In the case of Euro Pools plc v Royal & Sun Alliance Insurance plc (‘RSA’) a dispute arose about notifications arising from design and construct professional indemnity insurance policies.
The facts
The original case is based on Euro Pool’s professional indemnity insurance policy with RSA. Euro Pool had two consecutive policies – one from June 2006/07 and one from June 2007/08. Euro Pools designed and constructed swimming pools, in particular pools with movable floors and booms that could split larger pools into smaller ones.
An issue arose with the booms that were used in the pools Euro Pool designed in February 2007 and so Euro Pools notified RSA of the defects. This is standard practice in professional indemnity claims and Euro Pools notified in line with the policy. The remedial works to deal with the booms defect was covered by the 2006/07 policy and used nearly all of the £5million available to Euro Pools. In May 2008 another notification was issued to RSA by Euro Pools as there were still issues relating to the booms and Euro Pools decided that they needed to replace the whole system.
A dispute arose as to which of the two policies covered the notifications. RSA argued that this was not a new notification and therefore any remedial works would be covered by the 2006/07 policy (which was nearly exhausted by the previous remedial works). However, Euro Pools argued instead that the notification should be covered by the 2007/08 policy as that is when they realised the need to completely change the system.
The High Court originally decided that as Euro Pools did not know the extent and cause of the defects at the time of the first notification, there was a need for another notification. The second notification under the second policy was the correct one to claim under and therefore RSA had to pay for the repairs under the 2007/08 policy.
The appeal
RSA appealed to the Court of Appeal and the decision of the High Court was overruled. The Court of Appeal came to the decision that the earlier 2006/07 policy was the correct policy to claim under for the following reasons:
- There was a causal relationship between the original repairs and the overall changing of the whole system.The original defects, albeit unknown to Euro Pools at the time, were caused by the failure of the system which eventually had to be repaired.Therefore, notifying RSA in 2007 was an extension of the 2006 notification.
- Even though the cause was not known at the time of the original notification, this did not matter.A notification should be made when an event occurs which ‘may’ give rise to a claim. The cause is not always known, it is based on the facts to see if there is a causal connection to any previous claims.
The impact of the court overturning the previous decision of the High Court resulted in Euro Pools only being indemnified for what was left under the 2006/07 policy.
Comment
This case clarifies the position on the scope of notifications under professional indemnity claims. Insured parties should always notify the insurer whether or not they are aware of the cause of a notification. It will then be interpreted by the court based on the facts as to whether there is a causal connection between the notifications.