WHEN DOES A CLAIM ARISE OUT OF NOTIFIED CIRCUMSTANCES?
March 23, 2018
Euro Pools Plc (in administration) v Royal & Sun Alliance Insurance Plc  EWHC 46 (Comm)
Despite the terms of a claims made and notified liability policy, as a result of s40(3) of the Insurance Contracts Act 1984 (Cth) the policy can respond to a covered claim brought after its expiration. However the insured, during the policy period, must have given the insurer written notification of facts that might give rise to that claim, as soon as reasonably practicable after becoming aware of them. Where such a notification is made, the question arises whether a subsequent claim does in fact arise out of the facts that were notified. That question has been the subject of this recent UK decision, dealing with an express policy term to similar effect as s40(3).
Euro Pools constructed pools which employed vertical walls referred to as ‘booms’, which could be raised and lowered in order to divide the pool into different zones. The booms were actuated using an air-operated system.
RSA was the professional indemnity insurer of Euro Pools. In addition to liability cover, Euro Pools was covered against the cost of mitigating loss that otherwise would be the subject of a claim. The relevant policies had a condition requiring notice to be given to RSA of circumstances which might reasonably be expected to produce a claim, as soon as possible after Euro Pools became aware of them. The condition went on to provide that:
Any Claim arising from such circumstances shall be deemed to have been made in the Period of Insurance in which such notice has been given.
During its 2006/07 policy, Euro Pools notified RSA of a problem with the air tanks forming part of the actuation mechanism for the booms. Euro Pools explained how it planned to fix that problem, but indicated that it expected the attendant costs to be within the policy excess.
Later, during the 2007/08 policy, Euro Pools notified RSA that the steps taken to rectify the problem with the air tanks were ineffective, and that as a result, it would be replacing the air-operated actuation system for the booms with a hydraulic one. It sought an indemnity, under the mitigation cover provided by the 2007/08 policy, for the costs of installing the hydraulic system.
RSA however took the view that it was the earlier policy that responded, due to the notification given while it was on foot. As it happened, the limit for that policy had already been exhausted, due to RSA having covered the mitigation costs for a defect unrelated to the problem with the boom actuation system.
The court held that in order to give a notification of circumstances, Euro Pools needed to be aware of them, and that in order for a later claim to arise out of the circumstances, there must be a causal link, not just a coincidental one. It was not satisfied that when the notification was made during the 2006/2007 policy, Euro Pools was aware of the need to replace the air-operated actuation system with the hydraulic one. Also, based on expert evidence, the court was not satisfied that the problem with the air tanks was related to the decision to change to the hydraulic system, such that there was no causal link between the first notification and the costs of retro-fitting that system to the booms. In that event, the court found that it was the 2007/08 policy that covered those costs.
This decision points to the need for a sufficient relationship between the circumstances notified and the subsequent claim. It was not enough that the change to the hydraulic system had its origin in the failure of the air tanks, due to the intervening circumstance, not known at the time of the notification, that the rectification steps would be ineffective.
Further information / assistance regarding the issues raised in this article is available from the author, Scott Krischock, Special Counsel or your usual contact at Moray & Agnew.
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