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This article was authored by Paddy Partridge, Solicitor Apprentice, Manchester.
In Arch Insurance v Philip McCullough (Arch) [2021], the Commercial Court considered the application of a notification condition in a public liability policy which was allegedly notified late and found in favour of Arch.
This decision should serve to counter the perception in the market, that it is difficult to prove late notification on the facts. It is also a helpful reminder that breach of a notification clause, if it is a condition precedent, can provide a complete policy defence, and insurers do not have to additionally prove prejudice.
The decision is also timely given the surge of late notification issues due to the disruption to businesses caused by the COVID-19 pandemic.
Mr McCullough owns a motorbike track. Very sadly, on 26 October 2019, a young girl had an accident on the track and suffered what was later described as life changing injuries. He kept in contact with the girl’s family and said that he had received oral assurances that they did not hold him/the track responsible. Mr McCullough then received a Letter of Claim on 9 June 2020, in which it was alleged that the condition of the track was dangerous. Two further letters were sent on 2 July and 28 July 2020. Mr McCullough did not respond to these letters and so proceedings were issued on 7 September. Mr McCullough notified Arch on 15 September, some 11 months after the accident.
Conditions 1 and 3 of the policy were as follows:
1. Observance of the terms of this certificate relating to anything to be done or complied with by the insured is a condition to any liability of the company…
3. The Insured shall, as soon as reasonably practicable: (a) give written notice to the company of any circumstances that may give rise to a claim being made against the insured and for which there may be liability under this certificate.
Arch sought a declaration that it was not liable to indemnify Mr McCullough in respect of the personal injury claim. Arch argued that McCullough had breached condition 3 which, by virtue of condition 1, was a condition precedent.
Cockerill J agreed with Arch’s submissions and granted the declaration, for the following reasons:
1 For the purposes of evaluating whether the circumstance might give rise to a claim, such that the requirement to notify was triggered, it was necessary to consider whether there was a real as opposed to a fanciful risk of a claim.
2 This was an objective question, i.e. would a reasonable insured have understood there was a real risk of a claim, taking into account the defendant’s knowledge of the accident and subsequent events.
3 Mr McCullough knew that the accident and the injuries were serious, sufficiently to understand the need to investigate the accident and seek assurances from the girl’s family.
4 Mr McCullough’s investigations did not allow him to reach a conclusion on the cause of the accident and injuries, but neither did those investigations allow him to conclude that there was only a fanciful risk that the girl/her family would blame the layout or/and maintenance of the track, for which he was responsible.
5 The family’s informal assurances were not sufficiently certain for Mr McCullough to rely on them.
6 In any event, Mr McCullough failed to notify in good time following receipt of the Letter of Claim.
7The notification clause was a condition precedent because condition 1 (a) provided a clear conditionality between the notification requirement and liability, (b) had a workable ambit because it referred solely to the insured’s obligations and all the obligations had a clear conditionality, were workable and clear, and (c) had a clear commercial purpose, i.e. allowing the insurer to investigate the potential claim.
Comment
It is important to note that Mr McCullough did not contest Arch’s claim. The legal arguments do not appear to have been explored as fully as they might. In particular, the judgment does not refer to Maccaferri v Zurich [2015] or to Jacobs v Coster (t/a Newington Commercials Service Station) [2000].
In those cases, the policy wording was very different; notification was required on the occurrence of an event which was likely to give rise to a claim. Nonetheless, in both those cases it was emphasised that the seriousness of an accident was not enough and that knowledge of the cause of the accident or/and being blamed for it was crucial.
By contrast, Cockerill J did rely on the seriousness of the accident/injury. The fact that Mr McCullough could not reach any conclusions on the cause of the accident counted against him. Similarly, the fact that the girl’s family did not immediately blame him also was not crucial. This difference in approach can perhaps be explained by the fact that Cockerill J was examining whether there was a real risk of a claim, whilst in Maccaferri Knowles J was examining whether a claim was likely.
A further interesting aspect to the decision is Cockerill J’s consideration of whether the notification had been made “as soon as reasonably practicable”. It is well established that this is a matter of evaluating whether notification was given as soon as possible in all the circumstances. However, Cockerill J did not just consider Mr McCullough’s circumstances, but also took into account Arch’s evidence on the prejudicial effect of the late notification.
Cockerill J’s conclusion that the notification clause was a condition precedent is also very interesting and helpful.
We have often seen conditions in public liability policies similar to Condition 1 in Arch’s wording, where the clause seeks to turn all of the insured’s obligations into conditions precedent.
Clearly Cockerill J considered there to be no problems in principle and it was a matter of considering whether there was sufficient clarity and a workable ambit for each and every obligation.
The door is therefore very much open to insurers to rely on such clauses and to argue that breach of the notification clause discharges insurers’ liability. Insurers do not have to prove that they have suffered “prejudice” in order to rely on a condition precedent, albeit this may nonetheless be a factor when insurers consider the point from a commercial perspective.
Late notification issues due to the COVID-19 pandemic such as accidents and claims not being notified timeously due to staff shortages or office closures (so that post is not dealt with etc.) has often led to claimants making unnecessary applications for pre-action disclosure or prematurely commencing proceedings. In each case, insurers will want to consider both whether the late notification has a real justification and whether it is nonetheless a point to be taken for TCF (treating customers fairly) and commercial reasons. Subject to such considerations, this latest decision should provide insurers with encouragement that late notification defences can be run successfully.
Related item: Speak now, or forever hold your peace' Irish High Court rules insurer was justified in refusing cover for late notification
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