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Notification under Insurance Policies

Typically insurance policies have strict notification provisions. Prompt attention must be given to these on the happening of any event potentially covered by a project insurance policy.

The recent case of Shinedean Ltd v AIldown Demolition (London) Ltd [2006] BLR 309 considered the effect of a notice provision in an insurance policy. The Plaintiff, Shinedean Ltd, employed the Defendant, Alldown Demolition, to carry out demolition and excavation work in London. The Defendant carried out the excavation work negligently resulting in the wall of the neighbouring property beginning to collapse into the excavated hole. The Plaintiff settled the claim brought by the neighbours for £110,000, on 14 June 2004. The original incident occurred on 24 April 2002. The Defendant went into creditors' voluntary liquidation on 2 September 2002.

The Plaintiff commenced proceedings against the Defendant in April 2004 and obtained judgment in default. The Defendant had a public liability and a contractor's all risk insurance policy with AXA for one year from 5 September 2001. AXA were joined as 2nd Defendant and the Plaintiff's claim was amended to include a claim for indemnity under the Third Parties (Rights Against Insurers) Act (where a person is insured against liabilities to third parties, the Act vests the rights of the insured in a third party to whom liability is incurred in the event of the insured's insolvency; in Hong Kong, the Third Parties (Rights Against Insurers) Ordinance gives similar rights to third parties).

The insurance policy included a requirement that the insured notify AXA immediately in the event of any loss or event likely to give rise to a claim. The Defendant has satisfied this requirement by giving notice on 25 April 2002. However, the policy also required the insured to provide all proofs and information relating to the claim as might reasonably be required and within a reasonable time. On 5 June 2003, AXA notified the Defendant's brokers that they had rejected the claim under the policy because the Defendant had failed to provide the information required under the policy within a reasonable time.

At first instance, the judge held that when deciding whether the insured was in breach of the insurance contract to give information to AXA in a reasonable time, it was necessary for the insurer to show that it had suffered prejudice as a result of the delay. AXA appealed to the Court of Appeal, who allowed the appeal. The Court of Appeal held that it was clear that the information had not been supplied within a reasonable time, since 2 years had passed. Whilst there was no general rule stating whether prejudice to the insurers was relevant or irrelevant, under the language of this policy the requirement to provide the information was a condition precedent to the insured's entitlement under the insurance policy.

This kind of situation is problematic for persons in the position of the plaintiff, because rights otherwise available under the insurance policy may be lost as a result of the action, or inaction, of the insured, over whom the plaintiff has little or no control. In practice, it is sensible for a plaintiff or potential plaintiff to advise a defendant or potential defendant to inform their insurers about a claim. However, that may not be sufficient to protect rights under an insurance policy if nevertheless the defendant fails to give adequate notice to his insurers. One solution to consider is joint insurance arrangements, put in place at the outset of the project, with contractual protections in the insurance policies against breaches by the other insureds.