Arch Insurance (UK) Ltd v Philip McCullough: A helpful reminder of notification obligations and that "condition precedents" come in all shapes and sizes
The term "condition precedent to liability" is very legalistic, but at least we know what it means.
In practical terms, if something is labelled a "condition precedent to liability" under an insurance or reinsurance contract, it means that, if that requirement is not met, then there is no cover for the claim in question.
In our efforts to write more plainly, sometimes the lack of use of familiar "labels" or terms, actually creates more confusion than clarity.
Arch Insurance (UK) Ltd v Philip McCullough [2021] is a case in point.
In brief, the policy was a combined liability insurance policy. The claim was for damages for personal injuries following a serious accident at the insured’s outdoor motorbike track.
The policy wording stated that "Observance of the terms of this certificate relating to anything to be done or complied with by the insured is a condition to any liability of the company…".
The requirement in question was for the insured to, "as soon as reasonably practicable", give written notice to insurers of any circumstance that "may give rise to a claim being made against the insured for which there may be liability under this certificate".
The judge considered three points.
First, was there an obligation to notify? This is an objective test. Given that the obligation here was to notify circumstances which "may" give rise to a claim, the question to ask was this: would the reasonable man have realised with the knowledge of the insured and of the circumstances, that the risk that a claim might be brought was real and not merely fanciful. The judge was content that the circumstances of the accident meant that there was a real risk of a claim being made.
Secondly, was the notification made late? The relevant notification to the insurer was not made by the insured until 11 months after the accident. In the circumstances, the judge was satisfied that the insured was in breach of the policy because he had not notified the accident "as soon as reasonably practicable".
Thirdly, to determine the insurer’s remedy for the breach of the notification provision, the judge considered whether the notification provision comprised a condition precedent to liability under the policy? Although the policy did not explicitly use that label to describe the nature of the obligation, the judge applied the guidance set out in the earlier case of Aspen Insurance UK Ltd v Pectel Ltd [2009] and decided that the wording satisfied the test for a condition precedent, namely (1) it set out a conditionality between the obligation to notify and liability; (2) there was a clear commercial purpose behind the clause; and (3) the ambit of the conditionality was workable and clear.
The insured had therefore failed to satisfy the condition precedent and coverage was not available for the claim that had since emerged.
Practical takeaways
There are quite a few helpful reminders arising out of this judgment, but our two key takeaways are:
- If the risk of a claim being brought is "real" rather than merely fanciful, insureds should consider if notification obligations are triggered - remember that different considerations apply depending on whether the obligation in the policy is to notify circumstances which "may", or are "likely" to, give rise to a claim (or some different test).
- Condition precedents come in all shapes and sizes: for insureds - review the nature of the policy obligations carefully if something adverse happens; and for insurers - consider whether the factors identified in the Aspen case (and applied here) mean that the notification obligations require strict compliance in order to trigger coverage.
Should you wish to discuss the issues raised in this article, please get in touch with one of the authors.
