There is an increasing trend in the UK towards accepting a blanket notification of claims, or circumstances that might give rise to a claim, as valid notification under an insurance policy. Australian companies should similarly consider notifying claims (or circumstances that could/ might give rise to them) as soon as they are discovered. If not, insureds run the risk of denial of coverage due to a failure to notify.
The High Court of England and Wales decision in McManus v European Risk Insurance Co  EWHC 18 (Ch) (McManus) provides further international judicial support for the validity of blanket notifications under 'claims made' insurance policies. The Court held that blanket notifications can be valid, even where they do not identify each specific transaction from which later claims might arise.
McManus v European Risk
The claimants in McManus were partners of a law firm, McManus Seddon Runhams (MSR), which had purchased the practice of another firm, Runhams. Runhams had itself purchased another firm, Sekhon Firth, in October 2010. The defendant, European Risk Insurance Co (European Risk), was MSR's professional indemnity insurer under a 'claims made' policy. The policy required MSR to notify European Risk as soon as practicable of 'circumstances' of which MSR first became aware during the policy period. 'Circumstances' were defined in the policy as 'an incident, occurrence, fact, matter, act or omission which may give rise to a claim…'
Within 11 months of purchasing Sekhon Firth, 17 claims arising from Sekhon Firth's practice had been made against MSR, including alleged breach of fiduciary duty, breach of contract and negligence. MSR reported the claims to European Risk. MSR also arranged for a sample of Sekhon Firth's files to be audited which revealed 'a consistent pattern of breaches' by Sekhon Firth.
In September 2012 MSR sent a letter to European Risk, entitled 'Blanket Notification of Circumstances which may give rise to claims' (Notification). The Notification stated that:
? there was considerable similarity between the allegations in the 17 reported claims and a number of the 32 audited files;
? Sekhon Firth had previously been subject to disciplinary proceedings;
? 3 ex-Sekhon Firth employees alleged that the poor working practices identified in the audited files and the subject of the disciplinary proceedings were endemic in the firm; and
? a random review of 110 further files confirmed MSR's 'worst suspicions' of shortcomings identified in the Notification.
The Notification concluded that every file was 'more likely than not to contain examples of malpractice, negligence and breach of contract…and should be properly notified…as individually containing shortcomings on which claimants will rely for the purposes of bringing claims.' The Notification estimated there were about 5,000 such files and enclosed a spreadsheet identifying them.
European Risk rejected the Notification in respect of all files except the 32 audited files as MSR had failed to identify 'the specific incident, occurrence, fact, matter, act or omission which would give rise to a Claim on each individual file.'
MSR challenged the rejection and sought a declaration from the Court that its blanket notification was valid.
The Court held the Notification was a valid notification, even though it did not identify specific claimants or transactions from which future claims might arise and that European Risk's rejection of it was wrong. The Court affirmed the leading English cases (J Rothschild Assurance Plc v Collyear  Lloyd's Rep IR 6; HLB Kidsons v Lloyd's Underwriters  EWCA Civ 1206) on blanket notifications and stated 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.' (emphasis added)
The Court, however, declined to issue a declaration concerning MSR's rights, stating that whether European Risk would be required to pay out any claims would depend on the nature of the future claims, if any were made at all, and whether the claims arose from circumstances that were validly notified.
Implications for Australian insureds
This decision illustrates the increasing UK trend towards accepting 'blanket notifications' of claims or circumstances that might give rise to claims as valid notifications. This trend may be followed by Australian Courts and insurers for professional indemnity policy notifications and potentially under other policies as well.
It is important to remember this more lenient approach cuts both ways. Whilst McManus is authority that 'blanket notifications' can be valid, insurers may seek to rely on the UK trend to argue that insureds should have notified circumstances earlier (e.g. in a previous policy period or in a proposal form) and deny cover. To safeguard against the risk of denial of cover, Australian companies should consider notifying insurers of their claims or circumstances that could give rise to them at the earliest possible time. In a construction context, this could include notification of a potential defect where the full extent or nature of the defect is not known.
Note: An appeal of this judgment has been filed and the appeal hearing is anticipated to take place in the latter half of 2013.