Euro Pools Plc v Royal & Sun Alliance Insurance Plc

A notification clause in a claims-made policy may cover a broadly described and unresolved problem. The insured must know of the problem notified, but need not know its precise cause, full consequences or eventual solution.

For mitigation costs, the material question is whether the potential third-party claim being averted arose from the notified circumstances. The causal connection must be more than coincidental, but it is not demanding. Where a potential claim arises from circumstances notified under an earlier policy, an exclusion for the consequences of earlier notified circumstances prevents recovery under a later policy, whether or not the earlier indemnity has crystallised.

Euro Pools installed movable swimming-pool booms powered initially by an air-drive system. During the 2006–07 policy year it notified problems with tanks and the failure of booms to rise and fall properly. Attempts to solve the problem by using inflatable bags later failed, and Euro Pools installed hydraulic systems as mitigation.

The Commercial Court held that the hydraulic-work costs attached to the second professional-indemnity policy, following a notification in May 2008: [2018] EWHC 46 (Comm). RSA appealed. The central issue was whether the potential third-party claims which the hydraulic works were intended to mitigate arose from circumstances notified under the first policy, or from new circumstances notified under the second policy.

1. Appeal allowed unanimously. The costs of installing hydraulic systems attached to the 2006–07 policy. They were incurred to mitigate potential third-party claims arising from circumstances notified during that policy year.

2. The February and June 2007 notifications, fairly construed, concerned a broader problem than defective tanks at identified pools. Euro Pools notified that booms driven by an air system were failing to rise and fall properly, that the cause was uncertain, and that the proposed bag solution might fail. A valid notification may identify such a developing problem without specifying its cause or solution.

3. Under Condition 2, the relevant inquiry was not whether the later mitigation works, or the insured’s decision to undertake them, arose from the notified circumstances. It was whether the potential third-party claims which the works sought to avert arose from those circumstances. The connection between the 2007 boom failures and the subsequent hydraulic works was causal, not coincidental. The successive design changes formed an unbroken chain directed at making the booms operate properly.

4. The technical cause of the original tank failures was immaterial to that inquiry. Nor did the insured need, when giving notice, to foresee the full causal origins or implications of the notified problem.

5. The May 2008 communication was further information about the existing boom problem, not a fresh notification. The alleged June 2008 notification concerned a separate floor issue and did not concern the booms.

6. Further, Exclusion Clause 18A(1) excluded liability under the second policy for the consequence of circumstances notified under the first policy. This operated regardless of whether Euro Pools had crystallised an entitlement to an indemnity under the first policy.

• Court of Appeal (Civil Division): Allowed RSA’s appeal and held that the boom-mitigation costs attached to the first policy: [2019] EWCA Civ 808.
• Commercial Court: Moulder J gave judgment for Euro Pools, holding that the boom costs attached to the second policy: [2018] EWHC 46 (Comm).