When to notify your insurer

Why it matters

As insurance companies have acquired something of a reputation for booting out claims, you need to know what you have to do to ensure the company isn’t left uninsured. It might seem obvious, but the first thing you need to do is look carefully at the policy. Although they’re often littered with legal jargon, most policies contain a summary of cover, and this will usually provide some guidance in terms of what you’re obliged to do in the event of a potential claim. Alternatively, if you’ve arranged the insurance through a broker, ask them for guidance because they’re likely to be familiar with the specific requirements of the insurer.

Court decides

There’s still a good chance that knowing when and how to notify the insurer won’t be obvious from the policy summary. The consequences of misinterpreting the wording were made clear in the recent case of Aspen Insurance UK Ltd, Brit Insurance Holdings Ltd v Pectel Ltd 2008. Pectel (P) was engaged to remove asbestos from a site. A major fire broke out in early 2004 but no one expressly blamed P for it at the time. Therefore P didn’t notify its insurance company, Aspen Insurance (A), until three years later when it received a solicitor’s letter alleging negligence on its part. A claimed that P hadn’t complied with the notification procedure in the policy (because of the three-year delay) and rejected the claim. The policy wording said that P should have given “immediate written notice with full particulars of any occurrence which may give rise to indemnity under thisinsurance”. Additionally, A said this amounted to a breach of condition precedent, despite the policy wording not expressly saying that it was. This is important because if something is regarded as a condition precedent in an insurance policy, then it allows an insurer to not pay the claim.

The court’s view

The court decided that notice of a claim should always be given with reasonable speed where “following an occurrence which gives rise to a real, as opposed to fanciful, risk of the insurers having to indemnify the insured”. In this case P should have realised that the fire might, in some way, have been connected with their work (the occurrence) and so should have reported this to A, despite them not being held either responsible or liable for it at the time. The judge also said that just because the clause hadn’t specifically referred to it as being a condition precedent, nonetheless, looking at the policy document as a whole, the obligation to give notice was so important that it justified being classified as one. This shows a possible change of direction by the courts because previously they’ve often tried to deny that a condition in a policy is a condition precedent. A bad news result for directors.

Tip 1. To avoid having a claim rejected, report any incident to your insurer without delay; don’t worry about whether it may or may not result in a claim at some time in the future. If you want the benefit of the cover, no matter how trivial or insignificant the incident or accident might be, report it immediately.

Tip 2. Check to see how you’re supposed to report a potential claim and whether or not any time period applies. Confirm anything said on the phone in writing.