U.K. Court Puts Insurer to Bed Over Blanket Notification

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McManus Seddon Runhams v European Risk Insurance Company, [2013] EWHC 18 (Ch) 

A recent United Kingdom decision from the High Court of Justice held blanket notifications valid to claim coverage under a professional indemnity insurance (PII) policy. The case provides helpful guidance to law firms with PII on what constitutes a valid notification of circumstance under a PII policy.

In October 2010, the law firm of McManus Seddon Runhams (McManus) acquired Sekhon Firth (Sekhon). By May 2012, McManus discovered 17 breach of fiduciary duty claims from Sekhon’s previous case files. McManus notified its insurer, the European Risk Insurance Company (ERIC), of the 17 claims pursuant to the firms PII policy. PII policies cover claims that arise from professional misconduct.

McManus hired a consultant to review 32 Sekhon files to determine if more potential claims of negligence would arise. The audit revealed potentially 5,000 future negligence claims for breach of duty on behalf of Sekhon’s files.

McManus’s PPI policy required that the ERIC must be notified of any “circumstance” where the insured becomes aware of a claim for coverage. The policy defined “circumstance” as “an incident, occurrence, fact, matter or act or omission which may give rise to a claim in respect of civil liability.” The policy covers any loss arising from circumstances in the future so long as the insurer is notified of the circumstance during the coverage period.

On September 21, 2012, McManus notified the ERIC of the potential 5,000 claims through a letter titled “Blanket notification of circumstances which may give rise to claims.” The ERIC rejected McManus’ notification letter on grounds that the 5,000 claims failed to identify the “specific incident, occurrence, fact, matter, act or omission which would give rise to a claim on each individual file” required under the PII policy.

McManus sought declaration from the High Court that its blanket notification was valid and ERIC was required to cover the potential claims. ERIC argued there was no valid notification of the 5,000 claims because McManus did not clearly identify the specific “circumstances” of potential claims.

On January 17, 2013, the court granted McManus’ declaration validating the notification to all 5,000 claims. The court applied the principles laid down in J Rothschild Assurance Plc v Collyear [1998] C.L.C. 1697 and HLB Kidsons (A Firm) v Lloyd’s Underwriters [2008] EWCA Civ 1206 to come to its decision. In those cases, the court validated blanket notifications for claim coverage. Based on Rothschild and HLB Kidsons, the judge concluded that McManus’ blanket notification of the 5,000 claims was valid, even though each claim was not clearly identified in the notification.