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.