Kosmar Villa Holidays Plc v Trustees of Syndicate 1243
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…"
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.
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".
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.