The Impact of Breaching a Notification Provision
In the next in our series on policy pitfalls, Marsh’s Complex Claims & Disputes Team follows October’s article on notification with a review of the possible impacts of failure to comply with notification provisions in the policy.
The impact of a breach of any policy term will depend on the wording of the relevant term, the legal/technical classification of that term, and the governing law of the policy.
In the case of a notification provision, it may be that a failure to notify in accordance with the policy will give the insurer a remedy in damages for any prejudice it has suffered due to the late notification (which may be difficult to prove).
However, if the notification provision is a condition precedent then the breach is more serious. A condition precedent is a condition that requires something to be done, or not done, in order for the insurer to be liable under the policy. Strict compliance with such terms is therefore required by the policyholder.
As with all claims conditions in both first-party loss and third-party liability covers, look for terms such as “Insurers will not pay unless…” or “Insurers shall have no liability unless…”, which can amount to a condition precedent to liability.
If the insurer can show breach of a notification provision that is a condition precedent, the insurer does not need to have suffered any prejudice as a result of the breach – it is simply discharged from liability for that claim. This is the case even under the Insurance Act 2015.
- Be particularly wary when the policy term is expressed to be, or could be construed as, a condition precedent, and comply with it strictly.
- Watch out for general terms which say, “Compliance with all of the terms of this policy shall be a condition precedent to insurers’ liability.”
- Watch out for notification requirements included within the insuring clause – these will often have a similar effect to a condition precedent as the policy will simply not be triggered absent the required notification.
In the next of our series, we will look at the difficulties associated with dealing with losses without reference to insurers. In the meantime, you can find out more about breaching notification provisions and other policy pitfalls in our paper.