10 January 2014
The English Courts have held that insurers are not entitled to reject a blanket notification filed by an insured. The Court ruled that a notification letter is valid as long as it has been a notification of circumstances that may give rise to a claim. It is not necessary for an insured to identify a specific incident or facts for each potential claim in the notification.
The claimants were partners of a firm of solicitors. In June 2011, they took over another firm, Runhams, and became McManus Seddon Runhams (MSR). Prior to the acquisition, Runhams had itself taken over another firm, Sekhon & Firth (SK), in October 2010. MSR was the successor practice so far as insuring against any claims against SK were concerned.
Starting from November 2011, MSR received several claims regarding files handled by SK. MSR then submitted a letter headed "Blanket notification of circumstances which may give rise to claims" to its professional indemnity insurer, European Risk, together with a report on 32 cases of potential malpractice. European Risk later rejected the notification via email, stating that although all 32 cases had circumstances attached to them that could give rise to a claim, the report did not identify the specific incident, occurrence, fact, matter, act or omission that would give rise to a claim on each individual file.
Subsequently, MSR brought proceedings against European Risk, seeking declaratory relief that the notification was valid.
Deputy Judge Rose held that the stance taken by European Risk in the rejection email was wrong and at odds with the case law. While European Risk purported that the notification is valid only when a "specific incident, occurrence, fact, matter, act or omission" had been identified "on each individual file", the Court followed the decision in J Rothschild Assurance plc v. Collyear  CLC 1697 and held that it was not necessary for the notification to be as prescriptive as that contended by European Risk.
The learned judge opined that "provided circumstances exist which may give rise to a claim, and provided those circumstances are notified, then any future claim arising out of those circumstances must be paid out by the insurer at risk at the time of notification whether or not the particular transaction or possible claimant has been identified at the time of notification."
In the Notification Letter, MSR stated that it is "more likely than not [for the files of SK and Runhams] to contain examples of malpractice negligence and breach of contract and so each and every file of the predecessor firms … should properly be notified to you as individually containing shortcomings on which claimants will rely for the purposes of bringing claims against [MSR] as successor practice" [emphasis added]. The Notification Letter estimated that there were about 5,000 files or case matters which may give rise to claims against the firm. Although it only enclosed a spreadsheet listing the many files from SK and Runhams without identifying the specific files which would give rise to a claim, the Court found that such blanket notification was valid notification.
However, the Court refused to grant MSR declaratory relief as it was considered that any declaratory relief would be either too narrow or too broad. The decision of Deputy Judge Rose was affirmed by the Court of Appeal on 2 December 2013.
The judgment confirms that blanket notification is valid provided that the insured has notified the insurer of circumstances which may give rise to a claim. Once the insurer has been duly notified, any future claim arising out of those circumstances must be dealt with by the insurer.
However, as pointed out by Deputy Judge Rose in her refusal to grant declaratory relief for the validity of the notification, the precise scope of the blanket notification is an issue to be determined as and when it arises in the context of an actual claim.
In light of this decision, it is recommended that if a blanket notification fails to give sufficient details of potential claims, the insurer should seek further information from the insured rather than simply rejecting the blanket notification.