English Court Of Appeal Underlines Importance Of Notice Of Circumstances

HLB Kidsons v Lloyd's Underwriters et al

31 October 2008 - [2008] EWCA Civ 1206

Claims-made policies have been with us for a long time and

insurers might be forgiven for thinking that the requirements for

the timing of notifications under such policies were no longer an

issue. But, as with so many issues, policy wording is

everything.

The recent decision of the Court of Appeal will be of interest

to insurers, insureds and brokers alike, as it illustrates the

perils of both disjointed policy wordings and the scope of

notifications of circumstances.

The Facts

Accountancy firm Kidsons owned and managed Solutions @ Fiscal

Innovation Limited (S@FI), a company which marketed tax avoidance

schemes, or "fiscal engineering". A tax manager in

Kidsons' Edinburgh office had serious concerns about both the

nature and implementation of these schemes and brought these

concerns to the attention of the S@FI board and of Kidsons'

national executive committee, notably in memoranda dated 23 and 24

August 2001. Both the board and the committee agreed to set up an

independent review body to investigate the situation and, in the

meantime, to give notice of circumstances to Kidsons'

professional indemnity insurers. A letter was accordingly sent to

Kidsons' placing broker on 31 August 2001; the letter referred

to "S@FI Limited", describing its fiscal engineering work

and the fact that "a tax manager in Edinburgh ... has

expressed the view that the Inland Revenue, if minded, could be

critical of some procedures followed in certain cases". The

letter closed with the statement that "this might be regarded

as material information for insurers. There is no sign of a claim

arising at the present time but the Board feels that it is

appropriate in the circumstances to advise what is happening and to

take your instructions."

The 31 August letter was not submitted to Underwriters until 27

September 2001, and then by the placing broker only to the placing

underwriter for the leading Lloyd's syndicate (the first

presentation). The letter, along with a claims bordereau, was

subsequently submitted to the two lead Lloyd's syndicates on 17

and 18 October 2001 (the second presentation). These materials were

later presented, along with further documentation, on 18 and 19

April 2002 to the lead underwriter and the company market (the

third presentation). Finally, the materials from the second

presentation were presented to the following market in July 2002

(the fourth presentation).

Claims were subsequently made against Kidsons by their clients

in respect of S@FI. The claims covered a variety of S@FI tax

schemes and alleged that Kidsons (1) had been negligent in advising

the schemes; (2) had made false representations about the schemes;

and (3) had failed to give their...