Euro Pools Plc v Royal And Sun Alliance Insurance Plc

In professional indemnity insurance, a notification of circumstances covers only matters of which the insured was actually aware and which might reasonably be expected to produce a claim. A later claim must arise from those notified circumstances and must have a causal, rather than merely coincidental, connection with them. A mitigation clause covering first-party expenditure gives rise to a cause of action when the relevant expense is incurred, subject to any contractual notice requirement. An insurer’s approval of remedial work does not, without clear words, waive the policy’s limit of indemnity. Ambiguity in the policy was construed against the insurer.

Euro Pools claimed indemnity from RSA under two professional indemnity policies for mitigation works concerning movable pool floors, pool booms and the Leeds diving pool floor. It also claimed costs arising from proceedings against the design consultant, White Young Green, and disputed limitation, overheads, the insured’s contribution and the effect of the policy limit.

The principal issues included whether later problems were within earlier notifications, when limitation began to run, whether terms or estoppels arose from RSA’s conduct, and how recoverable mitigation costs should be calculated.

1. Notifications. Applying the principles summarised by Akenhead J in Kajima UK Engineering Ltd v The Underwriter Insurance Company Ltd [2008] EWHC 83 (TCC), a notification may be specific or general and may identify defects, symptoms or potential losses. However, the insured must be aware of the circumstances notified. A subsequent claim must arise from those circumstances and have a causal connection with them.
2. The February 2007 notification concerned problems with the rope and winch system for movable floors and a limited problem with boom tanks. It did not extend to a wider defect in the air-drive system or to the later hydraulic solution. The May 2008 notification of failing bags was validly made under the Second Policy. The November 2007 notification concerning the Leeds diving pool floor was also validly made under the Second Policy. The issue of estoppel concerning the Leeds claim therefore did not arise.
3. WYG proceedings. RSA had approved and controlled the proceedings against White Young Green and was prosecuting them in Euro Pools’ name partly for its own benefit. No term was necessary to indemnify Euro Pools for ordinary costs and expenses, since RSA could pay those directly. A term was necessary to indemnify Euro Pools against adverse costs orders, but only while RSA prosecuted the claim and retained full discretion over its conduct and settlement. That indemnity ceased when RSA was excluded from the conduct of the proceedings, found to be around August 2013, irrespective of when the underlying costs had been incurred.
4. Limitation and appropriation. The mitigation clause concerned first-party financial loss. The cause of action arose when each expense was incurred, not when RSA was told the final total. Expenditure incurred before 28 January 2010 was therefore time-barred. Following Otkritie Capital International Ltd v Uromov [2014] EWHC 755 (Comm) by analogy, payments could be appropriated bona fide between claims, but the claimant could not, after proceedings had begun, appropriate payments to time-barred debts. Payments made after 28 January 2010 were divided pro rata between earlier and later expenses.
5. Costs and policy limit. RSA’s approval of remedial works established that the works fell within the scope of the indemnity, but did not create a freestanding agreement to pay reasonable costs irrespective of the policy limit. No representation, convention or detrimental reliance establishing such an estoppel was proved. The appropriate overhead rate was 44.6 per cent. The £5 million limit operated without deduction for the insured’s contribution, because the policy was ambiguous and was construed against RSA.

First-instance decision. No prior appellate decision is stated in the judgment.