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Company Wrongly Refused Insurance Cover Wins Test Case

Construction siteProduct liability and professional indemnity insurance policies invariably require that any potential claims must be swiftly notified to the insurer, but what exactly does that mean? The Court of Appeal has considered the issue in an important test case.

The case concerned a company that had, via a supply chain, leased a piece of industrial equipment – a large staple gun – to a construction firm. One of the latter’s workers was rendered almost blind after the machine spat out a staple unexpectedly. The man subsequently received £1.4 million in compensation, of which the company agreed to contribute more than £230,000.

Almost two years had passed between the incident and the company notifying its insurer of the claim. In refusing cover, the latter pointed to a clause in the relevant policy that required the company to give notice in writing as soon as possible after the occurrence of any event likely to give rise to a claim.

After the company launched proceedings, a judge ruled that the insurer was not entitled to decline indemnity. The staple gun had been regularly maintained and it had not crossed the company’s mind until long after the event that the accident may have resulted from a fault in the equipment. It had notified its insurance brokers on the same day that it had received a solicitor’s letter informing it of the claim.

In dismissing the insurer’s appeal against the judge’s decision, the Court rejected arguments that the company was under a rolling and proactive duty to make its own inquiries as to the circumstances of the accident. On the facts known to the company in the immediate aftermath of the accident, there was not an at least 50 per cent chance that a claim would be made against it.