Fenchurch Law expands property coverage disputes team
Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes, has appointed Nicola Bowen as an associate in its Property Risks practice group.
Nicola has spent a number of years working in insurance litigation with a specific focus on property related matters. She has acted for leading insurers on first party and liability claims disputes and complex defendant matters. She has also acted jointly for insurers and their insureds in a number of large subrogated recovery actions.
Nicola joins Fenchurch Law from BLM, where she was a solicitor in their property damage team and was previously a property damage solicitor with DAC Beachcroft.
Joanna Grant, partner and head of the Property Risks group practice at Fenchurch Law, said: We are delighted to welcome Nicola whose dedicated property damage litigation experience expands the coverage disputes capabilities the team can offer our clients.”
Nicola Bowen is an associate at Fenchurch Law
Fenchurch Law celebrates a hat-trick!
Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes has received its third consecutive ‘gold’ award from customer experience experts, Investor in Customers (IIC).
There were many complimentary comments from their happy clients, some of which included:
• “Fenchurch provide myself, my team and my clients with an excellent service and give an honest and balanced response. I rate them as the best in the business.”
• “Service focused, excellent knowledge, great at communicating sometimes difficult points.”
• “I believe the firm offers a unique service in this market and hence is vital to a number of clients.”
• “The service we receive from Fenchurch Law is second to none so we would have no hesitation whatsoever in recommending them to any client - in fact we actively do recommend them.”
• “They offer offer a service that is quick, personable and professional. I would add that they know my industry back to front.”
IIC is an independent assessment organisation that conducts rigorous benchmarking exercises. These exercises determine the quality of client service and relationships across several dimensions, including how well a company understands its clients, how it meets their needs and how it engenders loyalty. IIC also compares the internal views of staff to identify how embedded the client is within the company’s thinking.
Sandy Bryson, Director at Investor in Customers commented: “I am absolutely delighted for the whole Fenchurch Law team. They are rightly thrilled and proud to have achieved a third consecutive IIC Gold award, evidencing that they continue to provide their clients with an exceptional experience. The firm clearly cares deeply about its clients and its employees. The Fenchurch Law management team has embedded a culture of continuous improvement within the firm and they are passionate about making the marginal improvements identified within the IIC report to improve further still. They are a genuine pleasure to work with.”
David Pryce, Managing Partner of Fenchurch Law added: “Providing an exceptional level of client service is something that the whole team at Fenchurch Law cares deeply about. But we know we can always do better, and Investor in Customers give us the insights and the tools to help us keep improving our clients’ experience”.
Fenchurch Law expands coverage dispute team with Le Marquer appointment
Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes, has appointed Aaron Le Marquer as partner expanding its capabilities and international expertise.
Aaron specialises in insurance disputes for policyholders with a focus on product liability and recall and complex international losses. His experience extends to all commercial lines of business and he has handled many significant London market losses and represented manufacturers and insurers in high-profile cases in the tobacco, automotive, consumer electronics, pharmaceutical, and medical device sectors.
He joins Fenchurch Law from Tilleke & Gibbins, a leading Southeast Asian regional law firm, where he established a leading insurance practice and subsequently became a partner based in Thailand. Previously, he was assistant general counsel for Asia Pacific with AIG in Singapore. He originally trained and practised as an insurance and product liability lawyer with City and US firms based in London.
Managing Partner of Fenchurch Law, David Pryce said: “The start of 2020 marks a period of growth in our capabilities. Aaron is recognised for his insurance disputes work in Asia and now brings this substantial experience acting for policyholders and brokers on large scale and complex claims disputes together with strong insurance industry expertise and multi-jurisdictional experience. There is no doubt both Fenchurch Law and our clients will benefit significantly from his appointment. We will be making further announcements about the expansion of our team in the coming weeks.”
Unoccupied Buildings conditions – a trap for the unwary
Properties become unoccupied in a number of different scenarios. In a residential context, this might be because the home is not the policyholder’s main residence, or because the policyholder is going on an extended holiday. Similarly, for buy-to-let landlords, a property may become unoccupied for lengthy periods between tenancies.
