McManus & Ors (t/a Mcmanus Seddon Runhams (a firm)) v European Risk Insurance Company

For a notification under a claims-made professional indemnity policy to be effective, the insured need not identify every affected transaction, possible claimant or specific defect. It is sufficient that the insured has notified circumstances grounded in external facts which may give rise to claims. Later liability depends on whether a particular claim arises from those validly notified circumstances. An insurer cannot restrict cover to files individually identified at notification stage where the notification describes a wider set of relevant circumstances. Declaratory relief may nevertheless be refused where the court cannot define the notification’s scope without making it either too narrow or too broad. Questions about the precise scope of the notification are ordinarily better decided when an actual claim arises.

The claimants, solicitors practising as McManus Seddon Runhams, were the successor practice of Sekhon Firth and Runhams. After receiving numerous lender claims concerning earlier conveyancing work, they reviewed files and sent their professional indemnity insurer a blanket notification of circumstances which might give rise to further claims.

The insurer accepted that 32 reviewed files involved potentially valid circumstances but rejected the notification for all other files, contending that each transaction required separate identification of a specific incident, act or omission. The claimants sought declarations, a mandatory injunction and damages. The central issues were whether the notification was valid and sufficiently broad, and whether declaratory relief should be granted before any further claim had been made.

1. Validity of notification. The insurer’s rejection was wrong insofar as it limited potential liability to the 32 files examined in the consultancy report. The authorities established that a notification may be valid even though it does not identify the particular transaction, client or defect from which a later claim arises. It must, however, rest on a substratum of underlying external fact beyond the insured’s mere concerns. J Rothschild Assurance plc v Collyear and HLB Kidsons (a firm) v Lloyd’s Underwriters supported that approach.
2. Effect of notification. A later claim is covered if it arises from circumstances validly notified during the policy period. The policy did not require MSR to notify a separate problem on every individual file before the insurer could be liable. Whether a later claim arose from the notified circumstances would depend on the nature of that claim and would have to be determined in context.
3. Declaratory relief. Under CPR 40.20 the power to grant a declaration was not confined to cases involving a subsisting cause of action. The discretion required consideration of justice to each party, whether the declaration would serve a useful purpose and any special reasons for granting or refusing it. The court also considered Guaranty Trust Co of New York v Hannay, Financial Services Authority v Rourke and Rolls Royce v Unite the Union.
4. The proposed declaration would inevitably be either too narrow or too broad. A narrow declaration might exclude circumstances later shown to have been validly notified; a broad declaration would determine disputed factual matters without sufficient evidence and might prevent the insurer from contesting them later. The court therefore restated its conclusions but refused declaratory relief and a mandatory injunction. The precise scope of the notification was left to be determined if and when an actual claim arose.