Mr P Durose v GT Realisations Ltd (Formerly Gas Tag Ltd) (In administration) and Hiscox Insurance Ltd: 2409723/2020 Mr P Durose v GT Realisations Ltd (Formerly Gas Tag Ltd) (In administration) and Hiscox Insurance Ltd: 2409723/2020
EMPLOYMENT TRIBUNALS
Case No 2409723/2020
Between
Mr Paul DuroseClaimant(1) GT Realisations Limited (Formerly Gas Tag Limited) (In administration) (2) Hiscox Insurance LimitedRespondent
Before
Employment Judge HorneMr M Budworth (instructed by counsel) for claimantNot represented for respondentDate 8 June 2022
JUDGMENT
[1]In this judgment, the first respondent is referred to as “Gas Tag” and the second respondent is referred to as “Hiscox”.[2]Gas Tag’s contract of insurance with Hiscox contained a clause (“the notification clause”) which entitled Hiscox to withhold payment unless Gas Tag notified Hiscox promptly of the matters set out in the notification clause.[3]Neither Gas Tag nor the claimant notified Hiscox promptly of the matters set out in the notification clause.[4]Nothing in section 11 of the Insurance Act 2015 prevented Hiscox from relying on the notification clause to exclude its liability to Gas Tag.[5]Hiscox is therefore not liable to pay Gas Tag in respect of any losses arising from the claimant’s claim against Gas Tag.[6]Hiscox is therefore not liable to the claimant under the Third Parties (Rights against Insurers) Act 2010.[7]The claim against Hiscox is therefore dismissed. Case Number: 2409723/2020 2 of 4 Costs[8]Under rule 76 of the Employment Tribunal Rules of Procedure 2013, Hiscox is ordered to pay the claimant’s costs assessed in the sum of £2,000.00 inclusive of VAT. ________________________________ Employment Judge Horne 8 June 2022 SENT TO THE PARTIES ON 22 June 2022 FOR THE TRIBUNAL OFFICE Note – Reasons for the judgment were given orally at the hearing. The claimant has requested written reasons for paragraphs 1 to 7. These will follow. Written reasons for paragraph 8 will not be provided unless a party make a request in writing within 14 days of the date on which this judgment is sent to the parties. Where written reasons are provided, they will be published on the tribunal’s online register of judgments, which is visible to internet searches. Case Number: 2409723/2020 3 of 4 NOTICE THE EMPLOYMENT TRIBUNALS (INTEREST) ORDER 1990 Tribunal case number: 2409723/2020 Mr Paul Durose v GT Realisations Limited (Formerly Gas Tag Limited) (In administration) & Hiscox Insurance Limited The Employment Tribunals (Interest) Order 1990 provides that sums of money payable as a result of a judgment of an Employment Tribunal (excluding sums representing costs or expenses), shall carry interest where the full amount is not paid within 14 days after the day that the document containing the tribunal’s written judgment is recorded as having been sent to parties. That day is known as “the relevant decision day”. The date from which interest starts to accrue is called “the calculation day” and is the day immediately following the relevant decision day. The rate of interest payable is that specified in section 17 of the Judgments Act 1838 on the relevant decision day. This is known as "the stipulated rate of interest" and the rate applicable in your case is set out below. The following information in respect of this case is provided by the Secretary of the Tribunals in accordance with the requirements of Article 12 of the Order:- "the relevant decision day" is: 22 June 2022 "the calculation day" is: 23 June 2022 "the stipulated rate of interest" is: 8% Mr Paul Guilfoyle For the Employment Tribunal Office Case Number: 2409723/2020 4 of 4 INTEREST ON TRIBUNAL AWARDS GUIDANCE NOTE[1]This guidance note should be read in conjunction with the booklet, ‘The Judgment’ which can be found on our website at www.gov.uk/government/collections/employment-tribunal-forms If you do not have access to the internet, paper copies can be obtained by telephoning the tribunal office dealing with the claim.[2]The Employment Tribunals (Interest) Order 1990 provides for interest to be paid on employment tribunal awards (excluding sums representing costs or expenses) if they remain wholly or partly unpaid more than 14 days after the date on which the Tribunal’s judgment is recorded as having been sent to the parties, which is known as “the relevant decision day”.[3]The date from which interest starts to accrue is the day immediately following the relevant decision day and is called “the calculation day”. The dates of both the relevant decision day and the calculation day that apply in your case are recorded on the Notice attached to the judgment. If you have received a judgment and subsequently request reasons (see ‘The Judgment’ booklet) the date of the relevant judgment day will remain unchanged.[4]“Interest” means simple interest accruing from day to day on such part of the sum of money awarded by the tribunal for the time being remaining unpaid. Interest does not accrue on deductions such as Tax and/or National Insurance Contributions that are to be paid to the appropriate authorities. Neither does interest accrue on any sums which the Secretary of State has claimed in a recoupment notice (see ‘The Judgment’ booklet).[5]Where the sum awarded is varied upon a review of the judgment by the Employment Tribunal or upon appeal to the Employment Appeal Tribunal or a higher appellate court, then interest will accrue in the same way (from "the calculation day"), but on the award as varied by the higher court and not on the sum originally awarded by the Tribunal.[6]‘The Judgment’ booklet explains how employment tribunal awards are enforced. The interest element of an award is enforced in the same way. Case Number: 2409723/2020 1 of 14 EMPLOYMENT TRIBUNALS Claimant: Mr Paul Durose Respondents: (1) GT Realisations Limited (Formerly Gas Tag Limited) (In administration) (2) Hiscox Insurance Limited Heard at: Liverpool On: 7 June 2022 Before: Employment Judge Horne Representatives For the claimant: Mr M Budworth, counsel For the respondents: (1) Did not appear and was not represented (2) Mr S Pourghadiri, counsel Judgment was announced at a preliminary hearing on 7 June 2022. The judgment included disputed decisions relating to the liability of the second respondent (“Hiscox”) under a contract of insurance with the first respondent (“Gas Tag”). Those effect of those decisions was that the claim against Hiscox was dismissed. The claimant has requested written reasons for those decisions in accordance with rule 62 of the Employment Tribunal Rules of Procedure 2013. The following reasons are accordingly provided.
