Getting Out Of The Deep End Court Decision On Assessing The Scope Of Notification Under A Professional Indemnity Insurance Policy

Euro Pools PLC v RSA and Sun Alliance Insurance Plc [2018] EWHC 46 (Comm)

Introduction

In a claims-made policy, the insurer's obligation to indemnify is triggered not by the occurrence of a loss, but by a third party making a claim against an insured. The insured is also normally obliged to notify the insurer of 'circumstances' which may give rise to a claim in the future. So, if the insured notifies the insurer of the relevant 'circumstances' in year 1, the resulting claim will be deemed to have been made in year 1. Consequently, the year 2 policy will exclude claims that arise from those 'circumstances' (which were notified in year 1).

In this recent English decision, the court had to decide which of two policy years a claim fell under.

Facts

The Claimant, Euro Pools, is a company which specialises in the design and outfitting of swimming pools. The pools were designed with movable floors, so that the depth can be increased and decreased. The design was insured under a "Design and Construct" professional indemnity insurance policy provided by RSA which renewed annually. This case concerns the policies for the period between June 2006 - June 2007 (1st Policy) and June 2007 - June 2008 (2nd Policy). Both policies had a limit of indemnity of £5 million. The policies contained a clause requiring notification to be given "...as soon as possible after becoming aware of circumstances...which might reasonably be expected to produce a Claim...Any Claim arising from such circumstances shall be deemed to have been made in the Period of Insurance in which such notice has been given."

During February 2007, Euro Pools discovered a major design fault with the "booms" (vertical walls used to divide a pool into different swimming areas), where the bottom of the tank was not airtight, resulting in the booms not raising and lowering as intended. This design fault was discussed with RSA during a meeting at which it was recorded that "...the bottom of the ballast tank in the booms has failed...looks like a failure is of original bracing...other options is to install what looks like a balloon/bag into tanks." This was noted in Euro Pools Proposal Form (during policy renewal) as circumstances which may give rise to a claim, which could be resolved within the policy excess by fixing the problem with inflatable bags.

During May 2008, Euro Pools experienced problems with the inflatable bags which led to Euro Pools informing RSA that they would need to redesign...