Insurer BAI sought to disclaim liability for a personal injuries claim under a building contractor’s policy
Topic: Risk management
Who: Alfred McAlpine Plc -v- BAI
When: September 2000
Where: Court of Appeal, Supreme Court of England and Wales
Insurer BAI sought to disclaim liability for a personal injuries claim under a building contractor's policy. An employee of the insured sub-contractor had suffered serious injuries at work but no claim had been made under the BAI policy until after the insured company (not McAlpine) went into liquidation. The policy stated " in the event of any occurrence which may give rise to a claim under this policy the insured shall as soon as possible give notice thereof to the company in writing with full details.."
McAlpine, the main contractor, sued the insurer and in the event, the appeal court agreed with the first instance judge and held that in this case the failure to notify was not a breach of a "condition precedent" entitling insurer BAI to refuse to pay out on the claim. The appeal judges did say, however, that failure to comply with an obligation to notify a claim could be breach of such a serious term that it would entitle the insurer to reject an entire claim.
Why this matters:
Even if late notification of a claim does not entitle an insurer to reject the claim out of hand, it may be entitled to damages equivalent to the prejudice that the insurer has suffered as a result of any delay in notification. These will be set against any amount otherwise due to the insured under the policy.
The message of this case, therefore, is that it is clearly "best policy" for finance directors and risk managers to be fully aware of the precise wording of the parts of their insurance policies that deal with notification. Furthermore, if the wording is similar to BAI's in this case, insurers should be notified as soon as any circumstances which may give rise to a claim are known and not only after the claim itself has hit. What's more, even if it is thought that the claim can be got rid of for a cost well within the excess, no offer to settle whatsoever should be made unless and until insurers are fully notified of the circumstances. To do otherwise, this judgement underlines, puts the insured in danger of losing cover altogether or at the very least suffering a reduction in the pay-out on the claim. This could be on grounds that they have failed to comply with the notification provisions of the policy and/or breached the "utmost duty of good faith" that is applicable to all insurance contracts.