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Clear-cut obligations crucial

03 June 2013 Donald Dinnie, Norton Rose Fulbright

Liability insurers do not like nasty surprises, such as the belated notification of a claim arising. The rationale of notification clauses obliging the insured to notify any circumstances likely to give rise to a claim under the policy, and variations of those obligations, are intended to avoid those unpleasant situations. An insurer also does not wish to be inundated with ‘just in case’ notifications by an insured.

How far does the obligation, to give notice of circumstances likely to give rise to a claim,
extend? This question was dealt with by the English Court of Appeal in Jacobs v Coster & Avon Insurance & [2000] Lloyds Rep IR 506 and is worth revisiting. It was a condition under the policy precedent to the insurer’s liability that the insured was required to notify the insurer of any event likely to give rise to a claim.

Definition of term

Both the trial and appeal courts adopted the reasoning of an earlier decision in Layher
Limited v Lowe [2000] Lloyds Rep IR 510 that "likely”, as contained in the policy, meant at
least a 50% chance that a claim would eventuate. This is in accordance with the dictionary
definition of "likely” as being "such as well might happen or probable”.

Insurer’s obligation

In Lowe, the court rejected the proposition that the bare fact that the claim was subsequently brought (in this case two years after the event), demonstrates that the relevant event is one that was likely to give rise to a claim.

Bear in mind that the onus lies on the insurer to prove the breach of the notification clause, and that the events or circumstances were likely to give rise to a claim.

Timing of notifications

In Jacobs, the claimant was on the forecourt of the defendant’s petrol station intending to fill a car with petrol. She fell over and injured her leg and an ambulance was sent for. At that time, the claimant did not complain that her fall was in any way the defendant’s fault. Nearly seven months after the event, the claimant’s attorneys wrote to the defendant, intimating a claim against him on the basis that the claimant had fallen because the forecourt had been slippery. It was only then that the defendant notified his all-risk policy insurers. The insurer argued that the defendant insured had not complied with the notification obligation under the policy.

Defendant inspection subsequent to incident

At the time of the event, the claimant gave no indication that there was some blame attached
to the premises or the defendant.

The defendant had inspected the forecourt after the accident to ascertain whether there
was anything that caused the claimant to fall, not only from the point of view of ascertaining the claimant’s position, but for the safety of customers. Nothing untoward was found.

Findings of the court

The trial court found:
• There is no duty on the insured occupier of the premises to notify every time there is an accident. That fact alone did not call on the insured to assume that a claim was likely.
• The trial court held that there was a duty to notify because the incident was one of some gravity. The claimant was unable to drive a car and was removed to hospital by ambulance.
• Those features would alert the reasonable person to the likelihood of there being a claim greater than the 50%.
The appeal court disagreed with the reasoning.

The appeal court found:
• There was no evidence that the defendant knew of anything wrong with the forecourt.
• They had not been blamed by the claimant for the accident at the time.
• The notification obligations had to be applied objectively but taking into account such knowledge as the insured has.

No assumptions

The likelihood of the claim from the mere happening of the event cannot be inferred. Clauses requiring notification of events or circumstances likely to give rise to the claim are often accompanied by more specific notification obligations, such as the notification of receipt of a claim, a demand or summons.

Recommendations for obligations and notifications

• Notification obligations under a policy should be appropriately worded having regard for the nature of the risk that is insured to enable an insurer to properly reserve and manage the risks.
• Simple and unambiguous obligations are always desirable. For instance, a medical malpractice policy may require notification of a request for a medical practitioner’s or hospital’s clinical or nursing notes,
• Similarly insurers should require notification of any process initiating the insured’s involvement in any form of statutory enquiries, inquests or professional disciplinary enquiries.
• The extent of the notification clauses in the policy must always be a considered product of the insurer’s risk exposure, and the manner and extent to which the insurer wishes to manage and be forewarned of any real risk events.

Specific notification obligations do not necessarily make an insurer better informed and forewarned. It is a matter of an insurer’s ability and capacity to usefully process and respond to a notification.

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