ALFRED McALPINE PLC v. BAI (RUN-OFF) LTD.

An insurance notification clause which is not a condition precedent may nevertheless be an innominate term. A breach does not automatically defeat liability, but a breach with sufficiently serious consequences may entitle the insurer to reject the individual claim. It will rarely amount to repudiation of the insurance contract as a whole.

Mere negligence in supplying claim details does not breach the duty of utmost good faith. Dishonesty, or at least culpability beyond negligence, is required. An insurer relying on serious breach must show serious consequences and a rejection of the claim on that basis. Ordinary quantifiable loss gives rise to damages or set-off, not an automatic defence.

McAlpine brought proceedings under the Third Parties (Rights against Insurers) Act 1930 against BAI, as insurer of an insolvent subcontractor. The claim arose from a workplace accident and alleged liability under the subcontractor’s policy.

The policy required notice of an occurrence which might give rise to a claim, in writing and with full details, as soon as possible. Colman J held that the clause was not a condition precedent and that any breach ordinarily gave rise to damages, subject to a possible complete set-off. BAI appealed, alleging breach of good faith, repudiation of the policy, or an entitlement to reject the claim because of prejudice.

The central issue was the contractual effect of breach of a non-condition-precedent notification clause.

Appeal dismissed. The Court of Appeal, in the judgment of Waller LJ with which Buxton LJ and Peter Gibson LJ agreed, held as follows.

1. The notification clause was not a condition precedent. Failure to provide full details therefore did not, by itself, relieve BAI of liability.
2. Mere negligence in supplying details could not constitute breach of the duty of utmost good faith. Dishonesty would have to be established. Any lesser standard would require culpability beyond negligence, which had neither been alleged nor proved. The approach in The Star Sea was accepted, while contrary statements in The Litsion Pride were rejected.
3. Failure to comply with an ancillary notification obligation would be unlikely to constitute repudiation of the insurance contract as a whole. The authorities concerning conditions precedent did not establish that prejudice alone converted breach into repudiation.
4. The clause was properly characterised as an innominate term, applying the approach in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd. Its breach could, in an appropriate case, be sufficiently serious to entitle the insurer to reject the individual claim, without permitting termination of the policy as a whole. The relevant inquiry concerned the seriousness of the breach and its consequences for the insurer, including whether the insurer had been seriously or irremediably prejudiced.
5. Here, some details had been supplied and BAI had sufficient information to investigate. BAI had chosen not to seek further information from the liquidator and had not established serious or irremediable prejudice. Any rejection of the claim was therefore unjustified. BAI’s pleaded case of avoidance, repudiation and acceptance of repudiation also failed. Its remaining remedy, damages for breach of the notification clause, had been abandoned.

• Court of Appeal (Civil Division): dismissed BAI’s appeal from the judgment of Colman J given on 5 May 1998. The appellant was ordered to pay the respondent’s costs. Leave to appeal to the House of Lords was refused.