Kosmar Villa Holidays Plc v The Trustees of Syndicate 1 2 4 3

A condition precedent requiring immediate notification of an occurrence does not automatically discharge an insurer from liability for the particular claim when it concerns claims procedure rather than a promissory warranty or avoidance of the policy. The insurer may therefore elect to accept or reject the claim. An informed and unequivocal decision to handle the claim without reserving rights may amount to an election to accept liability. Earlier dealings involving other policies, payment of other claims, or claims-handling arrangements do not ordinarily establish an estoppel or election that the contractual notification requirement will never be enforced.

Kosmar sought an indemnity under a public liability policy for its liability to James Evans, who suffered catastrophic injuries diving into a swimming pool during a package holiday. The policy made immediate notification of any injury an express condition precedent. Kosmar knew of the accident but notified the insurers more than a year later, when it received a solicitor’s claim.

The insurers initially investigated and handled the claim without reserving their rights, but reserved them 26 days after notification and subsequently repudiated liability for breach of the notification condition. Kosmar relied on estoppel, affirmation and waiver by election. The central issues were whether the condition could be waived by election and whether the insurers’ September communications constituted an informed and unequivocal election.

1. Claim succeeded. Kosmar was entitled to the indemnity because the insurers elected to accept liability for the claim before reserving their rights.
2. The pre-contractual history and the meeting of 1 March 2002 did not create an estoppel or election. The policy expressly contained the immediate-notification requirement. The meeting concerned complaints and claims, not occurrences, and the claims-handling arrangements did not logically or practically displace the insurer’s right to receive prompt notification of serious incidents.
3. The insurers’ treatment of other late-notified claims showed, at most, a case-by-case practical approach. It did not represent or establish that the notification condition could be ignored in every future case.
4. The distinction drawn in Bank of Nova Scotia v Hellenic Mutual Ltd (The Good Luck) [1992] 1 AC 233 between automatic discharge for breach of a promissory warranty and procedural notification conditions was material. Non-compliance with the present clause affected the particular claim and did not automatically discharge the insurer from liability under the policy. There was therefore scope for election.
5. Election required an informed choice, knowledge of the relevant facts and an unequivocal communication. By 4 September 2003 the insurers knew that notification of the occurrence had been delayed and knew that this entitled them to reject the claim. Their communications of 17, 19 and 22 September, which investigated and actively handled the claim without reserving rights, were objectively consistent only with accepting liability. By then they had had more than a reasonable time to reserve their position.
6. The insurer’s later reservation of rights on 30 September came too late. The separate arguments based on estoppel and affirmation were unnecessary to decide. The alteration to the swimming pool did not fall within the relevant wording of the clause and supplied no independent defence.