This short article will explore the requirements that insurers impose where a property is left unoccupied, and how those requirements have been interpreted by the courts.
Home insurance
Standard home insurance policies exclude claims where properties are left unoccupied for extended periods. The rationale is simple: an unoccupied home represents a greater risk as it is more likely to attract thieves, vandals or squatters. Equally, there is a greater chance of structural damage in an unoccupied home because no one is available to deal with, say, a burst pipe or a fire. For those reasons, home insurance policies usually require policyholders to tell their insurers if the property is/becomes unoccupied.
“Unoccupied” is typically defined as: “not being lived in.” The case law suggests that this means actual use as a dwelling. So, in Simmonds v Cockell [1920] 1K.B. 843, a warranty requiring a property to always be occupied did not mean that there would always be someone present, but rather that it would be used as a dwelling house.
Most policies say that the cover will cease if the property is not being lived in “for more than [30] consecutive days” (although the precise number of days will vary from policy to policy). As long as the property is regularly being occupied, temporary unoccupancy will not invalidate the cover. Therefore, in the case of Winicofsky v Army & Navy General Assurance [1919], a condition requiring premises to remain “occupied” was not breached where the policyholder sought temporary refuge in a shelter during an air raid.
Once an insurer is told that a property is unoccupied, it will, if the change is accepted, be entitled to vary the premium and terms, and may raise a small administration charge for the variation. If the change is not accepted, the policyholder will need to arrange specialist unoccupied property insurance.
Commercial insurance
In commercial insurance, unoccupied buildings conditions take on a different character. Commercial policies usually impose a number of obligations, some of which may be quite onerous, which must be complied with if cover is to remain in force despite the property becoming unoccupied.
For example, landlords may be required to ensure that an unoccupied property, or a part of it, is inspected once a week (often with a requirement that a record of the inspection is kept), secured against illegal entry, kept free of combustible material, and disconnected from any mains services. The consequence of a failure to comply with the condition depends on whether it is expressed as a condition precedent to the insurer’s liability. If it is, the condition must be complied with absolutely, and any breach will entitle the insurer to deny liability for the claim. If it is not, the position will turn on whether the insurer has suffered prejudice.
A common scenario is that a property becomes unoccupied without the policyholder’s knowledge. This might occur in a landlord’s policy, where, say, a tenant vacates the property without giving notice. Commercial policies usually cater to that scenario by including “non-invalidation clauses”. These are terms which provide that cover will not be invalidated in the event of any act, omission or alteration which is either unknown to the policyholder or beyond its control. To gain the benefit of those clauses, the policyholder will be required to notify its insurer immediately of the act, omission or alteration.
Application of Section 11 of the Insurance Act
Section 11 of the Insurance Act is intended to prevent an insurer from disputing a claim for non-compliance with a term which is unconnected to the actual loss. The Law Commission has said that a causation test is not required; rather, the test is simply whether there is a possibility that the non-compliance could have increased the risk of loss.
Since Section 11 is capable of applying to Unoccupied Buildings conditions, how might it apply in this context?
Let us suppose that a landlord owns a property which has two floors, and the upper floor is unoccupied. A fire then starts on the ground floor, which spreads to the upper floor. Insurers then discover that the landlord breached the Unoccupied Buildings condition by failing to keep the building free of combustible materials, and refuse to pay the claim. There are not yet any authorities on the meaning and application of Section 11.
On an orthodox interpretation of section 11, it would not be open to the policyholder to argue the upper floor would have caught fire in any event, even if the condition had been complied with. However, on a non-orthodox interpretation, section 11 should arguably come to the policyholder’s rescue: the fire started on the ground floor, which was occupied, and compliance with the condition would not have made a difference to the loss.
Conclusion
Almost all property owners, whether acting as private homeowners or in a commercial context, will need to consider the implications of unoccupied buildings conditions at some point.
