Late notification provides Insurer with a defence 22 Apr 2010

The Commercial Court in Loyaltrend v Brit has recently provided further guidance on when Insurers can rely on late notification as a complete defence to a claim for indemnity. This decision follows on from the prominent cases of HLB Kidsons v Lloyd’s Underwriters and Laker Vent v Templeton Insurance, which also addressed the question of late notification and what triggers an obligation to notify. The broad trend of these decisions has been to confirm Insurers’ ability to rely on late notification to decline liability in certain circumstances.

Loyaltrend v Brit concerned a subsidence claim under a shop retail policy. The policy covered damage, resulting from a number of specified perils including subsidence, to the tenant’s fixtures and fittings, trade contents and stock at the Insured’s premises.

The policy required the Insured to give immediate notice on the occurrence of damage on which a claim was or might be founded.

The Insured first noticed crack damage in August 2003, but did not notify Insurers until August 2004 (at the earliest). The Insured stated it was only then that it became aware that the damage was the result of subsidence and that it might have a claim under the policy. The judge found against the Insured who should have notified the circumstance earlier. The test for whether a claim might be made was objective (confirming Laker Vent v Templeton Insurance) and what the Insured knew or thought with regard to the possibility of a claim being made was irrelevant to that question. On the evidence, the Insured should have known by December 2003 that the damage was sufficiently serious to warrant notification. This was because:

•The Insured had appointed an engineer prior to then;

•Correspondence referring to the severity of the damage from September 2003 existed;

•Evidence recording location and seriousness of damage was documented; and

•The Insured had notified its landlord’s insurers in November 2003.

Therefore, Insurers’ ability to decline indemnity due to breach of the notification provision was upheld.

Loyaltrend v Brit is good news for Insurers, confirming the trend over recent years that UK Courts appear increasingly willing, on the right set of facts, to consider notification clauses as providing Insurers with a defence to claims, where those clauses are conditions precedent.

This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, please go to www.law-now.com.