A condition precedent is a policy term that must be satisfied before the insurer's obligation to indemnify arises. Where a notification clause is expressed as a condition precedent to liability, an insured who fails to comply may forfeit cover for the affected claim - regardless of the merits of the underlying claim and, in many cases, regardless of whether the insurer suffered any prejudice from the delay. This is one of the reasons the notification clause deserves close attention when a policy is placed.
Notification clauses commonly require notice immediately, as soon as practicable, or as soon as reasonably practicable after the insured becomes aware of a claim or circumstance. These phrases are not interchangeable. Immediately is the most demanding. As soon as reasonably practicable allows a short, sensible period to gather basic facts, but it does not permit drift. The clock generally starts on the insured's awareness, so the firm needs a process for recognising when awareness has arisen and acting on it.
A frequent misunderstanding is that an insurer must show it was prejudiced by late notice before it can decline. For an ordinary contractual term that may be so, but for a true condition precedent it generally is not. In George Hunt Cranes v Scottish Boiler and General Insurance [2001] EWCA Civ 1964 the Court of Appeal confirmed that breach of a notification condition precedent entitled the insurer to decline, without any need to demonstrate prejudice. Aspen Insurance v Pectel [2008] EWHC 2804 (Comm) reinforced that clear condition precedent wording will be given effect. The insured cannot rely on the absence of harm to the insurer.
Engineers and surveyors frequently work on projects where problems emerge over long periods and where a single defect can generate multiple claims. On claims-made cover with a condition precedent notification clause, a delay in notifying the first sign of trouble can jeopardise the whole. Our guides to engineers' PI insurance and surveyors' PI insurance explain how these long-tail exposures interact with notification discipline.
Because the consequences of breach are severe, firms should know exactly what their notification clause requires and treat any potential claim or circumstance as time-critical. Where the wording is unusually strict, it may be possible at placement to negotiate more workable notification language - for example, tying the trigger to awareness by a specified individual rather than the firm at large. Firms should also make sure that everyone who might first learn of a problem - fee earners, project leads and account managers alike - knows to escalate it at once, because the notification clock does not wait for the matter to reach the person who buys the insurance. Apex reviews notification clauses before a policy is bound, flags condition precedent language and helps firms respond within time when something arises.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.