HLB Kidsons (A Firm) v Lloyds Underwriters Subscribing to Lloyds Policy No 621/PKID00101 & Ors, Rev 1

Under a claims-made professional indemnity policy, a clause extending cover to later claims arising from notified circumstances is triggered only by notice satisfying every stipulated requirement. Where notice must be in writing and given as soon as practicable, late notice cannot create the extended cover.

A notifiable circumstance objectively creates a real and appreciable possibility of a claim. The insured need not believe that a claim is probable. The communication must nevertheless identify the circumstance clearly enough to leave a reasonable recipient in no reasonable doubt that notification is being made. A later claim is covered only if sufficiently causally related to the circumstance notified.

A firm of chartered accountants sought a declaration that its claims-made professional indemnity insurers must indemnify it against client claims concerning tax-avoidance schemes marketed through its subsidiary, S@FI. No client claim had been made during the policy period. The firm therefore relied on General Condition 4, which extended cover to later claims arising from circumstances notified in writing as soon as practicable.

The principal alleged notifications were letters dated 31 August 2001 and 28 March 2002, together with claims files, bordereaux and later presentations to different insurers. The firm also relied on a Tax Faculty Report supplied in October 2003. The court had to determine the requirements of a valid notification, the scope and timing of each communication, the persons whose awareness counted, whether the former solicitors could receive notice as the insurers' agent, and the causal scope of any effective notification.

1. Construction of the notification clause. General Condition 4 extended the ordinary claims-made cover only where notice possessing all the qualities stipulated in its first sentence had been given. The notice had to be written, given as soon as practicable, concern a circumstance first known during the policy period, and concern a circumstance which might give rise to loss or a claim. Timely notice was therefore indispensable even though the clause did not expressly call itself a condition precedent. The policy provision reducing indemnity where non-compliance caused prejudice applied only to indemnity already afforded; it could not create cover for a post-policy claim where the notification requirements had not been met.
2. Nature and content of notice. A circumstance was a fact, event, happening or state of affairs which, objectively assessed, created a reasonable and appreciable possibility of a claim. Probability was unnecessary, and the insured need not subjectively believe that a claim would be made. The communication had to be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt that the insured was giving notice under the clause. A subsequent claim had to be sufficiently causally related to the notified circumstance for it fairly to be said to arise from that circumstance.
3. Awareness and agency. The partnership secretary had full authority to receive and communicate professional indemnity matters for all partners. His knowledge, and that of the partnership's principal managing organ, was attributable to the partnership. The former solicitors had not been appointed or held out as the insurers' agent for receiving notifications during the relevant policy year.
4. The communications. Presentation of the 31 August 2001 letter to a placing underwriter was not notification. The October 2001 claims presentations also failed because the underlying documents did not identify any circumstance with sufficient clarity. A bordereau could summarise but could not enlarge the underlying communication.
5. The 28 March 2002 letter and accompanying material validly and timeously notified the first and second Lloyd's lead underwriters and the company insurers of a limited circumstance: procedural defects involving trustees in the implementation of Discounted Option Schemes. It did not notify wider concerns about all S@FI products. Notice to the following Lloyd's market in July 2002 was too late. The Tax Faculty Report supplied in October 2003 was also far too late.
6. The court deferred detailed determination of whether the sample client claims arose from the limited circumstance validly notified, inviting the parties first to consider whether the consequences could be agreed.

not stated in the judgment.