The operation of claims-made policies

The appeal to the Court of Appeal in HLB Kidsons v Lloyd’s Underwriters [2008] EWCA Civ 1206 saw that court, more or less for the first time, analyse the operation of a claims made liability policy under which – as is almost always the case – the assured is entitled to extend coverage by notifying circumstances which may give rise to a claim. As will be seen, although the Court of Appeal by a majority overturned much of the ruling of Mrs Justice Gloster and held that there had been a valid notification of circumstances, two judges constituting the majority – Rix and Toulson LJJ – disagreed on some fundamental issues. Lord Justice Buxton, who dissented on the notification issue, nevertheless agreed with Rix LJ on all other matters.

Kidsons: the insurance

The assured was a firm of accountants that had procured professional indemnity cover for the period 1 May 2001 to 30 April 2002. The cover was constituted by three policies subscribed too by five sets of underwriters and written on a ‘claims made’ basis. As is well known, under this class of policy the insurers are liable to respond to: (a) any claims made against the assured during the currency of the policy; and (b) any claims arising out of circumstances of which the assured becomes aware during the currency of the policy and which are notified to the insurers. The relevant insuring wording for the notification of circumstances in Kidsons, General Condition 4, was as follows: