| INSURANCE — Liability insurance — Notification requirements — Insured failing to comply with notification requirements — Insurer initially dealing with claim before rejecting it — Whether insurer discharged from liability in respect of claim — Whether doctrine of election applying — Whether insurer’s initial conduct constituting election to waive insured’s failure and accept claim
Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147; WLR (D) 71
CA: Rix and Jacob LJJ and Forbes J: 29 February 2008
Where an insured failed to comply with a condition precedent in a claims notification clause in an insurance policy, the insurer did not elect to waive the insured’s failure and accept liability if it initially dealt with the claim. Dealing with a claim was not necessarily inconsistent with repudiating liability for indemnifying the insured in respect of it.
The Court of Appeal so held allowing an appeal by the defendant, Trustees of Syndicate 1243, from a decision of Gross J [2007] EWHC 458 (Comm); [2007] 2 All ER (Comm) 217 in which he had given judgment for the claimant, Kosmar Villa Holidays plc, on its claim for an indemnity from the defendants.
E had been severely injured when he had dived into the shallow end of a swimming pool at an apartment complex where he had been holidaying. He claimed damages against the claimant, the tour operator. Under the claimant’s public liability insurance cover it was a condition precedent to the insurer’s liability that immediately after the occurrence of any injury the claimant give notice in writing with full particulars. In E’s case the claimant only informed the insurer after it had been notified of E’s claim, a year after his injury had occurred. The insurer initially wrote to the claimant advising it that it had not yet denied liability and seeking further information about the claim. About two weeks later it wrote reserving its rights and then wrote again to repudiate the claim under the policy. E was awarded damages. The claimant brought a claim against the insurer for an indemnity in respect of E’s claim. On the claim the judge held that, unlike a promissory warranty, breach of which automatically discharged the insurer from liability, nothing in general law or the express wording of the policy automatically discharged the insurer’s liability. Accordingly, there was scope for election. The insurer knew when it had been informed of E’s claim that the claimant had failed to report the occurrence and that failure was a breach. Its initial communications with the claimant demonstrated unequivocally the making of an informed choice to accept the claim.
RIX LJ said that the claimant accepted, by analogy with the case of breach of promissory warranty, that non-fulfilment of a condition precedent to liability did discharge a party from liability at the time of the relevant breach, but submitted that when a claim was thereafter made and there was knowledge on the part of the insurer of the breach, the insurer was put to an election whether or not to rely on its defence (that it was discharged from liability). That submission went far wider than the doctrine of election had ever been previously been explained or applied. All the examples of election dealt with a much more limited field, such as acceptance of repudiation or the avoidance of contracts or the rejection of goods. They were concerned with contracts in the course of their execution, not with the pathological treatment of claims. While a contract was in operation, it was important to know, in circumstances were it laid in the choice of a party, whether the contract lived or died (or at least whether purported performance under it, such as delivery of goods, was accepted or not); and whether the option was for life or death, acceptance or rejection, the choice was unilateral and irrevocable. But when it was merely a defence to a claim that was in question, there was not the same necessity to choose timeously and irrevocably between reliance or not on the defence in question. Certainly in the context of litigation, a defence could be utilised at any time subject to the case management discretion of the court, limitation and abuse of process. The doctrine of election was ill-fitting in the circumstances of the instant case, and unneeded.. For there remained the doctrine of estoppel in circumstances where it could be said that the handling of a claim by an insurer was an unequivocal representation that the insurer accepted liability and/or would not rely on breach of some condition precedent as affording a defence, and there had been such detrimental reliance by the insured as would make it inequitable for the insurer to go back on his representation, the insured would have all the protection that he needed.
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