A recent case in the Technology and Construction Court relating to the scope of a notification under a professional indemnity insurance policy provides a valuable reminder of the importance of making timely and accurate notifications if you want your policy to react to what you consider to be insured events.
The policy in question was a so-called 'claims made' policy which is a type of policy which not only provides cover for claims which are made during the period of insurance but also allows the insured to notify the insurers of circumstances that may give rise to a claim. Provided such circumstances are notified within the period of insurance, even if a claim is then made outside that period, the insurance policy should provide cover in respect of that notified circumstance.
The issue at stake in the case of Kajima UK Engineering Ltd v The Underwriter Insurance Company Ltd was whether defects which emerged in the period after a notification and the expiry of the insurance cover were effectively the subject of the previous notification and therefore covered by the insurance policy.
Kajima had been employed to design and build a block of flats. Shortly after practical completion, ponding of water occurred on the walkway balconies from the staircases to the front doors of various flats. Kajima carried out investigations into the cause of the ponding and concluded that it was due to excessive settlement which could distort adjoining roofing and balconies. Kajima notified its insurers, TUIC, accordingly in February 2001 and stated that further investigations were being carried out to determine the cause.
In July 2005, after the expiry of Kajima's insurance policy with TUIC and following further investigations and remedial works arising out of issues relating to the settlement problems, Kajima was informed by engineers that the wind loading calculations for the building had been badly underestimated and that, as a result, lateral stability was a serious problem. All of the tenants in the building were therefore evacuated, with the remedial works estimated at £7.25 million.
Kajima attempted to rely on its February 2001 notification to TUIC to claim under its previous insurance policy. Kajima argued that the investigation referred to in the February notification led in time to further investigations which meant that in effect the losses, costs and liabilities incurred by Kajima following the discovery of stability problems in July 2005 all arose from the notified circumstances.
The court, however, disagreed holding that the notification was "only effective in relation to the specific circumstances which were notified". It was not enough that "there was a historical 'continuum' of investigation by various parties which coincidentally revealed a number of defects or deficiencies" which may or may not have had anything to do with the notified circumstances.
It is therefore important if you want to make sure that an insured event is covered by your insurance policy, not only to inform your insurers at the earliest possible opportunity, but also to make sure that your notification is detailed and accurate enough to cover the potential future claim. As Kajima found out to its cost, if the claim is not covered by a timely notification, then the insurers will not be obliged to respond.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
