Can insurers refuse cover for late notification?

Moloney v Cashel Taverns Limited (In Voluntary Liquidation) & Anor (10 December 2020)

The High Court held that an insurance company was justified in refusing indemnity to its insured where the insured was fully aware of the incident giving rise to the claim but failed to promptly notify them.

Background

The plaintiff suffered an accident at work while working for Cashel Taverns Limited (“the insured”), injuring her ankle and shoulder. The plaintiff initially brought proceedings against the insured only and was awarded general damages in the sum of €35,000 and special damages in the sum of €2,332. However, as the insured was subsequently put into voluntary liquidation, the plaintiff applied to join the insurers of the insured as a co-defendant to the proceedings pursuant to section 62 of the Civil Liability Act 1961.

The insurance company had not been notified of the incident giving rise to the claim until some seventeen months after it happened (the insured only notified the insurance company when the “letter before action” was received by it) and made it clear, from the outset, that it was reserving its rights under the insurance policy. After its investigations, the insurance company advised the insured that it would not be providing an indemnity in relation to the claim. The insurance company contended in the High Court that it was entitled to repudiate liability and that it had validly refused to indemnify the claim. The High Court was asked to determine if the insurance company was obliged to pay the damages awarded to the plaintiff in the initial proceedings.

High Court

The High Court (Heslin J.) found that the insurance policy placed a clear obligation on the insured to notify claims promptly and the facts before the court showed that the insured failed to do so.

The insured argued that knowledge of the incident was held by the manager, as opposed to a director of the company, and that as a “manager” was defined as an “employee” in the policy, the manager’s knowledge of the incident did not constitute knowledge on the part of the insured. The Judge rejected this on the basis that the policy does not refer to whom, within the insured, must possess the knowledge and held that the only reasonable interpretation of the policy was that the insured was obliged to notify insurers of the incident promptly once it became aware of it.

In particular, the Judge stated:

“If this Court were to hold….that knowledge on the part of the most senior manager on the insured’s premises did not constitute knowledge on the part of the insured it would: (i) do violence to the plain meaning of the … contract…. (ii) it would also render the … contract entirely unworkable and deprive it of the business efficacy it currently has; and, (iii) it would be wholly inconsistent with the evidence which demonstrates that the insured acknowledged that there had been….late notification and ultimately did not dispute the fact of indemnity having been refused by [the insurance company] or the validity of the reason for that refusal.”

Further, the Judge viewed the fact that the insured had been dealing with PIAB in relation to the claim, and had made decisions at various points without reference to the insurance company, as evidence that the insured knew it did not have insurance cover for the accident.

Accordingly, the court found that the insurance company was entitled to repudiate liability and the plaintiff’s claim against it was dismissed.

Comment

It was stated to be common case between the parties in the above matter that it was not necessary for the insurance company to prove that it had suffered prejudice in order to refuse indemnity on the basis of late notification, albeit the court noted that it was clear from the evidence that the insurance company regarded itself as having suffered prejudice arising from late notification.

It is worth noting that since the events giving rise to this case took place, the majority of the provisions of the Consumer Insurance Contracts Act 2019 (“the act”) were commenced with effect from 1 September 2020. Section 16(3) of the act now provides that where non-compliance by a consumer (which includes a small business) with a specified notification period does not prejudice the insurer, the insurer shall not be entitled to refuse liability under the claim on that basis alone.

Further, section 21 of the act now provides that third parties can claim directly against an insurer in circumstances where the insured is deceased, cannot be found, is insolvent, or where the court believes it is just and equitable for them to do so. The act makes clear, however, that the insurer has the same defences to an action brought by the third party as the insurer would have in an action by the person.

You can view our previous briefing on the act here.

If you would like any further information in relation to this area please do not hesitate to contact a member of our Insurance Defence Team.