Commercial Court considers notifications to multiple policy years

The Commercial Court provides helpful guidance on matters of general interest to insurers, including in relation to notification, choice of policy and estoppel.

Background

The Commercial Court determined a number of preliminary issues in claims against architects, Robert Matthew, Johnson-Marshall & Partners (RMJM), and their primary and excess professional indemnity insurers.

The claimants, The Cultural Foundation t/a American School of Dubai (ASD) and Abu Dhabi National Exhibitions Company (ADNEC), each pursued contractual delay claims against RMJM in separate arbitrations, each securing awards.

RMJM became insolvent and ASD and ADNEC sought payment from insurers of the sums awarded. The individual awards each fell within the primary policy limit of US$10 million, but together they exceeded it.

Decision

Notification and choice of policy

RMJM made notifications to insurers concerning its performance of the ASD and ADNEC contracts in both the 2008-09 and 2009-10 policy years.

ASD argued:

• Parts of its claim fell within the 2008-09 policy year, and other parts to the subsequent year.
• The circumstances from which its claim arose had been notified to both years of account, thus benefitting from two limits of indemnity.

Primary layer insurers disputed this and asserted the earlier notification took priority.

The Judge, Andrew Henshaw QC, found:

• A policyholder could notify complex circumstances likely to give rise to a claim even though it could not identify specific defects or problems, their causes or consequences (a “hornet’s nest” notification).
• However, even construing the 2008-09 notification as a “hornet’s nest” notification, it did not extend to the whole of ASD’s claim.
• Relevant notifications had been made to both the 2008-09 and 2009-10 policy.
• The mere existence of a notification to an earlier policy did not preclude a claim on a later policy.
• The later policy did not exclude prior notified circumstances or claims deemed first made before inception, so ASD could choose which year of account under which to claim indemnity.

Breach of condition precedent and estoppel

The Judge found RMJM had promptly notified the circumstances giving rise to ASD’s claim and there was no breach of a condition precedent to insurers’ liability. He nevertheless commented on whether insurers’ six year delay before arguing late notification would have “estopped” (prevented) them from relying upon it.

ASD argued insurers were estopped from alleging a breach of notification requirements because there was a shared assumption that the later notification was valid, and insurers were aware at an early stage of the matters subsequently relied upon regarding late notification.

ASD also relied on the decision of the Court of Appeal in Ted Baker v Axa [2017] to argue that, if insurers intended to reject a notification as being too late, they were obliged to bring policy obligations and other relevant facts to ASD’s attention.

Insurers argued that they had always treated ASD’s claim as falling within the 2008-09 year of cover. The issue of prompt notification to the subsequent year only arose because ASD asserted, in the course of proceedings, that part of its claim fell within the 2009-10 policy.

The Judge held:

• The estoppel issue was “finely balanced”. Insurers clearly considered the claim fell wholly within the 2008-09 notification. However, they must reasonably have known that this was not ASD’s view as they had been asked to reopen the 2009-10 notification.
• A reasonable person would not expect insurers acting honestly and reasonably to say that the 2009-10 notification was late, unless insurers foresaw circumstances in which the losses might fall outside the earlier notification. Further, in contrast with the position in Ted Baker, insurers’ actions had not led to any clear detrimental reliance by ASD.

Comment

Underwriters should ensure that policy wordings expressly exclude prior notified circumstances and claims deemed first made before inception. Without an exclusion, insurers face policyholders being able to choose under which policy to claim an indemnity if there have been multiple notifications to different policy years.

Where multiple notifications have been made, the decision serves as a reminder to claims adjusters to be clear about which policy year under which a claim (or part of a claim) is being considered and adjusted. This is especially important where the policyholder or broker suggests a notification to a different year is the relevant one. Clarity by insurers will help counter any later estoppel arguments about assumptions of fact shared with the insured.