We would recommend that policyholders check the fine print of their policies in order to understand (a) when they need to notify their insurers if a property becomes unoccupied; and (b) the steps which need to be taken in order to comply with Unoccupied Buildings conditions. A failure to do so may be the difference between an insurer paying, or refusing to pay, a claim.
Alex Rosenfield is a Senior Associate at Fenchurch Law
Appeal Courts Triumph for Structural Defects Policyholders: Manchikalapati v Zurich
Leaseholders of flats in a development in Manchester have secured a major victory against Zurich Insurance under a standard form defects policy, in a case with significant implications for new build home owners affected by inadequate construction works. Following a long running Court battle over claims first notified in 2013, policyholders have been awarded approximately £11 million to rectify failures by the insolvent developer to comply with technical requirements and building regulations.
Residents moved into New Lawrence House from 2009 but were forced to leave following a prohibition notice issued shortly after the Grenfell Tower disaster in June 2017, in view of structural deficiencies including missing lifts and balconies, a collapsing roof deck and complete lack of fire stopping measures. The Court of Appeal judgment handed down last week essentially upheld the decision of HHJ Davies, requiring Zurich - through run-off insurers East West - to pay out under the Standard 10 New Home Structural Defects Insurance Policy (the Policy), aside from overturning the maximum liability cap of around £3.6 million applied below.
The development contains 104 flats and the Claimants between them own only 30, with many others left empty. The Policy limited Zurich’s liability for new homes forming part of a continuous structure by reference to “the purchase price declared to Us”, which had been construed as restricting the Claimants’ recovery to the combined sums paid for their own flats. The Court of Appeal disagreed and recalculated the cap based on the total purchase price of all flats in the block, since the Policy enabled a single leaseholder to recover the entire cost of rectifying a danger to the health and safety of occupants and the previous approach would prevent them from doing so. The Policy wording was ambiguous and should be construed “in a manner which is consistent with, not repugnant to, the purpose of the insurance contract”.
Zurich advanced a number of grounds of appeal relating to interpretation of the Policy, all of which were rejected. Lord Justice Coulson found that:
“what [Zurich] suggest as the proper interpretation of the words used in their own policy is, on analysis, nothing of the kind, and is instead a strained and artificial construction (often requiring the interpolation of words not present) with the result that it becomes impossible to see any circumstances in which [Zurich] would ever pay out under the terms of the policy.”
In particular, the Court of Appeal decided:
1. It is not necessary for the costs of rectification work to have been incurred before a claim can be made under the Policy - otherwise insurers could take advantage of leaseholders’ impecuniosity to avoid liability altogether;
2. The fact that funds recovered would in part be used to pay the Claimants’ lawyers and funders was irrelevant. An insured can apply the insurance proceeds as they wish and it would be unjust to hold otherwise, penalising the Claimants merely because they do not have pockets as deep as Zurich’s. The legal and funding costs would never have been incurred had Zurich acknowledged their proper liabilities at the outset;
3. The Policy does not require the insured to sue any third parties against whom the insured might have a possible claim before pursuing Zurich under the Policy;
4. The underground car park and balconies at the development fall within the scope of cover;
5. The condensation exclusion in the Policy does not apply where the condensation which causes damage is caused by a defect. The proximate cause of damage is the defect, not condensation.
6. The trial judge’s application of Policy excess provisions could not be challenged on appeal.
New build developments are usually constructed by single-purpose corporate entities with limited assets, and purchasers of defective properties have restricted rights of recourse against those responsible for the construction or building control approval process in the absence of contractual claims under collateral warranties (Murphy v Brentwood DC [1991] 1 A.C. 398, Herons Court v Heronslea Ltd [2019] EWCA Civ 1423). The decision in this case is an important step forward in protecting the interests of new build home owners, in light of wider concerns about regulatory oversight and industry standards under contractor-led procurement methods.
