its rejection letter was “clearly wrong” in purporting to limit their liability to the transactions examined in the Corre Report, and in appearing to require each particular transaction to be identified and notified before ERC could be liable. She held at [44]-[45]:

“European Risk’s contention in the Rejection Email that their liability is limited to identified files is misconceived and at odds with the case law. Whether or not a future claim arising from other Sekhon Firth files will fall to be paid out by European Risk as a result of the Notification Letter depends on the nature of that future claim and whether it arises from circumstances that were validly notified. It will not be conditional on MSR having separately notified a problem on that particular file as being a separate circumstance under the policy.”

This was not appealed. Ms Rose also decided that the best course was to restate her conclusions on the issues but declined to grant declaratory relief, following the approach in Rolls Royce plc v Unite the Union [2009] EWCA Civ 387. She held at [61] that “In my judgment, issues about the limits of the circumstances notified and the range of claims that might be said to arise from them are matters better left to be determined if and when a claim arises”. This was cross-appealed but the decision at first instance was upheld. Davis LJ held that there was no basis for interfering with the exercise of the discretion of the Judge; it was speculative that the grant of declaratory relief would be of benefit to the parties, and the complexity of the declaratory relief sought was not readily comprehensible and had changed during the proceedings.

Implications

The decisions are favourable to policyholders in that it will assist them in obtaining insurance following notification of bulk claims. If insurers were able to decline such notifications and further decline renewing cover, policyholders would find it difficult to obtain alternative cover.