Whether a claim falls within the scope of an earlier notification is an issue that frequently arises with claims-made policies. In Euro Pools Plc v Royal and Sun Alliance Plc, the court had to decide whether a circumstance notified to the claimant’s 2006-7 Professional Indemnity policy was limited in scope, or wide enough to cover claims Euro Pools asserted had been notified to the following year’s policy.
The claimant (Euro Pools) specialised in the design and installation of swimming pools with (1) movable floors, enabling variation in the usable water depth, and (2) vertical “booms” that could rise and fall to allow division for separate swimming zones.
Royal & Sun Alliance Insurance PLC (RSA) insured Euro Pools under two design and construct professional indemnity policies for the period June 2006 to June 2007 and June 2007 to June 2008 respectively. Each policy was subject to a £5 million limit of indemnity.
In February 2007 Euro Pools notified RSA of problems with both the movable floors and vertical booms in some of its pools. However, whilst the issue with the moveable floors was reported to be a major design fault, the difficulties in operating the vertical booms was attributed to bracing failures within steel tanks providing either buoyancy or ballast. Euro Pools believed the installation of inflatable bags would resolve the problem with the tanks, and the costs of the associated mitigatory work was expected to fall within the policy’s deductible.
On 9 June 2007 (when the works were underway) Euro Pools completed a proposal form to renew its policy with RSA. Responding to the question whether it was “aware of any circumstance which may give rise to a claim” Euro Pools answered “tanks on booms but we are fixing these with inflatable bags".
In the event, Euro Pools’ ‘fix’ did not work and it continued to experience complaints from customers (on systems both with and without the inflatable bags). In May 2008 this led to Euro Pools informing RSA that the only realistic way to resolve the problem was to replace the air driven system operating the booms with a hydraulic system.
Whilst insurers approved the solution and agreed that further mitigatory works were required, the cost of those works exceeded the £5 million limit of indemnity available under the 2006-7 policy. Euro Pools therefore sought a further indemnity by way of its 2007-8 policy on the grounds that the scope of the original notification was limited to defects in the steel tanks, whereas the indemnity claimed under the 2007-8 policy related to defects in the air bag system used to repair the tanks and then installing a hydraulic system when the air drive system used to operate the tanks was found to be unreliable.
Insurers rejected the additional claim made on the 2007-8 policy. Euro Pools issued proceedings and in January 2018 Moulder J delivered judgment. She decided in Euro Pools’ favour on the following grounds:
(1) A valid notification had been made under the 2007-8 policy. This was provided by way of an email copied to RSA in May 2008. The email made clear that the inflatable bags were beginning to fail and Euro Pools considered the only viable option was to move to a hydraulic system.
(2) The failure of the tanks was not, as RSA’s expert had contended, due to cyclic pressurisation and depressurisation, but poor weld preparation. Had it been identified, the air bag solution would have worked, so it could not be said there was “any causal link between the failures in the tanks and the decision to abandon an air drive system and move to hydraulics”.
(3) Even if RSA’s technical analysis was accepted, and a causal link established, the February 2007 notification still would not extend to Euro Pools’ decision to abandon the air drive system and adopt a hydraulic system. Euro Pools was only capable of notifying circumstances of which it was aware. In February 2007, only the failure of bracing affecting some, but not all tanks, had been identified. Euro Pools was not aware of any fundamental flaw in the air drive system itself.
The Court of Appeal rejected the judge’s reasoning, concluding:-
- No notification had been made to the 2008 policy
The email copied to insurers in May 2008 advising that the air drive system was not working and needed to be replaced with a hydraulic system did not amount to the notification of a new circumstance. It simply provided further information on circumstances already notified.
- There was a causal relationship between repairing the tanks and installing a hydraulic system
Euro Pools’ February 2007 notification identified problems with lowering and raising the booms. It believed installing air bags would resolve the problem but since, by the time of its June 2007 renewal presentation, more pools were experiencing problems Euro Pools wanted to make a notification "on a precautionary basis, should there be any future problems". In other words, Euro Pools appreciated it might not have got to the bottom of the issue with the boom failures.
- It is the circumstance, not the cause which is notified
‘Circumstance’ in the context of an insurance policy is a broad term. All it requires is a reasonable expectation that the circumstance in question may produce a claim for which there may be a liability under the policy. As noted by Toulson LJ in HLB Kidsons (a firm) v Lloyd's Underwriters (2008):
“The question whether a circumstance may give rise to a claim is not a matter of simple knowledge, a question of fact of which a person may or may not be "aware"; rather, it involves a degree of crystal ball gazing, an estimation of the likelihood of a claim”.
The provision which refers to circumstances that "may" give rise to claims sets a deliberately undemanding test. The requirement in Euros Pools’ policy to “give written notice to [RSA]… as soon as possible after becoming aware of circumstances… which might reasonably be expected to produce a Claim..” did not affect the low materiality threshold of that test.
An insured does not need to appreciate the cause, or causes, of the problems which may give rise to a claim when notifying a circumstance since such a limitation would seriously reduce the value of claims made insurance. It is enough for an insured to notify a problem in general terms without fully appreciating its cause (e.g. due to lack of information). If it does so, then the insurance will cover claims which have a sufficient causal connection to the circumstances notified as implicit in the Kidsons judgment (J Rothschild Assurance plc & Ors v Collyear & Ors (1998) and Kajima UK Engineering Limited v The Underwriter Insurance Company Limited (2008) reached similar conclusions).
For the reasons set out above Euro Pools’ claim for an indemnity under the 2008 policy was unsuccessful.
In our view, this is a welcome clarification of the law; simplifying the analysis of coverage and avoiding the need to forensically examine precise degrees of knowledge underlying notifications made. It is to be hoped that this decision will help reduce the number of corrosive disputes between policy years.
Euro Pools Plc v Royal and Sun Alliance Plc  EWCA Civ 808.
HLB Kidsons (a firm) v Lloyd's Underwriters  EWCA Civ 1206.
Kajima UK Engineering Limited v The Underwriter Insurance Company Limited  EWHC 83 (TCC).
J Rothschild Assurance plc & Ors v Collyear & Ors  EWHC 1205 (Comm).