The Cultural Foundation & Anor v Beazley Furlonge Ltd & Anor

Under a claims-made professional indemnity policy, a notified circumstance must be identified objectively by reference to the insured’s actual knowledge and the notification’s factual context. It must suggest, to a reasonable person with that knowledge, at least a 50% likelihood of a claim. A later claim must have a causal, rather than merely coincidental, relationship with the notified circumstance.

A broad notification may cover a recognised category of related deficiencies, even where every detail is not yet known, but it cannot retrospectively cover a distinct breach which had not yet occurred. An insurer may recover defence costs paid beyond its proportionate contractual share and set them off against indemnity payments. Rights relating to defence costs do not pass to substantive third-party claimants under the Third Parties (Rights against Insurers) Act 1930. Post-award interest falls outside the professional indemnity clause where it arises from later delay in satisfying the award.

The claimants sought indemnities from primary and excess professional indemnity insurers after RMJM, their former architect and professional consultant, became insolvent. The claims arose from arbitration awards concerning defects and delays in the design and administration of construction projects in Dubai.

The court determined ten preliminary issues. They concerned the policy year to which the claimants’ claims attached, the scope and timeliness of notifications, agreement and estoppel, the primary insurer’s entitlement to recover or set off overpaid defence costs, the transfer of defence-cost rights under the Third Parties (Rights against Insurers) Act 1930, and entitlement to post-award and statutory interest.

1. Notifications. The insured must have actual knowledge of the circumstances notified. The circumstances must objectively suggest to a reasonable person in the insured’s position that a claim was more likely than not. The notification is construed objectively in its factual context, and the later claim must be causally linked to it.
2. Notification 923 covered the category of coordination deficiencies, including the acoustic-design deficiency and lack of detail and cross-referencing in drawings. It did not cover the distinct Sector A columns defect. By March 2009 RMJM did not know facts making a claim about the columns more likely than not, and the notification did not identify that fundamental structural problem. Notification 953 did cover the Sector A columns defect.
3. A notification may describe a broad category of known deficiencies, but cannot cover a later breach which had not yet occurred. Whether delay in carrying out remedial works arose from the notified columns defect or from a new breach remained for the final trial.
4. There was no agreement or estoppel that the whole ASD claim fell within the 2008/09 policy. RMJM did not breach the 2009/10 notification condition, and the insurer would not have been estopped from relying on such a breach had one been established.
5. The primary insurer’s defence-cost liability was proportionate to the part of the claim within its limit. An implied term, alternatively restitution, entitled it to recover any excess paid. The claim for overpaid defence costs was sufficiently closely connected with the indemnity claims to support equitable set-off, including against statutory transferees.
6. Defence-cost rights were first-party rights and did not transfer to ASD or ADNEC under the 1930 Act. Nor could the primary insurer recover the overpaid costs from excess insurers under that Act.
7. Post-award interest was not compensation or damages arising from RMJM’s professional business. It arose from a supervening delay in satisfying the award and was outside the policy indemnity. Statutory interest was available, save in respect of costs where RMJM had no corresponding liability to pay interest.

First-instance determination of ten preliminary issues in proceedings brought by the claimants against primary and excess insurers.