Notification to an insurer of circumstances likely to give rise to a claim

Donald Dinnie, Norton Rose Fulbright

Where is the line between the notification to an insurer of circumstances likely to give rise to a claim and a notification just in case a claim arises? The notification obligation has to be applied objectively but taking into account the insured’s knowledge. An insured need not infer the likelihood of a claim from the mere happening of an event.

The English courts addressed this in Jacobs v Coster & Avon Insurance and before that in Layher Limited v Lowe. The Jacobs case is worth revisiting.

A client of Jacobs fell in the forecourt of his petrol filling station. The client was taken to hospital by ambulance but she made no complaint to suggest she blamed Jacobs for the injury. As a result, Jacobs did not notify his insurer of the accident.

Seven months after the event, the claimant’s attorneys wrote to Jacobs to make him aware of the claim against him. It was only then that he notified his insurer. The insurer argued that the 30 day window to notify had expired.

The notification obligation has to be applied objectively but taking into account the insured’s knowledge. An insured need not infer the likelihood of a claim from the mere happening of an event.

The court held that there was no evidence to suggest that the defendant knew of anything wrong with the forecourt. No blame had been put on him immediately after the event.

Notification clauses are often accompanied by more specific obligations, for example, that notification should be made once the defendant has received a demand or a summons. This creates a simpler set of rules and leads to less confusion over when notification is necessary. Simple, unambiguous and specific 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 the receipt of any document initiating the insured’s involvement in any form of statutory enquiry, inquest or professional disciplinary enquiry.

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 risk events and potential losses.

Specific notification obligations do not necessarily make an insurer better informed and forewarned. That is also a factor of an insurer’s ability and capacity to usefully process and respond to a notification and to set aside appropriate reserves.