Following an event, situation or incident that may be covered by your insurance policy, it’s important to follow the notification requirements outlined in the policy. These requirements may include specific provisions regarding when and how to notify the insurer, what information to provide and who to contact.

Failing to comply with these notification provisions could impact the insurer’s liability, so it’s crucial for policyholders and brokers to be aware of their obligations in this regard. Zara Okereafor explains the practicalities of notification and the consequences of failure to do so.

The what, who, when and how of notification

What must be notified

Notification requirements are generally express terms of the policy and may encompass not only claims but also claim developments and circumstances.

• Claims. In liability insurance, a ‘claim’ can be defined as meaning “a demand for something as due, an assertion of a right to something” (Thorman v New Hampshire Insurance Co [1988]).
• Claim development. A policyholder is under a duty to cooperate with insurers and keep them updated on how a claim develops. For example, if a claim were to progress from a letter of claim being sent to a formal claim being issued in the courts or an arbitration being commenced, the insured would need to notify the insurer of that development.
• Circumstances. A claim circumstance refers to a situation that “may”, “might”, “could” or is “likely to” result in a claim under the policy.

This can include an indication of intent to make a claim against an insured party, a criticism of an insured party (or a party for whom they are responsible) that could lead to losses for a third party or concerns about the effectiveness of an insured party’s performance (or a party for whom they are responsible) in the context of professional business activities. It’s important to note that the definition of a circumstance can vary between insurers, so it’s essential to review notification provisions carefully.

It is important to pay attention to the terms of the policy regarding notification of circumstances. Some policies state that the insured “may” notify any circumstances they become aware of during the policy period. In this case, if the circumstance eventually evolves into a claim even after the policy period has ended, the claim will be considered to have been made when the circumstance was notified and covered under the policy in effect at that time.

Other policies may state that the insured “must” notify any circumstances they become aware of during the policy period. These requirements stand independently from but are closely related to the insured’s duty of fair presentation under the Insurance Act 2015. In each case, the full facts must be considered in the context of the policy terms and the insured’s statutory duties to avoid future problems.

Should the content of the notification be specific?

In J Rothschild Assurance plc v Collyear [1998], the deputy judge held that the notification did not need to be as prescriptive as that contended for by the defendant insurer. Therefore, unless the terms of the insurance specify otherwise, the form and content of the notification does not need to be prescriptive.

Who to notify

In the absence of specific provisions in the insurance policy specifying who to notify (eg a named individual or a specific address) and who must do the notifying, notice must usually be given to the insurer or its authorised agents by the policyholder or its agents, which can include the broker of a policyholder.

The usual position is that the broker, on behalf of the policyholder, will notify the insurer of any claim or circumstance. However, unless the broker has express contractual authority to accept notifications on behalf of the insurer as agent, the notification must be passed up the chain to the insurer, and notification to the broker will not, by itself, constitute effective notice to the insurer.

When to notify

Notification clauses typically stipulate a timeframe for notification to be given. Usually, these are “immediately”, “as soon as practicable”, “as soon as possible”, or “within [x] days”.

Notice must be given within the time set out in the insurance policy. If the contract is silent on this, it would be prudent to give notice within a reasonable time from the occurrence of the loss or event.

Practical examples from case law

(1) Maccaferri v Zurich Insurance Plc

The English Commercial Court and the Court of Appeal in the case of Maccaferri v Zurich Insurance Plc [2016] EWCA Civ 1302 examined the meaning of the phrase “as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof” in the notification clause.

Maccaferri Limited, a supplier of stapling guns, was insured by Zurich. When an employee of a third party was injured by one of their guns, Maccaferri was notified of the accident and injury months later. The employee pursued a claim almost two years later, and Maccaferri notified Zurich a few days after receiving a letter of claim. However, Zurich declined coverage due to late notification.

The Court of Appeal held that Zurich was obliged to indemnify under the policy and dismissed its appeal. The words “likely to give rise to a claim” described an event with at least a 50% chance that a claim would be made (assessed on the basis of what a reasonable person with the same knowledge would interpret).

The term “as soon as possible” refers to how quickly the notice should be given once an event that could result in a claim has occurred. It does not imply an obligation for a reasonable investigation or create a need for the insured to continuously assess the possibility of claims. The Court of Appeal found that Zurich’s proposed interpretation had the potential to exclude liability, requiring clear wording in the policy to that effect.