The Zurich Policy was a standard wording indirectly descended from the original NHBC scheme and widely used across the country at the relevant time, with the intention of providing peace of mind for the purchasers and mortgagees of new build properties. The policyholder-friendly interpretation upheld by the Court of Appeal serves as a welcome reminder of this commercial context, limiting the extent to which insurers can seek to rely upon unrealistic arguments to avoid liability or delay payment for outstanding claims. Home owners with the benefit of structural defects policies should notify potential claims as soon as possible, to maximise the prospects of effective recoveries.
Manchikalapati & others v Zurich Insurance plc & others [2019] EWCA Civ 2163
https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCA/Civ/2019/2163.html&query=(MANCHIKALAPATI)
Amy Lacey is a partner at Fenchurch Law
Consumer Insurance - A reminder of your rights and why you should not “avoid” fighting back
Consumer insurance accounts for a large percentage of insurance purchased in the United Kingdom. It is therefore unsurprising that many insurance disputes involve consumers, and the implications for an individual who has a claim declined can be catastrophic.
A recurring issue is an insurer avoiding a policy for an alleged non-disclosure or misrepresentation. Our experience is that, in a worryingly large number of cases, insurers appear to rely on a consumer’s lack of knowledge and resources to properly challenge the avoidance. In other words, Insurers raise with a consumer what appears to be an unanswerable case and present a declinature/avoidance as a fait acompli. However, in reality, the matter is very rarely as clear cut as the Insurer seeks to present.
The Financial Ombudsman Service (which is available to all consumers) has recently increased the size of the awards it can make from £150,000 to £350,000. It is, therefore, now even more important for consumers to be familiar with their obligations and rights in relation to their insurance policies given the wider scope of cost-free redress.
The Law
The Consumer Insurance (Disclosure and Representation) Act 2012 (CIDRA) came into force on 6 April 2013, and applies to all insurance policies which began or were renewed after that date. CIDRA applies to all types of insurance where the policyholder is acting in a personal (as opposed to commercial) capacity.
CIDRA governs the duties of consumers prior to inception of an insurance policy. It was introduced to address the vulnerability of consumers based on outdated law which imposed an unfair disclosure burden on them.
While CIDRA has been in force for a number of years, the more recent Insurance Act 2015 (“the Insurance Act”) has increased awareness both within and outside of the insurance market of the obligations of policyholders before entering into an insurance policy. As a result, CIDRA and the Insurance Act are often confused (by both policyholders and insurers). While there are similarities between them, particularly in relation to the remedies available to an insurer for non-disclosure disclosure, it is important for consumers to have an understanding of CIDRA because it is even more favourable to them than the Insurance Act.
CIDRA: Duty of Disclosure
Prior to CIDRA, if a consumer had either given incorrect information or failed to disclose something important to an insurer when applying for insurance, the insurer could “avoid” the policy (effectively cancelling the policy and treating it as if it had never existed). A heavy burden rested on the consumer (who had a duty of “utmost good faith” towards the Insurer) to disclose to an insurer all material facts. This duty was particularly onerous for unadvised individuals who purchased insurance directly from an insurer or through, for example, price comparison websites without the assistance of a broker.
CIDRA replaced this onerous burden with a new “duty to take reasonable care not to make a misrepresentation”. The effect was that a consumer was no longer obliged to volunteer information to an insurer, but rather to take care not to answer any of the insurer’s questions incorrectly.
The bottom line for individuals who have had a claim declined is that it is not enough for an insurer to establish that an incorrect answer was given to it when the policy was simplywritten - under CIDRA, that is only the first hurdle the insurer needs to overcome.
The insurer must also prove that the consumer failed to take “reasonable care” when making the misrepresentation and that, if the correct information had been given, the insurer would either not have written the policy on any terms at all, or would have written it on different terms or with a different premium. A misrepresentation which would have caused the insurer to act differently is referred to in CIDRA as a “qualifying misrepresentation”.
Alternatively, In order to avoid the policy and retain the premium, the insurer will need to show that the consumer acted deliberately or dishonestly in making a misrepresentation.
