Insurance: Negligence - the effect of the late notification of a claim

United Kingdom
2.The effect of the late notification of a claim


A workman, Mr O'Malley, fell off some scaffolding and sustained serious injuries. The scaffolding had been erected by the Plaintiff. Mr O'Malley had been employed by another party who was working under a sub-contract with a company called RCCL. In turn, RCCL contracted with the Plaintiff.


Litigation ensued and the Plaintiff eventually settled Mr O'Malley's claim. The Plaintiff wished to recover against RCCL on the basis, inter alia, of an indemnity in the contract.


RCCL had gone into liquidation before the commencement of proceedings. Pending the settlement, the Plaintiff obtained a judgment in default against RCCL.


In the present proceedings, the Plaintiff brought a claim under the Third Parties (Rights Against Insurers) Act 1930 against RCCL's insurers.


The Defendant insurers declined liability due to a breach of the notification clause in the policy, which provided as follows:


"In the event of any occurrence which may give rise to a claim under this Policy, the Insured shall, as soon as possible, give notice thereof, to the Company, in writing, the full details and as far as practicable there shall not be any alteration or repair until the Company has had an opportunity of inspecting".


The Defendant insurers contended that compliance with the above clause was a condition precedent to liability and that notice had not been given "as soon as possible". The insurers also argued that the failure to comply with the above clause was a repudiatory breach of contract or a breach of the insured's duty of the utmost good faith.


Held:


The Plaintiff succeeded against the Defendant insurers.


Although the accident occurred on 1st May 1991, the Defendant insurers were not notified until 4th June 1992. Accordingly, RCCL failed to give notice "as soon as possible" in accordance with the notification clause.


However, the notification clause did not amount to a condition precedent to liability. If the insurers had wanted to create a condition precedent, they could either have inserted words to that effect in the clause or inserted into the policy a general clause requiring compliance with its terms as a precondition to liability. Furthermore, there was, in fact, an express clause in the policy creating a condition precedent out of an obligation to refer disputes on quantum to arbitration; accordingly, the absence of any such express words in the notification clause was a strong indication that it was not intended to be a condition precedent.


Accordingly, the Insured's breach of the notification clause only gave rise to a counterclaim for damages.


Similarly, the conduct of RCCL or the Plaintiff did not amount to a breach of the duty of utmost good faith so as to amount to a repudiatory breach of contract. Following the late notification of the claim, insurers could have investigated the accident on a without prejudice basis, yet chose not to do so because of their decision to repudiate liability.


Accordingly, insurers' only remedy for the breach of the notification clause was a counterclaim for damages. In fact, during the trial, the insurers withdrew their counterclaim for damages and they therefore had no defence to the Plaintiff's claim.


Note:



  • Until this decision, there was little authority on insurers' rights following breach of a notification clause not expressed to be a condition precedent to liability. This decision confirms that insurers cannot repudiate liability, and can only bring a counterclaim against the insured for damages (by way of set-off) caused by the late notification.


  • However, it remains the position that, if a clause is a condition precedent to liability, any breach, however trivial, will entitle insurers to escape liability for the particular claim; it is not necessary for insurers to show that they have suffered prejudice as a result of the breach. (Pioneer Concrete (UK) Limited -v- National Employers Mutual General Insurance Association Limited (1985)).


  • Whilst the courts will look to the substance of a provision, rather than its description, if a provision is expressed to be a condition precedent, it is very likely to be construed as such.


  • Cameron McKenna acted for the Plaintiff (Alfred McAlpine plc -v- BAI (Run-Off) Limited, QBD: Judgment 5th May 1998).