Extending insurance cover
'Claims made' policies - such as professional indemnity and directors' and officers' (D&O) insurance - only provide cover for claims made against the insured during the policy period. They invariably include a deeming provision, under which the insurance is extended to claims made outside of the policy period, provided they arise from circumstances notified to insurers within it. Without the deeming provision, the insured would be left without cover for such claims. They will not attach to the policy for the year in which the claim is made, since the relevant circumstances will have been disclosed to the new insurer, who will have excluded the claim from cover.
The deeming provision in Kidsons
The deeming provision in Kidsons provided as follows:
'The assured shall give to the underwriters notice in writing as soon as practicable of any circumstance of which they shall become aware during the [policy period] which may give rise to a loss or claim against them. Such notice having been given any loss or claim to which that circumstance has given rise which is subsequently made after the expiration of the [policy period] shall be deemed for the purpose of this insurance to have been made during the [policy period].'
The Court of Appeal upheld the decision of the trial judge (Gloster J) that the extension of cover conferred by the deeming provision can only be triggered if the insurer received valid notice of the circumstance giving rise to the later claim. In other words, the giving of a valid notice of circumstances is a condition precedent to the insurer's liability to cover later claims. This came as a surprise to Kidsons, which argued that the words 'condition precedent', although used elsewhere in the policy, did not appear in the deeming provision. Rix LJ, however, described the wording of the clause as being 'a paradigm example of a condition precedent'.
A key aspect of the Kidsons decision therefore, is that if the insured notifies circumstances but does not to do in strict compliance with the terms of the deeming provision, the insurance will not be extended to cover any subsequent claims.
Requirements that must be met
The deeming provision in Kidsons, set out above, was largely typical. According to its terms, to be valid, and to extend cover, the notification must meet the following requirements. It must be:
- a 'notice';
- of a 'circumstance';
- that may give rise to a claim against it; and
- made 'as soon as practicable'.
What constitutes a 'notice'?
The Court of Appeal held that to constitute 'notice', the notification needed to make it 'reasonably clear' to the insurer that it was intended to be a notification of circumstances for the purposes of extending cover.
What is a 'circumstance'?
Gloster J held that to qualify as a 'circumstance', the subject of the notification needed to be 'a fact, event, happening or state of affairs'. The Court of Appeal did not disagree, and this definition is likely to be adopted in subsequent cases. The clearest form of circumstance would be an intimation of a complaint, or a threat of a claim, by a third party.
Further, the Court of Appeal agreed with the trial judge that cover will not be extended unless, at the time of the notification, there was objective justification for the insured's view that the circumstance 'may give rise to a claim'. In other words, objectively evaluated, there must have existed a possibility that, at some stage in the future, the circumstance would give rise to a claim.How long is too long?Whether a notification was made 'as soon as practicable' will depend on all the relevant circumstances of the particular case. In Kidsons there was a delay of just under four months from the awareness of relevant persons within Kidsons of the circumstance and the notification to insurers. Gloster J's view, which is worth noting, was that notification could not 'on any realistic basis be regarded as given as soon as practicable'. The Court of Appeal agreed with this conclusion.
How detailed should the notification be?
Toulson LJ held that a notified circumstance might be too vague to be a matter that could be said to have given rise to the claim. On this view, which is uncontroversial, cover will not be extended if the insured fails to provide sufficient details for the insurer to appreciate the nature of the claims that might arise. Moreover, it should be borne in mind that the insurer is not under any obligation to ask necessary questions of the insured to obtain sufficient detail. Thus, the onus in this respect is firmly on the insured.
Kidsons made a number of notifications to its insurers, one of which, rather than being too vague, was too narrow. As it was described in the notification, the circumstance was not wide enough to embrace the underlying facts of the subsequent claims, and could not be said to 'give rise' to them.
Conclusion
The decision in Kidsons highlights the importance of an insured giving a comprehensive presentation of what they know when notifying circumstances to insurers. Moveover, following the decision, insureds must be careful to comply strictly with policy requirements as to how, what and when circumstances can be notified.
By Ben Gold, employed barrister, Reynolds Porter Chamberlain LLP.E-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .