HLB KIDSONS V LLOYD’S UNDERWRITERS

[2007] EWHC 1951 (Comm), Queen’s Bench Division, Commercial Court, Mrs Justice Gloster, 9 August 2007

Insurance (professional indemnity) – Policies requiring assured to give notice in writing as soon as practicable of any circumstances of which it became aware – Whether assured became aware of circumstances – Whether valid notification given to insurers – Whether clause constituted a condition precedent to the insurers’ liability

The assured, a firm of accountants, owned a company, S@FI, which marketed tax avoidance schemes. The claimants were insured against liability under three professional indemnity policies which incepted on 1 May 2001 and terminated on 30 April 2002. The policies were written on a claims made basis. General Condition 4 provided that: “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 period specified in the Schedule 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 period specified in the Schedule shall be deemed for the purpose of this Insurance to have been made during the subsistence hereof.”  Claims were made against the assured after the policy had expired, and the assured argued that there had been a valid notification of circumstances during the currency of the policy. Gloster J held that only a part of the notification was valid, and laid down the following principles.  (1) A document which was not intended by the assured to constitute notice of circumstances which might give rise to a loss but which met the objective criteria for such a notice took effect as a valid notice, and it was also relevant evidence as to what the assured knew or believed at the time. (2) A “circumstance ... which may give rise to a loss or claim against” the assured was one which, “objectively evaluated, creates a reasonable and appreciable possibility that it will give rise to a loss or claim against the assured”, so that the risk must be real and not imagined but it need not amount to a probability. (3) The phrase “notice in writing … of any circumstance” required the written communication to be “sufficiently clear and unambiguous that it leaves the reasonable recipient in no reasonable doubt that the assured is by the communication purporting to give notice of a circumstance”. (4) The notice must not be premature, so that “if, at the time when the assured purports to give notice in writing or at any other later relevant time, he is not aware of a relevant circumstance, then the notice is ineffective”. (5) There is a need for the loss or claim to be causally related to the circumstance notified. (6) The requirement of giving of notice “to the Underwriters” meant that notice was to be given to each underwriter subject to any agreement whereby notice was to be given just to a leader or appointed agent. (7) Under a composite policy taken out by a partnership for all of the partners, the partnership and all of the partners were “aware” of notifiable circumstances if the partnership’s controlling organ was so aware, in accordance with ordinary rules of attribution. (8) The wording created a condition precedent, so that if the assured did not notify circumstances as soon as reasonably practicable it was not possible for the assured to submit a notification at some later point.