Clause was a provision not a precedent

Sirius International Insurance v Friends Provident Life and Pensions (Court of Appeal - 24 May 2005)

In an appeal against the insurer, Sirius International Insurance, Friends Provident Life and Pensions sought to recover compensation payments made to clients for pensions mis-selling. Sirius declined to pay, arguing that breach of the late notification clause entitled it to reject the claim.

Sirius argued that the clause within its policy's excess layer required the assured to notify Sirius immediately of any circumstances it became aware of that were likely to give rise to a claim or loss (if it appeared likely that such a claim or loss might exceed the indemnity available under the primary and any underlying excess insurance).

The Court of Appeal held that the claims notification clause within the professional indemnity insurance policy was an ancillary provision, not a condition precedent.

A condition precedent entitles an insurer to reject a claim in the event of breach of that clause. Breach of an ancillary clause does not entitle the insurer to reject the claim but could allow the insurer to claim for damages against the assured.

In this case, there was no evidence by construction or implication the clause provided that insurers would be free of liability in the event of a serious breach.

Comment: The excess wording was standard market wording and insurers are deemed able to take advice to make such wordings either more or less stringent and thus attempt to turn the late notification clause into a condition precedent. If this is required, insurers should ensure the same is expressly stated within the policy. (Alfred McAlpine v BAI (Run-Off) (2001) was doubted, which identified a possibility that a claims notification provision might be an innominate term). Catherine Hindle, BLM Manchester.

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