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Insurance: Requirement for Insured to Provide Claims Information to Insurers

Shinedean Limited -v- Alldown Demolition (London) Limited and Another

June 2006

In April 2002 Alldown were employed by Shinedean to carry out demolition and excavation works in Sydenham. Unfortunately Alldown negligently excavated a hole beside a neighbouring property, the flank wall of which began to collapse. Alldown having gone into liquidation in September 2002, the resulting claim by the owners of the adjoining property was settled by Shinedean in June 2004 for ?110,000 (inclusive of interest and costs). In April 2004 Shinedean had commenced these proceedings against Alldown, claiming for the increased costs of their development. Having obtained judgment in default for damages to be assessed, Shinedean joined AXA (Alldown's public liability and contractors' all risk insurers) as second defendants to the proceedings in 2005, claiming an indemnity pursuant to the Third Party's Rights Against Insurers Act 1930.

AXA's policy contained conditions precedent to their liability under the contract of insurance that their insured should both (1) notify them immediately of any event likely to give rise to a claim and (2) deliver all necessary information and assistance relating to the claim as might reasonably be required by AXA to enable them to settle or resist the same.

Notification of the likely claim was provided by Alldown to AXA without delay. However, despite numerous requests for documents having been made before Alldown went into liquidation, little more was forthcoming. In June 2003 AXA therefore notified Alldown's brokers that they declined to provide an indemnity to Alldown because of the latter's failure to provide information and assistance in accordance with the policy. (The bulk of the documents in question were not provided to AXA until the end of 2004/early 2005, even though they had been available since September 2002.)

In October 2005 the trial judge decided that Alldown was impliedly required to comply with the condition to provide information and assistance within a reasonable time. However since, in his view, AXA had not been prejudiced in any material way, he further decided that, even though there had been a delay of more than two years in the provision of the information, this did not constitute a breach of the obligation in question. AXA appealed.

Before the Court of Appeal, neither party took issue with the judge's decision that the insured was under a duty to provide information within a reasonable time. It was also common ground that the performance of that obligation was a condition precedent to the insurer's liability under the contract of insurance. However, whilst not suggesting that they had suffered prejudice in relation to Shinedean's own claim against Alldown, AXA argued that the judge was wrong in law to find that actual prejudice to the insurer was material in deciding whether the insured was in breach of the condition.

The Court of Appeal considered that there was little or no directly relevant authority on this issue. (Virtually all the authorities to which they were referred related to notification clauses rather than co-operation clauses.) In the opinion of Lord Justice May, who delivered the Court's leading judgment, there were two potentially conflicting principles in play. On the one hand, one has to take all relevant circumstances into account when judging what constitutes a 'reasonable time'. On the other hand, insurers are entitled to have co-operation and relevant information in good time to be able to assess potential liability and take appropriate action. In his view, the provision of documents two and a half years or more after the event which gave rise to the claim under the policy - when they could have been provided very much earlier - was obviously unreasonably late. It was equally obvious that the provision of the documents only in the course of litigation to which the insurers were about to become a party was also unreasonably late. If they had been provided much earlier, insurers' participation in the litigation might have been avoided.

What is a reasonable time is essentially a question of fact and depends on all the circumstances of the particular case in question. Nevertheless, the Court of Appeal was not persuaded that there was any determinative principle that a duty on the insured to provide relevant information within a reasonable time will not be broken if, in the end, it turns out that there was no prejudice to insurers. Insurers are entitled to know where they stand and, under the policy in question, AXA were entitled to receive this information in good time - whether or not they were in the end prejudiced by the insured's failure to achieve this. Since there was a clear breach of the condition precedent, insurers were not liable to provide an indemnity under the policy. Their appeal was therefore allowed.

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