ARC Capital Partners Ltd v Brit UW Ltd & Anor

A retroactive-date exclusion in a claims-made professional indemnity policy requires a causal connection between the pre-date act, error or omission and the insured claim. A mere historical or commercial connection is insufficient. The connection may be direct or indirect, but a line must be drawn where the earlier matter is only background. The excluded act, error or omission must be capable in principle of giving rise to liability under the policy. A written expression of a strong claim, coupled with a reservation of rights and an attempt to agree a recovery strategy, is not necessarily a written demand for damages. Where a continuity-of-cover extension provides cover for claims which should have been notified under an earlier policy, the later policy’s notification condition cannot be construed so as to deprive that extension of practical effect.

The claimant’s insurers sought declarations concerning coverage for a proposed settlement of professional negligence proceedings brought against the claimant by an investment fund. Three issues arose: whether the claim involved acts, errors or omissions before the retroactive date; whether a letter from the fund’s solicitors constituted a written demand for monetary damages or non-pecuniary relief; and, if it did, whether cover was preserved by the continuity-of-cover extension despite late notification.

The court determined the construction of the relevant policy provisions and their application to the fund’s primary pleaded case.

1. Retroactive-date clause. The clause excluded claims directly or indirectly caused by acts, errors or omissions before 5 June 2009. “In any way involving” did not mean any connection or association. It required a causal connection between the earlier matter and the liability for which indemnity was sought. The connection could be indirect, but a line had to be drawn where the earlier matter was merely historical context. The relevant act, error or omission also had to be capable in principle of creating liability under the policy ([2016] EWHC 141 (Comm), paras 22–43).
2. On the fund’s primary case, all alleged breaches concerned steps taken or omitted in 2010. The 2008 agreements and related events were background and did not form part of the causal chain leading to the alleged liability. The retroactive-date exclusion therefore did not apply. The alternative 2008 case was not the case being pursued or settled and was irrelevant to the declarations sought (paras 44–48).
3. Written demand. The 2 April 2013 letter did not constitute a claim under the policy. It reserved the fund’s rights, stated that it had a strong claim, and sought agreement to a recovery protocol and funding arrangements. It did not demand monetary damages or non-pecuniary relief. The later letter of 21 January 2014, enclosing draft particulars and seeking reimbursement, was materially different and constituted a demand (paras 49–56).
4. Continuity of cover. Even if the April 2013 letter had been a claim, extension clause 5j provided cover under the later policy for claims which should have been notified under the earlier policy, subject to the continuity requirements. Applying the later policy’s notification condition to the same claim would nullify the extension. The claimant was therefore entitled to rely on clause 5j notwithstanding late notification under the earlier policy (paras 57–67).
5. The court granted the agreed declarations that the claim was first made during the policy period, or alternatively was covered by extension clause 5j, and was not excluded by the retroactive-date clause. Costs were to follow the event, subject to submissions (para 68).