When is an event "likely to give rise to a claim"?
Maccaferri Limited v Zurich Insurance PLC  EWHC 1708 (Comm)
On 22nd September 2011, Mr McKenna suffered a serious eye injury while using a Spanex gun to attach wire caging together. Mr McKenna sued his employer who, in turn, sued the company that had hired the gun to them – Maccaferri Limited ('Maccaferri'). On 18 July 2013 Maccaferri received a solicitors' letter informing it that a claim was to be brought against it by Mr McKenna's employer. On 22 July 2013 Maccaferri notified (via its broker) its insurer, Zurich Insurance PLC ('Zurich'), under its public and product liability insurance policy. Zurich declined to provide indemnity because, it said, Maccaferri had failed to comply with a condition precedent that:
"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 with full particulars thereof.
The Insured shall also on receiving verbal or written notice of any claim intimate or send same or a copy thereof immediately to the Insurer and shall give all necessary information and assistance to enable the Insurer to deal with, settle or resist any claim as the Insurer may think fit."
Zurich alleged that notice should have been given by October 2011.
"likely to give rise to a claim"
The Court said these words required there to be at least a fifty per cent chance that a claim against the insured would eventuate. At the time of the accident, the Court said, there was not at least a fifty per cent chance of a claim against Maccaferri – there had been an accident involving the gun, but there was only a "mere possibility" that the accident had been caused by a fault with the gun - "the likelihood of a claim cannot simply be inferred from the happening of an accident."
Even the involvement of the Health & Safety Executive and the fact that forensic testing was carried out on the gun after the accident did not, in the Court's view, indicate that there was anything more than the "possibility" of a claim, which was not enough to trigger the notice obligation. The Court did accept, however, that a claim might still be likely even if it were a bad or vexatious claim, but that would depend on the facts of each case.
"as soon as possible"
Zurich argued that the obligation to notify arose as soon as the insured could "with reasonable diligence" discover that an event was likely to give rise to a claim. The Court disagreed, finding that the obligation only required the insured to notify promptly once there had been an event likely to give rise to a claim – there was "no room", the Court said, for a "continuing or rolling assessment of claim likelihood to be required of a policyholder" unless the policy specifically provided for this, in other words the insured is not obliged to proactively investigate whether a claim against it is likely.
Practical advice for policyholders
Although positive for policyholders, the case is yet another example of how issues surrounding notice can lead to lengthy disputes between insureds and their insurers. To avoid disagreements and possible litigation, it is essential for policyholders to get notification right.
- Check notice provisions to see if they require notice to be given as soon as possible after an event which is "likely" to give rise to a claim. Some policies are broader and refer to events which "may" give rise to a claim, in which case notification may be required where there is only a mere possibility of a claim being brought against the insured.
- Be aware that, depending on the circumstances, even a bad or vexatious claim might still be "likely" to arise, requiring notification under the policy.
- Check whether notice is triggered by the knowledge of particular individuals within your organisation and make sure there are clear reporting lines in place to report claims and circumstances promptly.
- Check whether notice provisions are "conditions precedent" to the insurer's liability at all. If they are not, the insurer is obliged to pay valid claims even where the condition has been breached. The insurer may be entitled to damages for breach of the notice provision, but it is usually very difficult for the insurer to prove it has suffered a loss.