One of the early issues insurers address when they are notified of a claim is the extent to which there are grounds for avoidance arising from failure by insureds to comply with notification provisions in the policy. In Maccaferri Limited v Zurich Insurance Plc  EWCA 1302 the Court of Appeal undertook a useful analysis of notification conditions common to professional indemnity policies. The decision serves as a reminder that there is a body of case law centred on the nuance of phrases applied in such policies which can have a fundamental impact on obligations the courts will impose on insureds.
Maccaferri Limited supplied specialist construction equipment (a Spenax gun) to Jewsons Limited, which in turn leased it to Drayton Construction Limited. In September 2011 a Drayton employee lost an eye using the gun. Maccaferri was not informed of the accident at the time and was only made aware of it sometime later. At that stage it was not suggested that the accident was the result of any fault with the gun.
The employee subsequently brought proceedings against Drayton and a judgment by consent was entered, with damages ultimately assessed at £1.4m. Drayton issued recovery proceedings against Jewson and on 12 July 2013 Jewson joined Maccaferri as a Part 20 defendant.
Maccaferri notified its public and product liability insurers Zurich on 22 July 2013 but Zurich declined the claim on the basis of late notification. The Zurich policy included a condition precedent requiring that:
"the Insured shall give notice in writing to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim..."
At first instance the High Court held that Zurich was not entitled to rely on the condition precedent to avoid the claim. The Court of Appeal agreed.
The Court of Appeal's decision
The Court of Appeal's decision deconstructs the notification policy provision and provides clarity on duties the wording imposes on insureds. In reaching its decision the Court of Appeal identified the key components of the provision and considered the meaning and intention of each.
It was common ground in the appeal that, in order for the condition to apply, there must be an "event" ie something that happens "at a particular time, in a particular place and in a particular way" (see Axa Reinsurance (UK) plc v Field  3 All ER 517). This is often (wrongly) used synonymously in insurance wordings with "circumstance", as the latter is generally construed to be broader than an event, as it may evolve over time. Had the policy wording used the word "circumstance" then Maccaferri may have had a duty to conduct a rolling assessment of the likelihood of a claim arising.
Citing the decision in Layher Ltd v Lowe (1996) ConLR 42, the Court of Appeal found that in order for the provision to be enforceable against Maccaferri there must be at least a 50% chance that the "event" would lead to a claim.
In Layher, a roof blew off a construction site in 1990 killing two workers. The supplier of some of the components used in the roof was eventually sued in 1992, following which it immediately alerted its insurer. The insurer contended that the matter ought to have been notified to it as soon as the event occurred. However, the Court of Appeal held that insurers had not established that a claim was "likely" as there was nothing to suggest at the time that the incident arose from defective products supplied by the insured. At best, it could be argued that a claim was "possible", thereby relieving the insured of the duty to inform insurers when the accident originally occurred.
In the present case it was clear that, when Maccaferri was informed of the accident, there was no reason to suppose that there had been any negligence on its part. Therefore the Court found that on the facts available to Maccaferri at the time it was only "possible" that a claim would arise, not "likely".
Although not specifically discussed in this decision, it is worth noting that, had the policy condition included the word "may" rather than "likely" then a different approach is likely to have been taken by the Court. In Rothschild v Collyear  All ER (D) 431 it was held that the duty to notify arose following an event or circumstance in respect of which it was "at least possible that a claim would result" when the word "may" was used.
"As soon as possible"
Applying the reasoning in Verelst's Administratrix v Motor Union Insurance Co  2 KB 137, the Court of Appeal found that the words "as soon as possible" ought to be defined by reference to the prevailing conditions and the assumption of the exercise of "reasonable diligence by the person at the time".
In this case Zurich argued that Maccaferri should have made ongoing, pro-active enquiries about the event as part of the "reasonable diligence" required by the decision in Verelst. This was rejected by the Court as being too onerous a duty on an insured, given the ambiguity of the policy provision. As discussed above, had the policy condition referred to a "circumstance" rather than an "event" then the obligation on Maccaferri is likely to have been different.
Instead, the Court found that Zurich's interpretation of the phrase would have imparted a "double duty" on Maccaferri by requiring it to assess when the event could be construed as serious enough to create an obligation to notify and how soon after they should notify its insurers.
The Maccaferri decision serves as a warning to insurers of the importance of understanding the nuance attached to particular words applied in policy wordings. As ever, the devil is in the detail - one word can dramatically change the obligations on the parties to an insurance contract. The prevailing trend, reinforced in this case, is that where there is any ambiguity the courts will apply the doctrine of contra preferentum against insurers. As the Court of Appeal pointed out:
"This is a condition …which has the potential effect of completely excluding liability in respect of an otherwise valid claim for indemnity. If [the insurer] wished to exclude liability it was for it to ensure that clear wording was used to secure that result. It has not done so."