Mass review of 'condition precedent' expected following landmark UK court ruling

Royal-Courts-of-Justice

Insurance providers will need to review the wording of notification clauses in policy documents following a landmark judgment by the Court of Appeal on Thursday 12th January 2017.

The Court of Appeal gave judgment on an appeal launched by Zurich Insurance Plc against the original ruling of the High Court in which it was ordered to pay damages to Maccaferri, its insured, following a claim being made against it after 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 it 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.

Top 100 law firm Hugh James represented the insured, Maccaferri. Tracey Singlehurst-Ward, partner at full-service law firm Hugh James, said: “This is a landmark ruling which will have implications for the insurance industry. It 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.

“The condition precedent is a contractual clause which, if breached, may entitle the insurer to reject a claim. They are critical for both parties, and it is essential that their meaning can be understood beyond reasonable doubt. In this case, the condition precedent in Zurich’s policy document was inadequate for its purposes, resulting in it having to pay significant damages and legal costs.

“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.”