Beware The Pitfalls Of 'Claims Made' Insurance Policies

A recent case in the Technology and Construction Court

relating to the scope of a notification under a professional

indemnity insurance policy provides a valuable reminder of the

importance of making timely and accurate notifications if you

want your policy to react to what you consider to be insured

events.

The policy in question was a so-called 'claims made'

policy which is a type of policy which not only provides cover

for claims which are made during the period of insurance but

also allows the insured to notify the insurers of circumstances

that may give rise to a claim. Provided such circumstances are

notified within the period of insurance, even if a claim is

then made outside that period, the insurance policy should

provide cover in respect of that notified circumstance.

The issue at stake in the case of Kajima UK Engineering

Ltd v The Underwriter Insurance Company Ltd was whether

defects which emerged in the period after a notification and

the expiry of the insurance cover were effectively the subject

of the previous notification and therefore covered by the

insurance policy.

Kajima had been employed to design and build a block of

flats. Shortly after practical completion, ponding of water

occurred on the walkway balconies from the staircases to the

front doors of various flats. Kajima carried out investigations

into the cause of the ponding and concluded that it was due to

excessive settlement which could distort adjoining roofing and

balconies. Kajima notified its insurers, TUIC, accordingly in

February 2001 and stated that further investigations were being

carried out to determine the cause.

In July 2005, after the expiry of Kajima's insurance

policy with TUIC and following further investigations and

remedial works arising out of issues relating to the settlement

problems, Kajima was informed by engineers that the wind

loading calculations for the building had been badly

underestimated and that, as a result, lateral stability was a

serious problem. All of the tenants in the building were

therefore evacuated, with the remedial works estimated at

£7.25 million.

Kajima attempted to rely on its February 2001 notification

to TUIC to claim under its previous insurance policy. Kajima

argued that the investigation referred to in the February

notification led in time to further investigations which meant

that in effect the losses, costs and liabilities incurred by

Kajima following the discovery of stability problems in July

2005 all arose...