MacCaferri Ltd v Zurich Insurance Plc

The Defendant (“Zurich”) has declined to provide an insurance indemnity to the Claimant. The indemnity sought by the Claimant is in respect of liability of the Claimant arising from an accident in which a serious eye injury was caused to a Mr McKenna. The injury was caused while Mr McKenna was using a Spenax gun to attach wire caging together.

Mr McKenna sued his employer. His employer sued the company that hired the gun to them. That company had in turn hired the gun from the Claimant and sued the Claimant. The Claimant turned to Zurich, with whom it had a public and product liability insurance policy, and sought indemnity.

Zurich declined to provide indemnity because, it contends, the Claimant failed to comply with a condition precedent to any liability on the part of Zurich to make any payment under the insurance policy.

The first sentence of Clause 2 of the relevant policy is in these terms:

“The Insured shall give notice in writing to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof.”

The second sentence of Clause 2 of the relevant policy is, in part, in these terms:

In my judgment the relevant elements of the first sentence of this clause in this policy are to be understood as follows. An “event” must have occurred. To engage the first sentence of the clause that event must be “likely to give rise to a claim”. If such an event occurs then notice in writing must be given by the Insured. The notice in writing must be “as soon as possible” after that event. “Full particulars” must also be given by the Insured.

When the first sentence of Clause 2 uses the phrase “likely to give rise to a claim” to describe an event that will engage that sentence of the clause, it is describing an event with at least a fifty per cent chance that a claim against the Claimant would eventuate (see Layher Ltd v Lowe [2000] Lloyd’s IR 510 at 512 1^st col. and Jacobs v Coster (t/a Newington Commercials Service Station) and Avon Insurance (Third Party) [2000] Lloyd’s Rep IR 506 at [12] and [14]).

Mr Robert Moxon-Browne QC, who with Mr Lucas Fear-Segal appears for Zurich, argues that the use of the words “as soon as possible” in the first sentence of Clause 2 indicates that the obligation to notify arises when an insured could with reasonable diligence discover that an event was likely to give rise to a claim, and not before. He argues that this extended meaning is supported by the obligation to provide full particulars, included in the first sentence of Clause 2, which he submits imports an obligation on the part of an insured to be “proactive”, or implies a duty of inquiry, and indicates that time may be required for those purposes. He contrasts these words in this sentence of Clause 2 with words, sometimes used in other policies, such as “immediately” and “without any delay”. (The word “immediately” is used in the second sentence of Clause 2, also quoted above.)

I do not, with respect, agree that the words “as soon as possible” bring in this extended meaning. In my judgment, as in summary argued by Mr Colin Edelman QC, who with Mr Ben Lynch appears for the Claimant, those words refer simply to the promptness with which the notice in writing is to be given if there has been an event likely to give rise to a claim. I record that the present case is not concerned with any period before an insured has any knowledge at all of an event having occurred.

I accept that it follows, from my declining to accept Mr Moxon-Browne QC’s argument, that there will be cases in which the circumstances described by the first sentence of Clause 2 do not arise, and yet a claim does eventuate. That would also have been the position resulting from the decision reached on the facts in Layher Ltd v Lowe (above, especially at 512 2^nd col.) and Jacobs v Coster and Avon Insurance (above). In such cases Zurich will not receive a notice under the first sentence of Clause 2 (at any rate as a matter of entitlement). Zurich is however still left with the second sentence of Clause 2, requiring the Claimant “on receiving verbal or written notice of any claim” to “intimate or send same or a copy thereof immediately”.

If this is what the wording of the policy requires, that is the agreement by which the parties are bound. There is no room, in my judgment, for what Mr Moxon-Browne QC termed a continuing or “rolling assessment” of claim likelihood to be required of a policyholder when the policy does not provide for it.

That position holds true however valuable a “rolling assessment” might be to an insurer under a third party liability insurance (and there are differences of view on that). There was some discussion in the course of the hearing about whether wording of the type found in the first sentence of Clause 2 tended to be found only in one, but not both, of first party policies and third party liability policies. Examination of some specimen Lloyd’s wordings showed that wording of the type might appear in first party policies and in third party liability policies.

Verelst’s Administratrix v Motor Cross Union Insurance Company Limited [1925] 2 KB 137 was cited on behalf of Zurich. I do not think it assists. It concerned the meaning of the words “as soon as possible” (though in the context of the knowledge of the insured’s representatives of the existence of a policy), but it was not a case about what nature of event gives rise to a requirement to give notice, and that is the point at the heart of the present case.

The date of the accident was 22 September 2011. The Claimant received a solicitors’ letter dated 18 July 2013 informing it that a claim was to be brought against it. On 22 July 2013 the Claimant notified its broker of that threatened claim, and the broker advised Zurich.

