A helpful reminder of notification obligations
The case of Arch Insurance (UK) Ltd v Phillip McCullough [2021] considered the application of a notification condition in a public liability policy which was allegedly notified late. Conditions precedent to liability under an insurance contract operate such that, if a requirement is not met, then there is no cover for the claim. Here, Catrin Povey and Sally Caswell take a closer look at the decision.
What happened
On 26th October 2019, a young girl had an accident on a motorbike track owned by a Mr McCullough. The young girl suffered life-changing injuries. Despite assurances from the family that they did not hold him/the track responsible, Mr McCullough received a Letter of Claim in June 2020 alleging that the track was dangerous. Mr McCollough did not respond to the Letter of Claim and did not notify Arch Insurance, his insurer, until 15 September 2020.
Arch Insurance sought a declaration that it was not liable to indemnify Mr McCullough as he had breached the notification obligation, which was a condition precedent to liability under the policy.
The conditions stated that “observance of the terms of this certificate relating to anything to be done or complied with by the insured is a condition to any liability of the company…” and that “the insured shall, as soon as reasonably practicable, given written notice to the company of any circumstances that may give rise to a claim being made against the insured and for which there may be liability under this certificate”.
Decision of the Commercial Court
The Court agreed with Arch and granted the declaration. Its reasoning was based on answering three main questions:
- Was there an obligation to notify? The answer was ‘yes’ based on the fact that there was a real as opposed to fanciful risk of a claim – required because the obligation was to notify in circumstances which “may give rise to a claim” – and judged objectively, Mr McCullough (as a reasonable insured) clearly knew that the accident and the injuries were serious meaning he knew that there was a real risk of a claim.
- Was the notification made “as soon as reasonably practicable”? The answer was ‘no’ because Mr McCullough failed to notify Arch until 11 months after the accident.
- Was the notification clause a condition precedent to the insurer’s liability? The answer was ‘yes’. Despite the fact that the clause was identified as a “condition” and not as a “condition precedent”, the clause was still a condition precedent because it provided clear conditionality between notification and liability, the ambit of the conditionality was clear and there was a clear commercial purpose to the clause.
Given the surge of late notification issues as a result of COVID-19, the decision is a timely reminder for parties that condition precedents come in many forms and can provide insurers with a complete policy defence. For insureds, it is crucial to review any policy obligations carefully.
Our insurance team has experience advising a range of clients on insurance policies and disputes and can help you to navigate the process. If you would like to find out more, please get in touch at c.povey@capitallaw.co.uk.
