The insured, Maccaferri Limited, supplies a type of stapling gun to the construction industry. On 22 September 2011, one of guns was involved in an accident when the employee of a third party (which had hired it) inadvertently discharged the gun and injured himself.
Maccaferri became aware:
- Of the accident soon after it occurred
- That someone had been injured by January 2012
- That the employee was considering a claim by June 2012.
However, Maccaferri was not put on notice of a claim against it until it received a letter of claim on 18 July 2013. On 22 July 2013, Maccaferri notified its public and product liability insurer, Zurich.
Zurich declined cover on the basis of late notification. The relevant notification provision (a condition precedent) relied upon by Zurich required Maccaferri to give notice in writing “as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof”.
Zurich contended that Maccaferri was in breach of that condition as a result of its failure to notify earlier (either immediately after the accident or in the immediate months following it). Zurich argued that the use of the words “likely to give rise to a claim” imported an obligation on Maccaferri to, using reasonable diligence, proactively investigate whether the accident was subsequently likely to give rise to a claim.
Mr Justice Knowles in the Commercial Court rejected Zurich’s submission, and held that:
- The phrase “likely to give rise to a claim” described an event with at least a 50% chance that a claim would be made.
- The words “as soon as possible” referred to the promptness with which the notice in writing was to be given (if there had been an event likely to give rise to a claim). Those words did not imply a duty of reasonable enquiry and did not introduce a requirement on the insured for a “rolling assessment” of possible claims.
- The likelihood of a claim could not be inferred from the happening of an accident and a mere possibility of a claim was not enough to require notification under the clause.
The court found that, as a matter of fact, when the accident occurred there had not been a 50% chance of a claim. Rather, it was only a possibility. There had therefore been no failure on Maccaferri’s part to comply with the condition precedent and Zurich was held to be obliged to indemnify under the policy. Zurich appealed.
The Court of Appeal dismissed the appeal, stating that Zurich’s proposed interpretation had the potential effect of completely excluding liability in respect of an otherwise valid claim for indemnity. Clear wording to that effect would be required.
In resolving the ambiguity in favour of Maccaferri, the Court held that whether an event was “likely to give rise to a claim” is to be determined by reference to the position immediately after it occurs. The Court confirmed that this will depend on the actual knowledge possessed by the insured at that time, and whether a reasonable person in their position would consider there was at least a 50% chance of a claim being made.
It further confirmed that there was no obligation on an insured to carry out a “rolling assessment” of whether a past event was likely to give rise to a claim.
The case reminds insurers that care is required in the drafting of fundamental clauses within contracts of insurance to avoid ambiguity and the potential for conflict - particularly as uncertainty will be probably interpreted in favour of the policyholder. This is particularly the case where differing wordings can have differing interpretations. For example, many professional indemnity policies require notification where an event “may give rise to a claim” – the threshold for notification being far lower than “likely to give rise to a claim” and therefore more favourable to insurers.
The insurance policy in this case was a public and product liability wording and was occurrence based. However, most professional indemnity and financial lines policies are ‘claims made’ and often do impose a duty of enquiry. The Court of Appeal commented on this and confirmed that, whilst such duties can be imposed, insurers must be clear in their intentions.
The case is also a good reminder of the impact of the Insurance Act 2015 (the Act).
Currently, an established breach of a condition precedent would entitle an insurer to decline cover. However, for any contracts of insurance and reinsurance which incept or renew on or after 12 August 2016, an insurer’s right to decline cover will be affected by s.11 of the Act. This provision now requires a connection between the breach of certain terms (usually warranties, but possibly conditions precedent also) and the particular type of loss in question. It is currently unclear to what extent (and with what success) an insured may be able to rely on s.11 in respect of breach of a notification condition. It should also be remembered that insurers can contract out of s.11 (assuming that all transparency requirements are met), although most do not.
Finally, and as always, the application of the Act will depend on the facts and the specific policy wording.
Related item: Notification: Court considers the meaning of “as soon as possible” and “likely to give rise to a claim”