No on-going obligation to assess if a claim is likely: Zurich -v- Maccaferri
In a (predictably?) pro-policyholder decision, the Court of Appeal (Black and Christopher Clark LJJ) yesterday dismissed Insurers’ appeal. Instead it agreed with the trial judge that the policyholder (Maccaferri) had not breached a condition in its public liability policy requiring it to notify insurers “as soon as possible after the occurrence of any event likely to give rise to a claim”.
Maccaferri’s business involved the hiring out of “Spenax Guns” (pictured - in effect, giant staplers used to tie steel mesh gabions together) to builders’ merchants, who in turn hired them out to building contractors. In this case, an employee of one such building contractor was badly injured by a Spenax Gun. Maccaferri quickly found out that there had been an incident involving one of its Guns, but did not know either that there had been a serious injury or that the Gun might have been faulty - as opposed to its having been mis-used or the accident having happened without anyone’s fault.
Zurich argued, however, that further information about the incident which Maccaferri subsequently discovered meant that many months after the incident Maccaferri knew or should have known that a claim was likely, and thus should have - but failed - to notify them, thereby disentitling it from cover.
The Court of Appeal disagreed. Instead, it agreed with the trial judge that the clause in question required a reasonable assessment by the insured at the time of the “event” as to whether it was likely to give rise to a claim and did not, as Zurich had submitted, impose an obligation on the insured to “carry out something of a rolling assessment, as circumstances develop, as to whether a past event is likely to give rise to a claim”. The Court of Appeal held that:
“This is a condition introduced by Zurich into its policy which has the potential effect of completely excluding liability in respect of an otherwise valid claim for indemnity. If Zurich wished to exclude liability it was for it to ensure that clear wording was used to secure that result. It has not done so. It is possible to construe the use of the phrase “as soon as possible” as meaning that even if, when the event occurred, it was not likely to give rise to a claim, the obligation to notify would arise whenever thereafter the insured knew or should have known that an event which had occurred in the past was likely to give rise to a claim. But I regard this as a strange interpretation and erroneous.
It is, in any event, far from clear that that is the right interpretation and, given the nature of the clause, the ambiguity must be resolved in favour of Maccaferri.”
Putting the boot in (or kicking an insurer when it’s down), the Court of Appeal went on to find that, even if Zurich’s construction of the clause had been correct, nothing in fact had subsequently occurred which meant that Maccaferri ever knew or should have known that a claim was in the offing, until it had eventually received (and promptly notified) civil proceedings against it.
The Court of Appeal’s decision is yet another instance of the courts deciding coverage disputes in the policyholder’s favour when that outcome is open to it on the relevant policy wording and when there is no evidence of any real culpable conduct by the policyholder.
However, one should sound a note of caution. As the Court of Appeal mentioned in passing (see paragraph 33 of the judgment), while the above might apply to a typical clause in a public liability policy requiring the policyholder to notify “an event likely to give rise to a claim”, the position will be different in professional indemnity policies, where the obligation is to notify a circumstance which is likely to (or, depending on the wording, which might) give rise to a claim. Whereas an event is a one-off occurrence, whose likelihood to give rise to a claim is (as we now know) to be assessed then and there, circumstances can and do evolve during the currency of a professional indemnity policy. Thus, whereas a client’s failure to pay a professional's invoice would, in isolation, almost always fall short of a notifiable “circumstance”, the position would change if, a few months later, the client explained that his failure to pay was the result of his dissatisfaction with the services which he had received.
See: Zurich Insurance plc -v- Maccaferri Ltd [2016] EWCA Civ 1302(12/01/2017)
http://www.bailii.org/ew/cases/EWCA/Civ/2016/1302.html
Jonathan Corman is a partner at Fenchurch Law.
“The Worst of Both Worlds”: Spire Healthcare Ltd v RSA
2016 was a bumper year for aficionados of aggregation cases. (One might say that it saw a series of related cases…) In April the Court of Appeal in AIG v Law Society considered aggregation under the Solicitors’ Minimum Terms, with the outcome of AIG’s expedited appeal to the Supreme Court expected this month or next. In October, the Commercial Court in MIC Simmonds v AJ Gammell had to decide whether claims for respiratory injuries suffered by thousands of rescue workers after 9/11 arose out of one event. And just before Christmas the Commercial Court, in Spire Healthcare Ltd v RSA, again considered aggregation, this time in the context of a private healthcare company facing claims from over 700 patients alleging that one particular surgeon had carried out unnecessary and/or negligent procedures.
The case involved a combined liability policy taken out by Spire, which included cover for medical negligence. Put crudely, the intention of the policy seems to have been to confer an indemnity limit of £10m for any one claim together with an annual aggregate cap of £20m. There was also a badly drafted clause, whereby all claims attributable to one source or original cause would attract only one “Limit of Indemnity”.
Thus, if that clause operated as a conventional aggregation clause, the policyholder could only recover £10m from insurers, since all 700 claims would be treated a single claim. If the clause didn’t have that effect, it could recover £20m.
In addition, the policyholder and insurers disagreed about whether aggregation applied to the £25,000 each-and-every-claim excess. The policyholder argued that it did, and that it only had to pay the £25,000 once. The insurers disagreed, arguing that the excess was payable in respect of each claim (albeit, as it happened, capped at £750,000 in all).
The case involved some interesting comments by the Judge (HHJ Waksman QC) about principles of policy construction. He confirmed, as had the Court of Appeal in the AIG case, that aggregation clauses should be construed neutrally, without any preconceptions that they should work in one or other of the parties’ favour. He also held that, just because a particular phrase or clause was redundant or duplicative in one part of the policy, that didn’t mean that it had no function or effect elsewhere in the policy.
Desperately interesting though this might all be to insurance lawyers, brokers and underwriters, the outcome of the case was disastrous from the policyholder’s perspective. The Judge held that the clause in question did mean that there was indeed only £10m of cover available. To rub salt into the policyholder’s wounds, the Judge also rejected its fall-back contention that, in that case, there should be “parity of aggregation” and that it should be implied - in the absence of an express provision to that effect - that the 700 claims, unquestionably linked as they were, should attract only one excess. So the policyholder, which had fought the case arguing that there was £20m of cover and just one £25,000 excess due, was held to be entitled to just £10m of cover and liable to pay £750,000-worth of excesses.
I understand that, predictably enough, the policyholder is applying to the Court of Appeal for permission to appeal.
See: Spire Healthcare Limited v Royal & Sun Alliance Insurance plc [2016] EWHC 3278 (Comm) http://www.bailii.org/ew/cases/EWHC/Comm/2016/3278.html
Jonathan Corman is a partner at Fenchurch Law.