Zurich’s position is that the first sentence of Clause 2 required earlier notice. Specifically, says Zurich, notice in writing was required by October 2011 or by June 2012. The first or the second of those points in time was, says Zurich, “as soon as possible after the occurrence of any event likely to give rise to a claim”, to take the language of the first sentence of Clause 2.

On the evidence at this trial I find that, when the accident occurred, there was not at least a fifty per cent chance that a claim against the Claimant would eventuate. There had been an accident. The gun was involved. It was a possibility, but not more, that the accident involved a fault in the gun. But there were other possibilities: a fault in the way in which the gun was used, or no fault at all.

The Claimant was not blamed at the time. True, the accident was very serious: someone had lost their sight. But that seriousness does not increase the likelihood that the allegation would be that there was a fault in the gun. At least in context, the likelihood of a claim cannot simply be inferred from the happening of an accident: see Jacobs v Coster and Avon Insurance (above, at [17]). A possibility of a claim is not enough to engage the obligation under the first sentence of Clause 2.

It follows that there was no failure on the part of the Claimant to comply with the condition precedent to liability on the part of Zurich to make a payment under the insurance policy. The event that occurred in September 2011 was not an event “likely to give rise to a claim”.

Mr Moxon-Browne QC also emphasised in his submissions that a claim may still be likely even if it is a bad claim. I can broadly accept his point, but it does not help him on the facts of this case. I add that it may also be (for example) that, in a particular case, his point would admit of some challenge if the claim was so bad as not to withstand scrutiny.

I heard the evidence of Mr Andrew Abbey, the Claimant’s Sales Coordinator. Mr Abbey learned that the gun was being used; he learned of the accident; he learned of a claim against others. But the important question was the question whether the gun was faulty. This type of gun can malfunction, but that does not take one very far. It is also true that the gun was old, and worn, that warning labelling had been neglected, and that many parts had had to be replaced. However Mr Abbey did not suspect it to be dangerous because it was serviced and checked after each hire.

The Claimant’s system in that respect, as described through the evidence of Mr Abbey, seems open to real criticisms. For example, a decision to repair rather than replace would turn on a question of cost rather than an overall assessment with safety as the priority. Another example is that the servicing and checking, undertaken for the Claimant by a third party contractor, does not seem to have been subject to additional oversight by or arranged by the Claimant. However the criticisms that might be made are not ones that go far enough for Zurich’s purposes in this litigation.

Even reference to the likely involvement of the Health & Safety Executive or to there having been forensic testing of the gun after the accident does not advance matters sufficiently. Perhaps that, in the context of this particular case, indicated that a claim was a possibility, but that was not enough.

Although invited by Zurich not to do so, I accept Mr Abbey’s evidence that he asked for information from those to whom the Claimant had hired the gun, but he got no answer. “Reasonable diligence”, to take that term from Mr Moxon-Browne’s argument, and even assuming (contrary to my view) that his argument that there was such a requirement was correct, did not in my judgment require more pressure for information than was used, where still no blame was being directed to the Claimant at the time.

A computerised record of communications was kept by the company to which the Claimant had hired the gun. This does contain entries which, if accurate, would suggest there was communication with someone from the Claimant other than Mr Abbey at times between 2011 and 2013. But I am not prepared to accept this as sufficient to demonstrate that through this unnamed person the Claimant was aware that an event “likely to give rise to a claim” had occurred or, to take the language of Mr Moxon-Browne’s argument, “could with reasonable diligence” have discovered that such an event had occurred.

In particular I have heard no evidence from either person involved in the communications noted in the computerised record. Mr Abbey did not throw much light on the entries. There are early references in them to a report from or by the Claimant, but then later references are, by contrast, to “any” report, and to the suggestion that “it should be for” the Claimant to “get their own report”.

In their own way, each of the Claimant and Zurich invited me to hold against the other, and draw adverse inferences from, the fact that other (sometimes third party) witnesses were not called or documents produced.

I do not know all the circumstances behind witnesses not being called and documents produced. In the present case there is more that I should like to have known, but I do not think I should accede to either invitation. The present case is more fairly disposed of by reference to the evidence that is available to me at this trial, rather than by reference to inference from the fact that certain evidence was not made available.

Zurich themselves, through their Leading Counsel, describe their decision, reached in the present case, to decline to indemnify as an “unusual step”. I do not question it as a step taken other than in good faith. But I have formed a clear view that it was a mistaken step, and that Zurich is obliged to indemnify under the policy. I will make an appropriately-worded declaration to that effect. The exact terms of that declaration and any other appropriate relief will be considered with Counsel.