Clause 22 of the AIIF professional indemnity insurance policy reads as follows:
“22. The Insured must
a) Give immediate written notice to the Insurer of any circumstance, act, error or omission that may give rise to a claim; and
b) Notify the Insurer in writing as soon as practicable of any claim made against them…” [own underlining]
The notification requirement in respect of circumstances is a factual enquiry and the answer will depend on the circumstances of each particular case.
According to LAWSA Volume 12(2) – Second Edition, paragraph 250:
“Liability policies as a rule require the insured to notify the insurer of particular facts… The purpose of the notification is to alert the insurer to the possibility of an action, so that they may take steps to mitigate the insured’s loss (liability) and, with it, their liability to pay him an indemnity for it. Under an occurrence-based policy, for instance, the insured will be required to notify the insurer of any occurrence that may give rise to a claim. Notice is to be given of an occurrence giving rise to a claim against the insurer, not of a claim by the third-party against the insured. The insured cannot therefore wait for a third-party claim against it before notifying the insurer of the occurrence having taken place as the duty of notification is not dependent on a third-party claim arising from the occurrence having been made against the insured…”
According to LAWSA Volume 12(1) – Second Edition, paragraph 380:
“A term requiring the insured to notify the insurer of the occurrence of an event is generally construed as a vital term, even in the absence of words empowering the insurer expressly to refuse a claim on breach of the term. The term is regarded as a “condition precedent” [Norris v Legal & General Assurance Society Ltd supra]. Accordingly, where the insured has failed to give notice within the time specified or, if no time has been specified, within a reasonable time, the insurer is entitled to refuse the claim, irrespective of whether the insurer has suffered any actual prejudice as a result. Strict compliance will be required and any non-compliance, whether because of ignorance or impossibility, however reasonable, will amount to a breach of the term.” (footnote omitted).
In Thomson v Federated Timbers (KZD) (2011), an unreported case, the well-known, as he was then, Wallis J, currently a Judge of the Supreme Court of Appeal, considered the notice requirement. In this regard the relevant facts were as follows:
Mr Thompson (the Plaintiff) alleged that he had sustained injuries after he tripped over an electrical cord at a shopping centre owned by Federated Timbers (the First Defendant). The First Defendant pleaded that it had employed Durban Property Cleaning Services (“DPCS”) as an independent contractor to attend to the cleaning of its premises. DPCS notified its insurers, Zurich Insurance Company (South Africa) Limited (“Zurich”), of the joinder, claiming indemnity from Zurich. Zurich rejected the claim alleging that DPCS failed to comply with the notification provisions of the policy. As a result DPCS joined Zurich as a third party to the action. The relevant issue to be decided was thus at what stage it was reasonably possible for DPCS to have notified Zurich of the event?
The notification clause (clause 6) in the policy proved as follows:
“a) On the happening of any event which may result in a claim under this policy, the insured shall, at their own expense
i. give notice thereof to the company as soon as reasonably possible … ”The Court held that “the requirement that the notification be made so soon as reasonably possible must mean so soon as is reasonably practicable in all the circumstances. The enquiry is a factual one. And the answer will depend upon the circumstances of each particular case”.
The Court held further that while the test for reasonableness is an objective one, it highlighted the necessity to consider certain subjective elements. The Court stated that “it is perfectly conceivable that an insured person may know that an event has occurred but have no knowledge of the potential for a claim to arise in consequence of that event”. The Court went on to emphasise that “even if the insured is aware that a particular event has occurred and that damage has resulted, the circumstances may be such that there is no appreciation of the potential for a claim. That is particularly so when dealing with the type of cover under consideration in this case”.
The Court held that two issues potentially arise as to whether in fact there was an appreciation of the possibility of a claim being made under the insurance policy or not:
(i) If there was such an appreciation then that is an end to the matter. The obligation to notify the insurer of the relevant event is then clear. (ii) If, however, the court is not satisfied that there was such an appreciation, that does not resolve the issue the other way. If the failure to appreciate the possibility of a claim is unreasonable, in the sense that a reasonable insured in the same position would appreciate the possibility of a claim, the fact that this particular insured did not [appreciate the possibility of a claim] cannot, relieve it of the consequences of its failure to notify the insurer of the event.
The Court thus considered DPCS’ approach as to why Zurich was not notified of the claim earlier. The Court held that DPCS did not fully appreciate the obligation imposed under Clause 6(a)(i). The Court stated (in paragraph 13 of the judgement) that:
“That obligation is to notify the insurer of the happening of any event, such as Mr Thompson’s fall, which could lead DPCS to make a claim against Zurich under the insurance policy. It is not an obligation to notify of the event only if or once a claim has been made. The fact that the obligation to notify the company of a claim against the insured is dealt with separately in sub-clause (iii) from the obligation to notify the company of an event in sub-clause (i) makes it clear that the obligation to notify the insurer under the first clause is not dependent upon a claim having been made against the insured. The obligation to notify the insurer of a claim arises separately under clauses 6(a)(iii) and (iv).”
The Court found that when DPCS was informed about this incident it appreciated that there was some small risk that it might result in a claim that it would, in turn, refer to its insurer for an indemnity. The Court thus dismissed the claim for an indemnity against Zurich.
It is clear from the above case law and authority that in broad terms three issues potentially arise when determining whether in fact there was appreciation of the possibility (circumstances) of a claim which must be reported to an insurer:
10.1 If there was as a fact an appreciation, then it is the end of the enquiry as the obligation to notify an insurer will then be clear.
10.2 If the court is not satisfied that there was as a fact such an appreciation, that does not resolve the is- sue the other way. If the failure to appreciate the possibility of a claim is unreasonable, in the sense that a reasonable insured in the same position would appreciate the possibility of a claim, the fact that the insured did not appreciate the possibility of a claim cannot relieve it of the con- sequences of its failure to notify the insurer of the event. The key question for determination will therefore be whether the failure to have appreciated the possibility of a claim was reasonable or not. If it was unreasonable, notification was late and the insurer may be entitled to repudiate liability. If it was not unreasonable, there was no late notification and the insurer cannot repudiate liability.
10.3 Even a small risk that it may result in a claim should be reported.
My recommendation to practitioners is to follow a conservative approach in respect of notification of circumstances which may give rise to a claim and rather notify the AIIF if in doubt.