A Significant Judgment On Claims-Made Professional Indemnity Policies And Late Notification

Facts

The Plaintiffs operated restaurant businesses and appointed the Defendant, an insurance broker, to procure commercial insurance on their behalf. On 4 June 2019, the Defendant procured policies from Renasa Insurance Company Ltd, but these critically did not include an extended business interruption clause covering losses from infectious disease outbreaks.

When COVID-19 struck, the Plaintiffs suffered substantial losses due to lockdown measures. The Supreme Court of Appeal in Guardrisk Insurance Co Ltd v Cafe Chameleon CC held that insurers were obliged to indemnify under extended business interruption clauses, but the Plaintiffs' policies lacked such a clause.

In January 2021, the Plaintiffs complained that the Defendant had breached its mandate and issued letters of demand. The Defendant forwarded these demands to the Third Party on 1 July 2021.

The Third Party was the Defendant's professional indemnity insurer under successive policies (2020 policy: 1 September 2019 to 31 August 2020; 2021 policy: 1 September 2020 to 31 August 2021), both with a retroactive date of 1 September 2008. Crucially, on 1 June 2020, the Third Party notified policyholders that a COVID-19 exclusion clause would apply from 1 September 2020. The Plaintiffs sued the Defendant in March 2023, and the Defendant joined the Third-Party seeking indemnification; the Third Party repudiated the claim.

Issues in dispute

The central issues were: (1) whether the 2020 policy (without COVID-19 exclusion) or the 2021 policy (with exclusion) was operative; (2) whether the Defendant had complied with its notification obligations; and (3) the applicable limit of indemnity. The first issue turned on whether the policies were 'claims-made' (coverage determined by notification date) or 'loss-occurrence' (coverage determined by date of negligent conduct).

Court's findings and reasons

Claims-Made vs Loss-Occurrence

The Court explained that a claims-made policy provides coverage based on when a claim is notified, not when the negligent act occurred. Cover applies if a claim is brought during the policy period, even if the negligent act occurred years prior (provided it post-dates any retroactive date). By contrast, loss-occurrence policies link coverage to when conduct occurred.

The Defendant argued that its right to indemnification had 'vested' under the 2020 policy and could not be retrospectively extinguished. The Court rejected this, finding the policy wording clearly established claims-made policies: the insuring clause provided indemnification 'for any claim first made against You during the Period of Insurance', and notification was a condition precedent to indemnity.

The operative Policy and COVID-19 exclusion

Since the claims were made on 30 June 2021 and notified on 1 July 2021, the 2021 policy was operative. The Defendant's argument that the retroactive date entitled it to indemnification was rejected; the retroactive date merely establishes the earliest date from which negligent activities are covered but does not extend the policy period. The insured remains obliged to notify during an active policy period.

Since the 2021 policy applied, the COVID-19 exclusion clause—which excluded all claims 'directly or indirectly' related to COVID-19—defeated the Defendant's claim.

Breach of notification obligations

Alternatively, the Court held that the Third Party would have been entitled to repudiate due to the Defendants' breach of notification obligations. The policy required notification 'as soon as reasonably possible' of any claim or circumstance that might give rise to a claim. By January 2021, the Plaintiffs had sent accusatory emails leaving no doubt as to potential claims, yet the Defendant failed to notify the Third Party until 1 July 2021. This delay deprived the Third Party of the opportunity to investigate and mitigate liability.

The Defendant's claim for indemnification was dismissed with costs.

Significance for notifications in Claims-Made Policies

This judgment clarifies notification requirements in claims-made policies with significant implications for insured professionals.

First, the date of notification—not the negligent act—determines which policy responds; the retroactive date does not preserve rights under expired policies.

Second, timely notification of potential claims (not merely actual claims) is critical. Most claims-made policies contain deeming provisions whereby notifying circumstances during a policy period causes subsequent claims to be deemed made during that period. Had the Defendant notified the Third Party before 1 September 2020, it could have invoked the 2020 policy's deeming provision (avoiding the COVID-19 exclusion).

Third, breach of notification obligations entitles insurers to repudiate regardless of prejudice—such clauses are conditions precedent.

Finally, the case demonstrates how exclusions introduced upon renewal apply to all claims notified during that policy period, even where underlying conduct predates the exclusion. Insureds must review renewal terms carefully and notify circumstances promptly—particularly before material changes take effect.

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