Friends Provident Life and Pensions Ltd v Sirius International Insurance Corp & Ors

Where excess professional indemnity policies incorporate the terms of a primary policy, the scope of cover will ordinarily be construed as co-extensive with the primary cover unless the wording indicates otherwise. A claims-made extension for claims arising from notified circumstances may therefore be incorporated into the excess policies. Notice of those circumstances may be sufficient when given to the primary insurers, depending on the incorporated wording and the commercial structure of the policies. A separate excess-layer notice clause may impose an innominate obligation rather than a condition precedent. A sufficiently serious breach may nevertheless entitle insurers to reject the relevant claim without formally accepting a repudiation.

The claimant, successor to London & Manchester Assurance Co Ltd, sought indemnity under excess professional indemnity policies issued by the defendants. The policies incorporated, through a co-insurance policy, terms of the primary policy, including an extension for claims made after the policy period arising from circumstances notified during that period.

The court determined preliminary issues concerning incorporation, the recipient and adequacy of notice, the effect of notice to the broker, the nature of the excess-layer notification obligation, and whether a serious breach entitled the insurers to reject liability. The central questions concerned the proper construction of the interlocking primary and excess policies.

1. The excess policies incorporated General Condition 2 of the primary policy. A general incorporation clause must be construed as if the incorporated wording appeared in the new contract. It must be rejected only if it is unintelligible or inconsistent with the contract: HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co. [2001] EWCA Civ 735; [2001] 2 Lloyd’s Rep. 161.

2. The claims-made extension formed part of the substantive scope of cover. The commercial background included the market practice of covering claims arising from circumstances notified during the policy period and the expectation that primary and excess layers would provide substantially the same cover. The court endorsed the view in J. Rothschild Assurance Plc v Collyear [1999] 1 Lloyd’s Rep. I.R. 6 that a claims-made policy could hardly operate without such an extension.

3. In the context of the excess policies, the reference to “the underwriters” in General Condition 2 meant the primary-layer underwriters. Notice to them during the policy period was sufficient to bring resulting claims within the excess cover. This construction avoided conflict with clause 5 of the A W G S Excess Wording and reflected the excess insurers’ reliance on the underlying policy.

4. Notice to Bowrings was not notice to the excess insurers. The appointment of a broker to receive notices was administrative rather than germane to the risk and was not incorporated by the general wording.

5. The letter of 28 January 1994 was capable of notifying the Lloyd’s underwriters of circumstances that might give rise to claims, although it was directed to renewal cover. It did not constitute notice to the defendants, who were not informed of its contents.

6. Clause 5 was an innominate term, following Alfred McAlpine Plc v BAI (Run Off) Ltd [2000] 1 Lloyd’s Rep. 437. It was not a condition precedent, but a sufficiently serious breach could entitle the insurers to reject the relevant claim. The principles of discharge by repudiatory breach did not apply directly. No formal acceptance was required, and the insured’s right remained conditional until the insurers lost or waived their right to rely on the serious breach.

7. The preliminary questions were answered accordingly. The defendants would have a defence if the claimant committed a serious breach of clause 5, regardless of when the claim was made or the loss occurred.