Business Insurance – the importance of getting notification right.

All prudent businesses insure against the risks that they face in the course of their business. Some of these risks require compulsory insurance and others are a matter of choice for the business. Contracts of insurance are known as contracts of utmost good faith. As such careful attention needs to be paid to what insurers are told about when the policies are purchased. The same care and attention to detail is also required following circumstances which may give rise to a claim under the policy. If businesses get this wrong they may not be covered!

Most insurance policies, whether liability or property, contain a notification clause that will read something along the lines of the following:-

“The insured shall notify the insurer as soon as possible of any loss or circumstances which may give rise to a claim under this policy.”

Dependant on the wording of the policy this clause is either going to be a condition or a condition precedent. In the case of a condition an insurance company can offset any loss it suffers as a result of late notification from the monies it pays out under the claim. In the case of a condition precedent, however, failure to comply with the clause may result in the entire claim being refused even if insurers have not suffered any prejudice.

What circumstances or losses could give rise to a claim

In many cases it is plainly obvious that a loss has been sustained that may give rise to a claim. For example, a burst pipe or a burglary. In other cases it may not be as straight forward. For example a customer may have tripped over coming into the premises and it may not be clear whether it was caused by a paving stone outside or the step going into the business. Alternatively the business may have received a complaint about some advice that they gave where, although they think they are right, the customer may bring a claim for negligence. In all of these cases, even if it is unlikely that the insurers will ever have to pay out they should be notified so as to preserve insurance cover.

Who to notify

Following a loss businesses often turn to their broker. Notification to the broker does not necessarily count for the purposes of the insurance policy. It may suffice if the broker has arranged the policy under delegated authority from the insurer but businesses should always check that this is the case before relying on a notification of a potential claim via the broker. In general it is prudent to notify the insurance company directly whilst keeping the Broker informed.

When to notify

It is widely accepted that “as soon as possible” and “immediately” means “with all reasonable speed considering the circumstances of the case”. In the case of a fire then insurers should be notified almost straight away. In the case of an accident at work it could very well be reasonable to wait a few days before notifying insurers or send an initial notification followed by further information once it is available, especially if the injury was minor.

What must the notification contain?

If the policy of insurance includes specific information and a specific form of notification then that should be observed. In all other cases the notification should be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt that the notification is a notification. There is often a tendency to play down the potential of the notification becoming a claim so as not to cause loading of future insurance premiums but a coy and unclear presentation of the notification could result in a subsequent claim being refused.

Case Study – Notification key in successful defence of £5million claim

Debenhams Ottaway has recently successfully concluded a case for a local business where the issue of notification was key. In 2005 there was a collision on land owned by the business between a lorry and some telegraph cables. The lorry and cables were owned by third parties. The collision caused concussion and damage to a building, also owned by a third party. No claim was intimated against the business and the lorry driver immediately acknowledged fault.

As far as the business was concerned this was a matter for the third parties to sort out between themselves. Critically they did not consider that there were any circumstances that might give rise to a claim. They were right but with hindsight it would have done no harm to notify and would have saved them a lot of trouble further down the line.

In the summer of 2010, however, the business was subject to a High Court action, pleaded at over £3million with estimated costs of £2million. The allegation was that the business owner was in some way responsible in full or in part for the incident. The third party that bought the business into the proceedings based its case on allegations that, amongst other things, the business owner was aware of low cabling and was directing the lorry driver when he had the accident. The insurers declined to cover the business in respect of the proposed claim, including the legal costs of defending it, on the basis of failure to notify.

Following a clear presentation of the circumstances of the incident by Debenhams Ottaway the insurers reviewed the decision and agreed to fund the costs of defending the action subject to reservation of their rights. Ultimately the claim against the business was struck out by the High Court on the basis that it had no reasonable prospect of success and there was no compelling reason for it to go to trial. In fact there was no evidence at all to support the third parties allegations. In recognition of their premature decision to decline cover the business was reimbursed in full by the insurers for their legal costs and expenses of the dispute over insurance cover.

If your business needs advice over its insurance practices or claims then please contact Luke Tucker Harrison in our Business Services Team.