Claims Notification and the Insured's Responsibilities

When is an insured obliged to notify the insurer about events likely to give rise to a claim? That’s the question that the Court of Appeal in the recent case of Zurich Insurance Plc v Maccaferri Ltd [2016] looked at.

Maccaferri was an engineering firm which held a combined public and products liability policy with Zurich.

It supplied tools and equipment to a builders’ merchant which, in turn, hired them out to building companies.

The policy included a condition precedent to liability, which read thus:

“The Insured shall give notice in writing to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof. The Insured shall also on receiving verbal or written notice of any claim intimate or send same or a copy thereof immediately to the Insurer and shall give all necessary information and assistance to enable the Insurer to deal with, settle or resist any claim as the Insurer may think fit”.

In September 2011, an employee of a building company was seriously injured while using equipment that had been (ultimately) hired from Maccaferri. They were informed that there had been an incident but there was no information about any fault with the equipment or serious injuries caused.

Ten months after the incident, the injured employee brought a claim against his employer and Maccaferri was informed that it had been joined as a defendant to the proceedings in July 2013, nearly two years after the incident took place.

On receiving notification of the claim, Maccaferri let Zurich know on the same day. However, cover was denied by Zurich on the grounds that Maccaferri had not complied with the Notification Condition Precedent.

They tried to argue that the words “as soon as possible” meant that Maccaferri were under an obligation to notify as close as possible to the original incident.

Zurich said that Maccaferri was under an implied duty to take a proactive stance and make inquiries; the time taken to make such inquiries was one of the reasons why the word ‘immediately’ was not used.

The judge did not accept Zurich’s argument. He said that the phrase “as soon as possible” covered only the timescale within which a notification had to be made, rather than its relation to the original incident. Notification was only required when an event was “likely” to give rise to a claim (‘likely’ being defined as at least a 50% chance that a claim would be made against Maccaferri). The mere possibility of a claim was not enough to trigger this phrase.

He went on to say that there was no need under the policy for Maccaferri to undertake “something of a rolling assessment, as circumstances develop, as to whether a past event is likely to give rise to a claim”.

If that was what was required, Zurich should have spelled it out clearly but this had not happened.

When the accident happened, there had only been a possibility that the tool was faulty; however, there were also other possibilities, such as a problem with the way that the hirer had made use of the tool.

The judge accepted that the accident had been serious but did not agree that this meant it was more likely that there had been a fault with the tool itself.

In the context of this particular case, the likelihood of a claim could not be inferred from the fact that an accident had happened. Therefore, even if Maccaferri had known that the accident had occurred at or around the time that it had happened, they could not reasonably had inferred that a claim would be forthcoming. Therefore, there had been no breach of the condition precedent.

A number of factors in this case helped Maccaferri’s case.

1. Maccaferri did not know very much at all about the circumstances of the incident

2. There were limited grounds for alleging that the hired equipment was faulty

3. The allegation that there was a fault with the equipment was not made until a year after the start of proceedings.

The judge did mention that whilst his ruling might apply in public liability policies, it might not necessarily be so in professional indemnity policies, where the policy holder is under an obligation to notify a circumstance that is likely to give rise to a claim.

The difference here is that an event is a one-off occurrence whilst circumstances can change through the life of a professional indemnity policy.