Construction Insurance and UK Construction Contracts
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CHAPTER 30
Claims and the Third Party (Rights Against Insurers) Act
Claims and the Third Party (Rights Against Insurers) Act
30.1 The acid test of any insurance policy occurs when the insured needs to make a claim under the policy for the insurer to fulfil its contractual obligations by indemnifying the insured for losses that have occurred. The process of making a claim will necessarily involve consideration of the legal rights and duties between the insurer and insured. 30.2 It is generally believed that the insured is under an implied duty to give the insurer notice of any insured losses that occur. Such a term is probably to be implied so as to give business efficacy to the contract, although an alternative analysis may be that this is an aspect of the insured’s duty of good faith.1 There is no doubt that when notifying a claim, the insured owes a duty of good faith to the insurer, discharged by acting honestly - see The Star Sea; The Mercandian Continent.2 30.3 In most cases the policy is likely to contain an express stipulation that losses be notified to the insurer. The policy will usually stipulate the parties’ rights and duties regarding losses, in particular as to making the claim. No claim can be made at all unless the conditions precedent and subsequent to the policy have been duly performed. It is suggested that the insured’s duties are:- (1) to give notice of a loss;
- (2) to supply particulars of the loss (often within a certain period of time as a condition precedent in the policy);
- (3) to supply proof of loss (often within a specified period) as verification of the particulars of claim, for example by documentary proof (which is likely to be a condition precedent to liability); and
- (4) to make no fraudulent claim as the claim put forward by the insured must be honestly made in accordance with the insured’s duty of good faith. Frequently the policy will be expressed to be void if a fraudulent claim is made - such a provision only reflects the general law that all right to claim is forfeit if the claim made is fraudulently exaggerated or if fraudulent devices are used in support of the claim.3
- (5) to “co-operate” - normally the subject of a claims co-operation clause.4
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Insurers’ duty of good faith
30.6 Perhaps unsurprisingly, the bulk of authorities are concerned with the insured’s duty of good faith rather than the extent of the insurer’s duty. However, in one Court of Appeal decision one member of the court emphasised that the insurer is also under a duty of good faith in settling claims - see Drake Insurance plc v Provident Insurance plc,5 in which Pill LJ held that failure by an insurer to make any enquiry of the insured before avoiding a policy was a breach by the insurers of their duty of good faith. In his view, that duty required the insurers at least to tell the insured what they had in mind and to give the insured the opportunity to bring material matters to the insurers’ attention. An earlier decision of Colman J similarly suggested that underwriters’ right to avoid a policy might be fettered by principles of conscionability - The Grecia Express.6 This is a developing area of the law.7 30.7 An interesting case decided by the High Court of Australia has held that an aspect of the insurer’s duty of good faith is to reach a decision on a claim promptly: CGU Insurance Ltd v AMP Financial Planning Pty Ltd.8Form of notification
30.8 In the absence of express contractual provision, notification need not be in writing: oral notification is sufficient (Re Solvency Mutual Guarantee Society:Page 395
Source of notification
30.9 In the absence of express contractual provision, it is immaterial from whom the insurer receives notification. Therefore it need not be given by the insured itself; it can come from an agent or another person acting on behalf of the insured. Even if an express term requires notification by the insured, the courts have been willing to hold that where adequate notification of loss is received by the insurer from another, totally unconnected, source, the insurer is regarded as having waived the requirement that it be notified by the insured.12 Notification must, however, be received by the insurer and must include all the relevant facts.Recipient of notification
30.10 Notification may be validly made to an agent authorised to receive notice on behalf of the insurer (in the absence of express contractual provision). The insured is entitled to assume (in the absence of any contrary information) that the agent through whom the insurance was negotiated by the insurer has authority to receive notification of a loss. In Marsden v City and County Assurance Company 13 this principle was held to apply even though (unknown to the insured) the agent had ceased to act as the insurer’s agent between the conclusion of the contract and the loss. 30.11 Notification will be insufficient if the contract stipulates the insurer’s head office and notification is given to a local agent of the insurer (Patton v Employer’s Liability Assurance Corp 14). Similarly, notification to the agent who acted for the insured in negotiating the contract is insufficient (Roche v Roberts 15). In this last instance, if notification is provided to the insured’s agent with a request that it be passed to the insurer (or its agent) notification will be effective once the latter party has received the information, but not before.Time for notification
30.12 If the contract is silent, notification must be made within a reasonable time, which will depend on the circumstances of the claim in question and the insured’s reasons for any delay in reporting.Page 396
it is impossible to lay down any hard and fast rule as to what is the meaning of the word ‘immediately’ in all cases. The words ‘forthwith’ and ‘immediately’ have the same meaning. They are stronger than the expression ‘within a reasonable time’ and imply prompt, vigorous action, without any delay, and whether there has been such action is a question of fact, having regard to the circumstances of the particular case.