The importance of being early

In the property market, conveyancers are particularly at risk as claimants look to recover losses from failed or delayed transactions or transactions which do not live up to expectations. Rising repossessions shed light on title defects and there are increasing actions from lenders seeking to recoup losses.

Given the current market, it is vital that professional advisers have their professional indemnity policies in order. Most professional indemnity policies require notification of a loss or circumstance which may give rise to a claim under the policy, or a claim itself, as soon as possible or within a specific period which can sometimes be as little as seven days.

Notification clauses are usually conditions that precede the insurer’s liability, which means that insurers can refuse cover if notification does not take place as required by the policy. Insurers are not required to show that they have suffered any prejudice as a result. When notification clauses are conditions of the policy as opposed to conditions precedent, insurers can allege prejudice and pass the financial consequences onto the insured in the event of late notification.

The time period for notification can vary within policies so it is crucial that policyholders are aware of all notification requirements. It is also important that policyholders are aware of what constitutes a loss or a circumstance. In HLB Kitsons vs Lloyd’s Underwriters [2007] a “circumstance” was stated to be a fact, event, happening or state of affairs. The phrase “which may give rise to a loss or claim” was stated to be something “which creates a reasonable and appreciable possibility that it will give rise to a loss or claim…when there is a possibility or a perceived possibility that at some stage in the future it will do so…there need not be certainty… probability or likelihood that it will do so”.

If a policy requires notification of a loss, then policyholders would be wise to notify any such circumstances to avoid potential arguments. Examples of events that should trigger notification include receipt of proceedings or a Letter of Claim, a complaint or threat of legal action, discovery of an error which creates the possibility of a claim, discovery of a loss suffered by a party to a transaction or discovery or suspicion of dishonesty/fraud by an employee.

For policyholders to ensure they are fully covered, the requirements set out in the policy e.g. notice in writing should be strictly complied with. Notification should be sufficiently clear that it leaves no reasonable doubt that the insured is giving notice for the purpose of coverage under the policy. Following the appeal of HLB Kitsons vs Lloyd’s Underwriters, it is clear that the courts will interpret notification objectively, based on the words used and the context in which notification is given. The specific wording of the policy will also be analysed to determine whether notification requirements have been complied with.

Notification can only apply to circumstances which the insured was aware of. Claims must also have a sufficient causal link to notified circumstances, so notification of a circumstance in respect of a transaction will not extend to additional circumstances which arise in relation to the same transaction.

The need for professionals to be alert to circumstances which might lead to claims is heightened in these difficult economic conditions. Conveyancers in particular should reflect on whether there are any circumstances arising from their practice which need to be notified to their insurers. In addition to helping ensure acceptance of cover, early notification allows early investigation and can therefore contribute to early resolution of claims and keep costs to a minimum.

For more information:
Contact Danielle Best; Weightmans, Tel: 0161 233 7377 or
Email: danielle.best@weightmans.com