"EVENTS LIKELY TO GIVE RISE TO A CLAIM": WHEN SHOULD AN INSURED GIVE NOTICE?
In the recent case of Zurich Insurance Plc v Maccaferri Ltd [2016] EWCA Civ 1302 the Court of Appeal was asked to determine the meaning of a condition precedent in an insurance policy which required the insured to notify its insurers "as soon as possible after the occurrence of an event likely to give rise to a claim".
The Court decided that the insured had an obligation to assess the likelihood of a claim being made immediately after any given incident. The insured was not, however, required continuously to assess whether past events may give rise to a claim.
Zurich had sought to rely upon the condition precedent to deny cover, but the Court found that it was not entitled to do so.
The Facts
The insured was an engineering firm which held a combined public and products liability policy, covering accidental death and/or personal injury. It supplied Spenax guns, used to assemble woven steel wire mesh products, to a builders' merchant which, in turn, hired them out to a building company.
In September 2011, an employee of the building company was injured when a Spenax gun went off accidentally. The insured was informed of the incident but, at that time, there was no indication or allegation that the gun had been faulty, nor that anyone had been seriously injured.
The injured employee brought a claim against his employer in July 2012 and the insured was notified that it had been joined as a defendant to the proceedings on 22 July 2013. The insured notified Zurich of the claim on the same day. Zurich denied cover on grounds that the insured had failed to comply with the condition precedent relating to notification.
The court's findings
The Court of Appeal upheld the decision of the lower court, rejecting Zurich's interpretation of the condition precedent.
The potential effect of such a condition was to completely exclude liability for an otherwise valid claim for indemnity. In the circumstances, it was for Zurich to ensure that the wording of the clause was absolutely clear.
In accordance with the existing case law, the Court determined that the phrase "an event likely to give rise to a claim" meant an event with at least a 50% chance of leading to a claim. The fact that a claim was possible was not enough.
The Court then considered the impact of the words "as soon as possible" in the context of the clause as drafted. If it was not apparent immediately after an event that a claim was likely, then the words "as soon as possible after the occurrence of an event" could, in theory, mean that an insured was under an obligation to continuously assess whether past events were likely to give rise to litigation. The Court's view was that this was a strained interpretation of the wording and, if that was what was expected, then the insurers could have been expected to spell it out. They did not.
The test was therefore whether - at the time that the event occurred - it was likely (i.e. a likelihood of 50% or more) to give rise to a claim. The 'likelihood' of a claim cannot be inferred simply from the fact that an accident/event has occurred.
On the facts of the case, and in particular the insured's lack of knowledge as to what had happened, there was no such likelihood. At the time of the incident, the insured did not know that anyone had been seriously injured and there was no indication that the gun had been at fault. In fact, even in the course of the subsequent proceedings, two of the instructed experts could find nothing wrong with the gun. As such, there were no grounds for Zurich to deny liability.
Comments and analysis
The findings of the Court were, as always, fact specific. In this case, a number of factors mitigated in the insured's favour:
- the insured knew very little of what had happened at the time of the incident;
- there were limited grounds for alleging that the insured's product was faulty; and significantly
- the allegation of fault was not even made until a year after proceedings were first issued.
On the facts of this case, the Court found that it would be unreasonable to expect an insured to carry out a "rolling assessment" of whether past events were likely to give rise to a claim.
This decision will be welcomed by insureds; it provides clarity in respect of the meaning of a common policy term which all too often is improperly employed by insurers to raise a technical defence to liability.
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