Consequences of breach

The consequences of a breach of a claims condition depend upon the classification of that condition either as a condition precedent (no recovery) or a bare condition (recovery, but subject to damages for any loss suffered by the insurers by reason of the breach. In Milton Keynes Borough Council v Nulty and Ors [2011] EWHC 2847 (TCC) Edwards-Stuart J held that liability insurers had, by reason of a late claim under a condition which was not expressed to be a condition precedent, suffered the loss of a chance to prove that their assured had not been negligent, and on that basis the insurers were entitled to deduct 15% from the sum due under the policy.

Nulty: the facts

This was a claim by the claimant Council under the Third Parties (Rights against Insurers) Act 1930, which permits the victim of an insured person’s negligence to bring direct proceedings against the assured’s liability insurers in the event of the assured’s death or insolvency. The Council owned a recycling centre. The late Mr Nulty, a self-employed electrical engineer, had been appointed to carry out certain works at the centre. On 2 April 2005 a major fire broke out at the centre, and that was followed by a second fire on 3 April 2005. The damage to the centre and its contents was estimated at about £4.5m. The Council asserted that the cause of the fires was a cigarette end not properly extinguished and carelessly discarded by Mr Nulty. The defence, conducted by Mr Nulty’s liability insurers, National Insurance and Guarantee Corporation Ltd, was that the fire was not the fault of Mr Nulty, in that it had arisen either from a live electric cable or arson by an intruder. Even if those possibilities were wrong and the cause was a cigarette end, it could have been discarded by somebody else. However, on the basis that Mr Nulty’s liability was established, so that a claim lay against the insurers under the 1930 Act, the insurers asserted that the liability policy did not respond to the claim because the assured had failed to give proper notice of loss in accordance with the terms of the policy.