If the insurer cannot show that, but can show that there was a qualifying misrepresentation, the insurer will be entitled to a proportionate remedy. If it can show that it would not have written the policy at all, it can avoid the policy but must return the premium. If it would have written the policy on different terms, the policy may be amended to reflect those terms. If it would have charged a higher premium, the insurer is entitled to proportionately reduce the amount it pays on a claim by reference to any such hypothetical premium.
The bottom line for consumers
The overarching point for consumers to remember is that the burden is on the insurer to prove:
1. The consumer failed to take “reasonable care” not to make a misrepresentation;
2. If he/she did, that the misrepresentation is a “qualifying misrepresentation”; and
3. That the Insurer is entitled to the appropriate remedy.
Given the heavy burden on the insurer under CIDRA, consumers faced with the avoidance of their policies should not avoid fighting back, particularly now that the Financial Ombudsman Service has a much wider remit to consider larger disputes. In fighting back, and availing themselves of the Ombudsman’s enlarged jurisdiction, consumers may find that an insurer’s confidence in its position is, when properly scrutinised, rather misplaced.
Daniel Robin is an associate at Fenchurch Law
Government to fund replacement of Grenfell-style cladding
Almost 2 years after the Grenfell Tower tragedy, the government has stepped in to speed up the removal and replacement of unsafe aluminium composite material cladding (“ACM cladding”) on privately owned, high-rise buildings. What are the implications for building owners?
On 9 May, the government announced its intention to make around £200m available to remove and replace ACM cladding from approximately 170 privately owned, high-rise buildings. The decision was driven by the slow pace by building owners to replace ACM cladding on their buildings, and the government’s view that ACM cladding represents an unparalleled fire risk.
Guidance on the Fund was published on 18 July. There are three eligibility criteria:
1. The Fund is available for the benefit of leaseholders in residential buildings over 18m in height;
2. Applicants will need to confirm that they are replacing cladding with materials of limited combustibility.
3. The government expects owners to actively pursue “all reasonable claims” against those involved in the original cladding installations, and to pursue warranty claims “where possible”.
Applications to the Fund can only be made by the “responsible entity”. This will usually be the building owner, head leaseholder, or Management Company with responsibility for the repair of the property. If a responsible entity does not apply or refuses to apply to the Fund, the Guidance states that local authorities and fire and rescue services are likely to take enforcement action under the Housing Act 2004.
What is a warranty claim?
Warranty claims refer to claims made under latent defect insurance policies. Those policies provide cover for newly built properties in the event of an inherent defect which was not capable of being discovered through inspection before completion.
Typically, latent defect policies are triggered in the event of (a) a non-compliance with the relevant Building Regulations which applied at the time of construction/conversion; and (b) which causes a present or imminent danger.
Unsafe ACM cladding which has been installed in high-rise residential blocks will meet those requirements.
What other claims might be available against those involved with the original cladding installations?
Those involved with the original cladding installations are likely to include Main Contractors, Architects, and specialist cladding subcontractors. The type of claims that can be brought against them will differ in each case, and will depend upon the nature of the relationships between the parties, and the specific work which was undertaken.
One route to making a recovery against those involved with the original cladding installation is under the Defective Premises Act 1972.
The Defective Premises Act imposes a duty on builders and any other professionals who take on work in connection with the provision of a dwelling. It requires the work to be done in a professional or workmanlike manner, with proper materials, and that the dwelling is for habitation when completed. The duty is owed to every person who acquires a legal or equitable interest in the dwelling.
Summary
The message from the government is clear. Responsible entities that are eligible to apply to the Fund must do so at the earliest possible juncture, and must pursue claims available under latent defect insurance policies as a pre-requisite to any funding.
The Guidance does not explain what a “reasonable claim” against those involved with a building’s original construction/conversion would look like, and this is likely to be assessed on a case by case basis.
Our recommendation is that building owners investigate the roles played by those parties, and the availability of any claims against them. Even where a party is no longer in business, there may be insurance cover that would still respond.
Alex Rosenfield is an associate at Fenchurch law
Fenchurch Law launches "The Associate Series"
Fenchurch Law’s new initiative, The Associate Series, is being launched with a view to sharing our knowledge and experience of coverage disputes with junior-mid level brokers. In doing so, we hope to enhance brokers’ ability to add value to their portfolios.
