Facts
Kajima was the main contractor employed by the Joseph Rowntree
Foundation to design and build a block of flats in Leeds. The
development was part of an affordable housing scheme and the design
consisted of stacked, pre-constructed accommodation "pods".
Work finished in June 2000. That autumn, the Foundation
complained that water was "ponding" in the walkways and asked
Kajima to investigate. In February 2001, Kajima concluded the
problem was being caused by excessive settlement.
Kajima's professional indemnity insurance provided cover for
claims and "circumstances which might reasonably be expected to
produce a claim" notified to insurers during the policy period.
On 22nd February 2001, Kajima notified insurers of the problem
as a circumstance, reporting that the pods were "settling and
moving excessively; causing adjoining roofing and balconies and
walkways to distort under differential settlement". Insurers were
informed there was a risk of other damage and that investigations
were underway to identify or confirm the cause and its potential
effect.
By April 2002, however, Kajima was satisfied that the movement
had stabilised. On 10th April, this was reported to insurers,
although they were asked to keep their file open for 12 months
to see if the settlement remained static. The policy period of the
insurance ended on 19th May 2002.
Further investigations over the following months and years,
however, revealed a host of serious and extensive defects, some
connected with the original problem, some not. In September 2005,
the flats were found to be at risk of collapse and unfit for human
habitation.
Kajima ultimately reached settlement with the Foundation by
agreeing to purchase the flats. It now sought an indemnity under
the insurance policy, but insurers argued that most of the defects
were not covered by the February 2001 notification.
Judgment
The judge found the notification was only effective as regards
the specific circumstances notified and the consequences of those
circumstances. It could not be expanded to cover unrelated
defects coincidentally discovered as a result of further
investigations.
Guidance on notifying circumstances was given recently in
Kidsons v Lloyd's Underwriters
[2007].
That decision confirmed that a notifiable circumstance is
something that creates a reasonable and appreciable possibility
that it will give rise to a claim against the insured. But the
insured can only notify circumstances of which it is actually
aware. The scope of the notification depends on the objective
interpretation of the notice and the reasonable understanding of
the recipient.
In this case, the judge acknowledged it was possible for an
insured to notify a "can of worms" type of circumstance where the
full extent of the problem was not yet known. But the insured must
be aware of the circumstances it is notifying – it cannot simply
say "there may be some unknown and unidentified defects".
Here, the notified circumstances were quite specific - the
settlement or movement of the pods and the distortion of the
adjoining balconies, walkways and roofing. It was not a generalised
"can of worms" set of circumstances. At that time the insured had
no reason to believe any wider problems existed.
The aim of the investigation that followed was equally specific
– to identify the cause of the settlement or movement. If, during
the policy period, the investigation had revealed other, unrelated
defects, these would have had to have been notified to insurers as
separate circumstances.
Commentary
The case is another reminder to insureds to be vigilant about
the terms of any notifications they make to insurers where ongoing
problems are likely to occur - and to review those notifications as
problems emerge.
Clearly, a balance needs to be struck between being so
specific that the notification is limited to a very narrow
circumstance and wording it so vaguely (as in the Kidsons case) that a reasonable recipient would
not realise what, if any, circumstance is being notified.
The key issue is the insured's awareness at the time of the
notification. In this case, Kajima did not yet know (or even have a
suspicion of) the wider problems before the policy period expired,
so it is difficult to see how it could have validly notified them
to insurers.
As a result, even though it kept insurers well informed about
the growing list of defects over the following years, most of those
defects were not covered by the insurance.
