Facts
Kosmar is a specialist tour operator. At 4am on 22nd August
2002, one of its clients, Mr Evans, dived into a swimming pool at a
holiday resort and fractured his spine, causing permanent
disability.
Mr Evans sued Kosmar and Kosmar claimed under its public
liability insurance. For some reason, however, it did not notify
insurers until 4th September 2003, over a year after the event.
On 17th September 2003, insurers emailed Kosmar with tactical
advice on the gathering of evidence. On 19th September, they wrote
to Mr Evans' solicitors (copied to Kosmar) asking them to note
their interest and saying they were making enquiries of the insured
which might take some time. Three days later, they wrote again
regarding access to the swimming pool, stating "we are the
liability insurers of the above-named tour operator." This letter,
too, was copied to Kosmar.
On 30th September, insurers emailed Kosmar reserving their
position. This was followed by a solicitors' letter on 21st October
denying liability for the claim because Kosmar had breached a
condition precedent in the policy that required the insured to give
written notice "immediately after the occurrence of any injury or
damage…"
Waiver
It was not disputed that Kosmar had breached the condition, or
that the term was a condition precedent to insurers' liability to
pay the claim. But Kosmar argued that insurers had waived their
right to rely on the breach by their conduct before and after the
claim.
In their previous dealings, Kosmar said, insurers had never
relied on a breach of this condition to reject a claim. And after
they had been notified, insurers' correspondence clearly
represented that they had decided to deal with the claim and so
accept liability for it.
The High Court judge held that the previous course of dealing
did not amount to a waiver, but agreed that the correspondence did.
Insurers, knowing there had been a late notification and that they
could rely on the breach of condition to deny the claim, had by
their conduct made an unequivocal representation that they did not
intend to rely on that right. Kosmar was entitled to an
indemnity.
Insurers appealed. By the time the appeal was heard Mr Evans'
court case had failed, but Kosmar still claimed from insurers the
costs of successfully defending those proceedings.
Appeal
The Court of Appeal overturned the judgment. Insurers had not
waived their right and so were not liable to pay the claim.
Quite simply, the correspondence did not amount to the sort of
unequivocal representation that is needed to establish a waiver.
Insurers' letters did not say they were waiving the requirement for
immediate notice or that they were accepting liability under the
policy. They were still waiting for responses from the insured to
their enquiries.
When it receives notice of a claim, an insurer is entitled to
take a reasonable time to make enquires, review the responses
received and consider its position. Handling the claim in these
initial stages does not mean the insurer has made an irrevocable
choice to accept liability under the policy.
The Court of Appeal went so far as to suggest that, during this
period of uncertainty, there was no need for the insurer to reserve
its rights, though a reservation might be "practical and wise".
Commentary
The decision will be welcome news to insurers, who are often
concerned that they might inadvertently waive their defences by the
way they handle a claim in its early stages. Even so, this
litigation might have been avoided had Kosmar reserved its rights
from the outset.
Insurers should certainly not take the judgment as a licence to
equivocate as they would be running a real risk of a court finding
a waiver.
