Friends Provident Life & Pensions Ltd v Sirius International Insurance

In a claims-made excess policy, incorporated primary-policy terms must be read with the express excess wording and its commercial structure. The primary notification provision may extend excess cover to later claims arising from circumstances notified to primary insurers during the policy period. Separate notice to excess insurers is required under the excess wording only when the matter appears likely to affect their layer. A renewal letter may constitute notice where it identifies circumstances that might give rise to claims and is sent to the same underwriters. A standard excess notification clause lacking condition-precedent language is not a condition precedent. Serious breach, even causing serious prejudice, does not entitle insurers to reject a claim under a composite contract absent an express or implied contractual term. Breach may sound in damages.

The appellant, successor to London & Manchester Assurance Co Ltd, sought indemnity under excess professional indemnity policies written on a claims-made basis. The dispute concerned compensation paid following pension-transfer and opt-out advice. A letter sent during the policy year referred to those matters in the context of renewing insurance. The primary insurers accepted liability, but the excess insurers disputed cover and alleged inadequate notification.

Moore-Bick J determined preliminary issues concerning incorporation of the primary policy’s notification provisions, the recipients and sufficiency of notice, and the contractual consequences of delayed notice. The appeal concerned issues 2, 4 and 6, with the respondent also challenging issues 6 and 8. The central questions were whether notice to primary insurers could trigger excess cover and whether serious breach of the excess notification clause could defeat the relevant claims.

The majority, comprising Mance LJ and Aldous LJ, upheld the judge’s answer on issue 2 and agreed with the judge’s reasoning on issue 4. They differed from the judge on the consequences of breach of clause 5. Waller LJ dissented on issues 6 and 8.

1. Notification and incorporated cover. The excess policies incorporated the primary policy’s extension for later claims arising from circumstances notified during the policy period. The alternative construction, under which the excess policies covered only claims actually made during that period, would produce an incoherent and uncommercial insurance scheme ([5]).
2. Recipient of notice. General Condition 2, incorporated into the excess policy, required notification of relevant circumstances to the primary insurers. Clause 5 separately required immediate notice to excess insurers where a claim, loss or circumstance appeared likely to affect the excess layer. If the primary layer were exhausted, the excess insurers would become primary insurers under clause 3(b) and would then obtain the benefit of General Condition 2 ([8]–[14]).
3. Renewal correspondence. The letter of 28 January 1994 was capable of satisfying General Condition 2. Its renewal context did not prevent it from notifying circumstances that might give rise to claims under the expiring policy where the same underwriters were involved ([15]–[17]).
4. Clause 5 and serious breach. Clause 5 was not a condition precedent. The standard wording used condition-precedent language elsewhere but did not do so in clause 5. Nor could a serious breach with serious consequences entitle insurers to reject the particular claim under a composite insurance contract. Such a result required an express or properly implied contractual term. The court would not introduce a new doctrine of partial repudiatory breach. Breach of clause 5 was capable of sounding in damages ([27]–[33]). Aldous LJ agreed ([34]–[35]).
5. Dissent. Waller LJ maintained that a non-condition notification clause could be an innominate term. A breach causing serious prejudice, such as loss of the opportunity to investigate or defeat a claim, could entitle insurers to reject that claim without terminating the whole contract ([36]–[49]).

The appellant’s challenges on issues 2 and 4 therefore failed. The answers on issues 6 and 8 were made in favour of the insured on the majority reasoning.

• Court of Appeal (Civil Division) — On 24 May 2005, the majority upheld the answers on issues 2 and 4 but rejected the proposed serious-breach defence under clause 5 and answered issues 6 and 8 in favour of the insured. Waller LJ dissented on the latter issues. [2005] EWCA Civ 601
• Queen’s Bench Division — Moore-Bick J gave judgment on 22 July 2004 determining preliminary issues concerning the construction, incorporation and effect of notification provisions in the excess policies. He held that notice to primary insurers could trigger excess cover, but that serious breach of clause 5 could entitle the excess insurers to reject the relevant claims.