Different wordings can invoke different thresholds for notification. For example, many professional indemnity policies require notification where an event “may give rise to a claim”. This threshold for notification is far lower than “likely to give rise to a claim”, and is less favourable to the policyholder.

(2) Jacobs v Coster & Avon Insurance

Another English Court of Appeal decision in Jacobs v Coster & Avon Insurance [1999] EWCA Civ 647 & [2000] Lloyd’s Rep IR 506 addressed the issue of late notification. In this case, the notification provision stated: “If any event gives or is likely to give rise to a claim, the Insured (or his representative) must: report the details immediately to the Company and send a written claim within thirty days…”

The insured (Jacobs) did not inform his insurer about a “client’s accident at his petrol station, as there was no indication he was to blame. Seven months later, the claimant’s lawyers contacted the insured, prompting him to notify his insurer. The insurer denied coverage on the basis that the 30-day window to notify had expired. However, the court held that the notification obligation has to be applied objectively taking into account the insured’s knowledge. It found no evidence of the insured’s knowledge or responsibility for the incident at the time, resulting in the insurer being unable to deny cover.

How to notify?

It is important to check the policy’s notification methods to ensure notification takes place properly. Some policies allow for notification to be effected by text, email, letter, fax or phone call. Regard should be had as to whether notification using these methods can be effected by a policyholder or by a broker or other authorised agent of the policyholder.

Effect of failure to notify

If notification provisions are not properly complied with, notification may not be correctly given, and consequences may arise. Notification provisions are sometimes classed as a ‘condition precedent’ whereby the policyholder must satisfy an insurer they have taken certain steps within a specified timeframe to establish a valid claim. Failure to do so may result in the denial of coverage, even where no prejudice has been caused to the insurer due to the late notification.

Insurers often deny claims due to late notification, citing a breach of a condition precedent. The decision of the Commercial Court in Arch Insurance v Philip McCullough (Arch) [2021] serves as a reminder that if a policyholder fails to comply with notification requirements that are conditions precedent, liability for the entire claim may be denied by the court even if the insurer has not been negatively impacted.

Notification requirements not considered a condition precedent may still be classified as a “condition”. If this condition is breached, the insurer may seek damages for breach of contract, but only if they can prove the late notification has negatively impacted their position. In many cases, it is unlikely the insurer will have suffered any damages unless, for example, they can demonstrate they have lost the opportunity to defend or settle a third-party claim that would have limited their liability under the policy.

Therefore, in most cases, if the notification clause is not a condition precedent, the consequences of failing to comply are likely to be relatively limited. However, the policyholder should be wary of assuming that the absence of the words “condition precedent” in the notification means that the term is not a condition precedent. The court will look to the substance and not the form of the term when construing it. If the clause is clear that the insurer will not be liable unless the policyholder complies with certain notification requirements, the term is likely to be deemed to be a condition precedent regardless of the language used.

If a policy uses the word “may” instead of “must” when it comes to notifying circumstances (rather than actual claims) during the policy period, the policyholder is under no obligation to do so and may be reluctant to notify for fear of increasing the premium charged at renewal. However, the policyholder must decide if the circumstance is material and requires notification when it is time to renew the insurance policy, due to the insured’s duty of fair presentation under the Insurance Act 2015.

If the policyholder does not notify immediately or at renewal, a claim in a later policy period may be excluded due to a ‘prior facts and circumstances’ exclusion. Worse still, the insurer may seek to avoid the policy entirely due to a breach of duty of fair presentation. This can leave the insured without coverage under either the previous or current policy. So, as a rule of thumb, the presumption should be that any circumstances that may give rise to a claim should be notified to insurers as soon as they arise.

Key takeaways:

• Policyholders, brokers and other authorised agents must be clear about the different thresholds that specific notification wordings set. What is to be notified? Who is to be notified? When is the notification to take place and how? What steps are required after the notification?
• Circumstance vs. claim. Consider the risk vs. benefit of not notifying a circumstance that has arisen.
• Ensure the specific wording of notification provisions is understood. Different wordings require different actions. Failure to notify an insurer of condition precedent may result in a complete defence to coverage, which is an avoidable but costly pitfall.

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