HLB Kidsons (A Firm) v Lloyd's Underwriters Subscribing To Lloyd's Policy No 621/PK1D00101 & Ors

Under a claims-made professional indemnity policy, notification of circumstances is construed objectively in its documentary and commercial context. The circumstance must reasonably be capable of giving rise to a claim, but the insured need not subjectively believe that a claim will result. A notification may remain effective despite uncertainty and limited detail, although its scope is confined to what the documents fairly convey. Where later claims are brought within the policy by a deeming provision, timely notification is a condition precedent to that extension of cover. A general prejudice clause does not convert an unwaived breach of that condition into a damages-only breach. Here, notification covered implementation problems in tax products, but not their essential validity or alleged mis-selling; a delayed notification to following underwriters was ineffective.

The claimant accountancy firm sought indemnity under claims-made professional indemnity policies for post-policy claims arising from tax-avoidance schemes marketed through S@FI. It sent a notification through its brokers, followed by presentations to lead Lloyd’s underwriters and company-market insurers. Presentation to the following Lloyd’s market occurred after expiry. Mrs Justice Gloster held the first two presentations ineffective, accepted the third only for procedural defects in Discounted Option Scheme implementation, and rejected the fourth as out of time. The appeal concerned the objective scope and effectiveness of the October 2001 and April 2002 presentations, the relevance of the insured’s awareness, and whether late notification was saved by the policy’s prejudice provision.

1. Disposition. Rix LJ, with whom Toulson LJ agreed, allowed the appeal to a limited extent. The October 2001 presentation was effective notification to the two lead Lloyd’s syndicates of possible claims arising from implementation of S@FI products generally. The April 2002 presentation had the same scope for the company-market insurers. Buxton LJ dissented on the effectiveness of the 31 August 2001 letter and would have dismissed the insureds’ appeal on that point.
2. Notification and awareness. Under GC4, whether a circumstance may give rise to a claim is an objective question. Awareness is a factual matter distinct from that characterisation. The insured need not possess a genuine belief that claims are likely. Toulson LJ described the proper approach as requiring the circumstance reasonably to be capable of giving rise to a claim; where the clause imposes a duty, notification is required where the insured or a reasonable person in its position would recognise that consequence. The 31 August letter, read with the claims bordereau and its presentation through the claims departments, fairly conveyed implementation concerns. It did not convey concerns about the essential validity of the products or mis-selling.
3. Construction and scope. GC4 imposed an open-textured notification requirement and did not demand the precision required for an erroneous contractual notice. The authorities concerning mistaken notices, including Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Delta Vale Properties Ltd v Mills [1990] 1 WLR 445, were concerned with a different problem. A bordereau could clarify, but not extend, the essential notification. The April presentation therefore extended the effective implementation notification to the company market, but not to product validity or mis-selling.
4. Timing and conditions precedent. The first sentence of GC4 was not itself a condition precedent to cover for claims otherwise made within the policy period. The second sentence made proper notice, including compliance with as soon as practicable, a condition precedent to deeming a later claim to have been made during the policy period. General Institute Condition (b) did not displace an unwaived condition precedent or create cover where none existed. The July 2002 presentation to the following Lloyd’s market was therefore ineffective. GC6 was better read as a limited dispensation for claims made during the policy period and notified within 15 days after expiry, not as a long-stop for circumstances notifications. Rix LJ also left open, and Toulson LJ noted, possible issues concerning deliberately misleading notifications and the relevance of subjective intention.

1. Court of Appeal (Civil Division): [2008] EWCA Civ 1206. The majority held that the October 2001 and April 2002 presentations were effective for implementation problems in S@FI products generally, but that the July 2002 presentation was out of time and ineffective.
2. High Court, Queen’s Bench Division: Mrs Justice Gloster, 2005 Folio 459. The first two presentations were held ineffective; the third was effective only for Discounted Option Scheme implementation problems; and the fourth was ineffective because it was not made as soon as practicable.