A Court of Appeal ruling against Zurich Insurance plc earlier this month (12 January) has meant a victory for a client of ours at Hugh James.
The judgment, which ordered Zurich to pay out for a claim it originally rejected, may now lead to a mass review of policy documents across the insurance industry, as providers review the wording of their notification clauses, usually expressed as a condition precedent.
A condition precedent is a clause in the policy document which, when not complied with, can give grounds for a rejection of a claim by an insurer.
Partner Tracey Singlehurst-Ward commented:
“This is a landmark ruling which will have implications for the insurance industry. It is a huge success to our commercial team who worked hard on this case to achieve the right result. The success is testament to the team’s experience, hard work and skill.
“This judgment is a reminder to insurers to ensure the drafting of their conditions is carefully reviewed and sufficiently clear so that the insured party’s responsibilities are in no doubt.
“We expect the ruling to result in a widespread review of condition precedents in policy documents to ensure they are explicitly clear. It also means that policyholders need to check their existing policies, recognise the need to inform their insurance provider in the event of a claim in a timely manner and understand the potential consequences of any breach.”
Zurich was originally ordered to pay damages when it lost in the High Court against our client Maccaferri, following a claim being made against it when a third party suffered a severe eye injury at work using equipment hired out by the company.
Zurich rejected the claim on the grounds of its condition precedent which stated, “the insured shall give notice in writing to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim”.
Zurich alleged that the obligation created by this condition was a rolling one, obliging the insured to give notice of any claims that were likely following the accident once the insured became aware of those circumstances.
The Court of Appeal ruled in favour of Maccaferri and reminded the parties that “the likelihood of a claim cannot simply be inferred from the happening of an accident” and this should be judged objectively based upon what Maccaferri knew at the time.
Furthermore, the court held that the obligation created by the clause was not one which could reasonably be seen as a rolling one. The words “as soon as possible” referred to the timing of the accident, and could not be stretched to apply a continuing duty of review and notification. Applying the well-established principles of contract law, the ambiguity had to be interpreted in favour of the insured.