Fenchurch Law are specialists in coverage disputes. We act exclusively for policyholders and work shoulder-to-shoulder with (and never against) brokers.
The associates, whose specialisms span across a number of classes of insurance, are now sharing their expertise to assist junior-mid level brokers and claims handlers in their own careers. The associates are well-placed to do so as coverage specialists with prior experience as either brokers or insurer-side lawyers.
The Associate Series will enable us to share our knowledge and encourage you to cultivate relationships. Talks are being delivered to brokers across the UK between now and Christmas, with more seminars being planned for 2020.
The (free!) talks will be no more than 30 minutes each and focus on practical issues affecting the junior-mid tier. The fact that the talks are being delivered by your peers will, it is hoped, allow for relaxed interactive sessions.
The menu of talks will be regularly updated to reflect market developments but retain some core topics. The current menu is:
- Notification
- Coverage Disputes 101
- Damages for late payment
- A claims handler, broker and lawyer’s perspective
- Property Risks
- Third Party Rights against Insurers
- D&O
- Combustible cladding
- Contractors and traps for their brokers
Some of these talks will also be the subject of webinars, and there will be regular blogs looking at issues and trends in the market. Keep an eye out for our events and material!
If you have any queries about The Associate Series please contact James Breese on 020 3058 3075 or via james.breese@fenchurchlaw.co.uk.
Fenchurch Law adds Goodship to Construction Risks team
Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes, has appointed Rob Goodship as an associate further expanding its coverage dispute team capabilities.
Rob specialises in insurance disputes and has considerable experience in property damage, construction and professional indemnity coverage issues. He joins Fenchurch Law from Kennedys where he was an associate in their property, energy and construction team.
He has acted for several leading insurers in relation to coverage disputes across a broad range of first party and liability claims, as well as defending claims against professionals. He has also acted jointly for insurers and their insureds in a number of large subrogated recovery actions.
Managing Partner of Fenchurch Law, David Pryce said: “Rob is an experienced insurance litigator and his background in advising both insurers and insureds in coverage disputes in some of our core business areas, makes him an important addition to what is the UK’s largest team of policyholder–focused insurance disputes solicitors”.
Rob Goodship is an associate at Fenchurch Law
Court of Appeal plunges into notification issues
In a Judgment handed down yesterday, the Court of Appeal considered for the first time in over ten years issues regarding the effect of a notification of a “circumstance” to a professional indemnity policy: Euro Pools plc v RSA [2019] EWCA Civ 808 [1].
Introduction
The commercial background to the dispute was unusual. Typically, a policyholder will argue that its notification was wide in scope, so that in due course its notification will “catch” any ensuing claims. By contrast, the insurer to whom the notification was made will typically argue that the scope of the notification was narrow (or, sometimes, wholly ineffective), so that it is in a position to resist indemnifying the policyholder for the later claim(s).
Here the position was reversed. The insurer (RSA) argued that the notification in question was sufficiently wide to catch the later claims; and the policyholder argued that its original notification was very narrow, so that accordingly the claims in question could be said to arise from the (unquestionably wider) notification which it had made to its successive policy.
The reason for this apparent role reversal was the simple fact that the indemnity limit under the original policy (which was on an aggregate basis, not “per claim”) was exhausted, so that the policyholder needed to establish that the later policy (also written, as it happens, by RSA) would respond.
The facts
Euro Pools plc (“Euro Pools”) designed and installed swimming pools. One particular feature which it offered was the inclusion of vertical “booms”, which could be raised and lowered in order to compartmentalise the pool.
Initially, the booms were powered by an air drive system, whereby air would be pumped into and out of stainless steel tanks housed within the booms.
In February 2007, Euro Pools notified its 2006/07 policy (“the First Policy”) that the booms weren’t working. This was, it said, because of a perceived problem with the stainless-steel tanks. Euro Pools proposed an inexpensive solution whereby inflatable bags would be used instead of the steel tanks.
