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Breach of a Condition Precedent in an Insurance Contract

In a recent English case, Kosmar Villa Holdings plc v Trustees of Syndicate 1243, the Plaintiff sought an indemnity from the Defendant insurer in respect of a personal injury claim pursuant to the terms of an insurance policy it had with the Defendant.

It was a condition precedent to the Defendant's liability on the Policy that the Plaintiff shall "immediately after the occurrence of any Injury or Damage give notice in writing with full particulars thereof to [the Defendant]."

The date of the Accident was 22 August 2002. However, the Plaintiff, in breach of the Condition Precedent, only notified the Defendant of the Accident on 4 September 2003, a year after the date of the Accident. The Defendant then asked for more information from the Plaintiff on various occasions without reserving its rights. On 30 September 2003, the Defendant informed the Plaintiff for the first time that it was reserving its rights.

The Court held that a breach of a condition precedent relating to a procedural requirement would discharge the Defendant from its duty to pay out on that claim. The Defendant's conduct though had served to show that it had waived its right to deny liability to the claim. The Defendant had known that the Claimant was in breach of the Condition Precedent on 4 September 2003 and therefore had known all that it needed to know to consider its position and to either deny liability or reserve its rights.

If an insurance policy contains a condition precedent like the one in this case, insurers should take care to reserve their rights when dealing with a claim. This applies especially to email correspondence, which can sometimes be more casual. It may not occur to the writer of an email that there should be a reservation of rights in the email, whereas more care might be taken when despatching a letter to consider whether its terms affect legal rights. However, emails can have as much impact on the parties' legal rights as a letter, and the appropriate guidance needs to be given.