Tioxide Europe Ltd v CGU International Plc & Ors

A contractual loss-notification option must be exercised in accordance with its precise formal requirements. Where a policy requires notice to be given to underwriters, notice to the insured’s broker is insufficient unless the wording permits it. Notification of a loss under a primary policy does not, by itself, exercise the option under excess policies. The notice must be given by the insured or on its behalf and must itself communicate the decision to notify the excess policy and the circumstances triggering the option. A document which merely forwards an earlier primary-policy notification, without referring to the excess policies or their possible involvement, is ineffective.

Tioxide Europe Ltd appealed from preliminary-issue findings by Langley J in the Commercial Court, reported at [2004] EWHC 216 (Comm). The claim concerned indemnity under two excess global liability policies for liabilities arising from pinking of uPVC products. The threshold issue was whether Tioxide had validly exercised the policies’ Loss Notification Option under paragraph 4. Tioxide relied on a fax sent by a primary insurer to its broker, enclosing an earlier letter by which the option had been exercised under the primary policy. The central question was whether that fax satisfied the contractual requirements as to the sender, recipient and substance of the notice.

The Court of Appeal unanimously dismissed the appeal and confirmed the answer to issue 9: the formal requirements for the Loss Notification Option in the excess layers had not been complied with.

1. Requirements of paragraph 4. A valid exercise required a loss to have been notified to a primary insurer; the loss not to have been notified to the excess insurers because the excess layers did not then appear to be involved; and written notice to be given immediately after the insured became aware that the excess layers appeared to be involved. The judge’s findings satisfied the first two requirements and established the necessary timing, but did not cure the defects in the notice.
2. Recipient. Paragraph 4 deliberately required notice to be given “to Underwriters”, meaning the underwriters subscribing the excess policies. This differed from paragraph 1, which permitted notice to the entity designated in the declarations. The reference to Marsh in paragraph 1 could not be imported into paragraph 4.
3. Sender and substance. The option was an option for the insured. The insured, or a person acting on its behalf, had to notify the excess underwriters that it had chosen to exercise the option. Notification to the primary policy was a condition precedent, but did not itself exercise the option under the excess policies. An unauthorised notice was ineffective.
4. Application to the fax. The fax was sent by RSA, not by Tioxide or on its behalf, and was sent to Marsh rather than the excess underwriters. It merely enclosed the earlier primary-policy letter. It did not purport to notify the excess policies, exercise the option under them, or state that the pinking claims might involve those policies. No evidence could transform it into a valid notice.
5. Pleading and fairness. The validity of the fax had been put in issue, and the respondents had taken the point clearly in their closing submissions without objection. The judge was therefore entitled to rely on it, and no unfairness arose.

The Court declined to determine the remaining coverage issues because the failure to exercise the option was fatal to the claim.

• Court of Appeal (Civil Division): In [2005] EWCA Civ 928, the appeal was dismissed and the Commercial Court’s answer to issue 9 was confirmed.
• Queen’s Bench Division, Commercial Court: Langley J decided the preliminary issues in [2004] EWHC 216 (Comm) and held that the Loss Notification Option had not been validly exercised.