In June 2007, just before expiry of the First Policy, Euro Pools supplemented its original notification by informing RSA that, while it was continuing to replace the tanks with inflatable bags, the cost of which it expected would fall within its excess, it nevertheless wished “to ensure the matter [was] logged on a precautionary basis should there be any future problems”. [2]
Thereafter, during the course of its 2007/08 policy (“the Second Policy”, also written, as I have said, by RSA), it became apparent to Euro Pools that the inflatable bags were no more successful than the stainless steels tanks had been, and that the air drive system would need to be replaced with a hydraulic system - which would be far more expensive. Indeed, it appears that, with a view to preventing its customers from making claims against it, ultimately Euro Pools spent about £2m replacing the air drive system with a hydraulic system.
By this time, the limit under the First Policy was exhausted. The issue was therefore whether the £2m of mitigation costs had been spent in avoiding putative claims which, had they been made, would have arisen out of the circumstance(s) notified to the First Policy.
The Court of Appeal’s Judgment
Euro Pools argued that its notifications in February and June 2007 to the First Policy had been confined to a problem with the stainless-steel tanks. Relying on the principle that one cannot notify a circumstance of which one is not aware, Euro Pools submitted that when notifying the First Policy it had not been aware of a possible problem with the inflatable bags, let alone with any inherent defect in the air drive system generally, and thus could not have been notifying either of those as a “circumstance”.
That argument was accepted at first instance by Moulder J, who thus held, to RSA’s disappointment, that the Second Policy did respond. However, some commentators had criticised this decision on the basis that the Judge had confused the ability to notify a problem (here, that that the booms were not working) with the cause of that problem. As earlier cases such as Kidsons [3] and Kajima had had held, it is open to a policyholder to make a “hornets’ nest” notification - ie, a general notification of a problem, even where the cause of the problem and/or its potential consequences are not yet known.
The Court of Appeal (Hamblen LJ, Males LJ, and Dame Elizabeth Gloster) largely echoed those criticisms, and held that the notification to the First Policy had not been confined to the failure of the steel tanks and the consequential need to replace them with inflatable bags. Instead, the Court of Appeal agreed with RSA that the circumstances notified in February 2007 were that “multiple failures had taken place in relation to the [booms] and….[Euro Pools] was not sure what was causing the failures” and that the circumstances notified in June 2007 were that “in the face of continuing boom failures, Euro Pools had developed a potential solution involving the use of inflatable bags, but that it nevertheless wished to make a notification in case of ‘any future problems’ giving rise to possible third party Claims”.
“In other words,” said the Court of Appeal, “Euro Pools appreciated that it might not have got to the bottom of the problem in the sense of understanding what the root cause of the booms’ failure was. Thus, although Euro Pools hoped that it could make the boom design work by using bags in place of tanks, and that solution would fall within the deductible, it nonetheless wanted to make a general precautionary notification.”
Conclusion
In allowing the appeal, the Court of Appeal has re-stated the orthodox approach, as set out in previous cases such as Kidsons, Kajima and McManus [5]. Although the Court of Appeal’s decision was undoubtedly disappointing to this particular policyholder, in the long run its approach is likely to be beneficial to policyholders since it will assist them when, as is often the case, they wish to make a precautionary notification of a problem when the cause of that problem and/or its potential consequences are as yet unknown.
Notes:
[1] The full Judgement is here: https://www.bailii.org/ew/cases/EWCA/Civ/2019/808.html
[2] This request seems to have been prompted by a realisation on the part of Euro Pools’ broker that, owing to an administrative error, RSA had not opened a claims file following the original notification in February 2007.
[3] HLB Kidsons (a firm) v Lloyd’s Underwriters [2008] Lloyd’s Rep IR 237.
[4] Kajima UK Engineering Limited v The Underwriter Insurance Company Limited[2008] EWHC 83.
[5] McManus v European Risk Insurance Co [2013] Lloyd’s Rep IR 533.
Jonathan Corman is a partner at Fenchurch Law.
