HLB Kidsons v Lloyd's Underwriters & Others

Getting Claims Notification Right – Fair,

Comprehensive & Comprehensible

The Court of Appeal recently ruled on Gloster J.'s detailed

analysis of the claims notification provisions in a claims made PII

policy. At first instance, Gloster J. held that the information

provided to underwriters was insufficient to trigger the

"deeming" provision of the firm's PII policy save to

the extent of a limited category of claims. This provision deemed

that claims made after policy expiry were covered if they arose out

of circumstances which had been validly notified within the policy

period. Gloster J.'s test for a valid notification, that it

was, "sufficiently clear and unambiguous to leave a reasonable

recipient in no reasonable doubt", was rejected on appeal as

being of no great assistance. The Court of Appeal instead held that

any notification should be "fair, comprehensive and

comprehensible". Where does this leave both insureds and

insurers going forward? What constitutes effective

notification?

Both Judgments provide essential guidance on the factors to be

considered when making a notification. In summary:

What constitutes a circumstance which may give rise to

a claim? Here the policy provided that notice must be

given "of any circumstances which may give rise to a

claim". On appeal, Toulson LJ. held that this involved "a

degree of crystal-ball gazing, an estimation of the likelihood of a

claim". There does not need to be a certainty or even a

probability or likelihood of a claim, only that the prospects of a

claim emerging are real as opposed to false, fanciful or

imaginary.

Who, in an insured organisation, is the knowledge

holder for the purpose of a notification? This is a two

stage test. First, is the Insured actually aware of the relevant

circumstances? The Kidsons case concerned a partnership. It was

held that once the partnership secretary had been informed, as he

had been given full authority to deal with insurance matters, his

knowledge was imputed to the entire partnership. As to the second

test, whose state of mind is relevant in deciding whether a

circumstance should be notified, it was held that the subjective

view of the Insured would only be relevant in exceptional

circumstances. The question would usually be what would a

reasonable person in the shoes of the Insured have recognised as a

risk of a loss or claim?

What form should the notification take? Unless

the policy provides otherwise there is no specific form. In

practice wording...