REASONS
[1]The claimant is a former employee of Gas Tag. He has presented a complaint that Gas Tag unfairly dismissed him.[2]At the time of the claimant’s dismissal, Gas Tag had a contract of insurance with Hiscox. I will refer to the contract as “the Policy”. Amongst the risks covered by the Policy was the risk of loss to Gas Tag arising from a claim of unfair dismissal.[3]Gas Tag is now in administration. Case Number: 2409723/2020 2 of 14[4]The claimant has amended his claim to include a claim directly against Hiscox for a declaration and judgment under section 2 of the Third Parties (Rights against Insurers) Act 2010.[5]It is common ground that: 5.1. In the light of Irwell Insurance Co Ltd v. Watson & others [2021] EWCA Civ 67, an employment tribunal has jurisdiction to consider a claim of this kind; and 5.2. Following Gas Tag’s entering administration, any rights that Gas Tag had against Hiscox in respect of Gas Tag’s liability to the claimant have now transferred to the claimant; but 5.3. The claimant can be in no better position against Hiscox than Gas Tag would have been if Gas Tag were claiming directly under the Policy. The notification issues[6]It is this last – agreed – principle which gives rise to this preliminary hearing. Hiscox denies that it would be liable to pay anything to Gas Tag under the Policy in respect of the claimant’s claim against Gas Tag. There are a number of grounds put forward by Hiscox for resisting such liability. The parties have conveniently labelled these grounds “coverage issues”.[7]One set of coverage issues relates to alleged non-compliance by Gas Tag with a clause in the Policy which required Gas Tag to notify Hiscox promptly of matters set out in that clause. Collectively, it is convenient to refer to these issues as “the notification issues”. For various reasons it is not necessary for me to determine any of the other coverage issues at this preliminary hearing.[8]In a case management order sent to the parties on 11 January 2022, the notification issues were set out in this way:(a) Was there a failure to comply with General Condition 1 of the policy and/or the notification clause in the employment practices liability terms on the basis that the claimant’s claim was presented on 12 August 2020 and Hiscox was first notified of the claimant’s claim on 22 April 2021 by the claimant?(b) To what extent can Hiscox repudiate liability to indemnify Gas Tag (and its liability to pay anything to the claimant under the 2010 Act) as a result of Gas Tag’s failure to notify the claim in accordance with policy terms and conditions?[9]On reading the provisions of the Policy, the parties’ skeleton arguments and following some preliminary discussion, it became clear that these issues were capable of further refinement. I return to the notification issues later in this judgment. Evidence and submissions[10]I considered documents in a 420-page bundle and read both counsel’s skeleton arguments. Both counsel then made oral submissions. My task was made considerably easier because of the high quality of the written and oral arguments on both sides. The Policy The insured risks and the General Terms and Conditions Case Number: 2409723/2020 3 of 14[11]The Policy covered Gas Tag against various categories of risk. One of the risk categories was “Management liability - employment practices liability”.[12]The Policy set out General Terms and Conditions which were stated to apply to the whole of the Policy. These included the following: General claims conditions The following claims conditions apply to the whole of this policy. You must also comply with the conditions shown in each section of the policy under the heading, Your obligations. Your obligations 1. We will not make any payment under the policy unless you a. give us prompt notice of anything which is likely to give rise to a claim under this policy in accordance with the terms of each section…”[13]Other General Terms and Conditions related to “presentation of the risk”. These terms specified that, in the event of deliberate or reckless failure to present the risk fairly, Hiscox “may treat this policy as if it never existed and refuse to make any payment under it.” Nobody suggests that Gas Tag misrepresented the risks in this case. The claimant suggests, however, that the clause is significant. The clause is held up by the claimant as an example of Hiscox spelling out clearly what the consequences would be in the event of certain actions or omissions on Gas Tag’s part. Hiscox could, the claimant says, have chosen to adopt the same form of words for the notification provisions, but did not do so. I will return to this argument. The employment practices liability section[14]The Policy contained a section headed, “Management liability – employment practices liability”.[15]Certain words and phrases were defined for the purpose of the section. Relevant definitions include the following: ““Claim” – “ … civil … proceeding first made against you … alleging an employment practice wrongful act” “Employment practice wrongful act” – Any actual or alleged act, error or omission committed or attempted by you … relating to any actual or alleged…. unfair dismissal…harassment, unlawful discrimination…” … “Loss” – In respect of a claim the amount you become… liable to pay, including following a settlement entered into with our written agreement, for…awards of damages…defence costs and legal representation costs” …”[16]For the claimant, Mr Budworth drew my attention to other definitions and elements of definitions, such as “insured person”. I considered these definitions and their impact, but decided that they were not sufficiently relevant to set them out in full.[17]The section then set out “What is covered”. This included: Case Number: 2409723/2020 4 of 14 “Claims against you - We will pay on behalf of you… the loss arising from a claim for an employment practice wrongful act … brought by… your employee…” The notification clause[18]Further along in the section one finds what on any view is the clause at the heart of the notification issues. I call it “the notification clause”. I have set out the relevant text with added emphasis. “Your obligations Notification We will not make any payment under this section … unless …you or any insured person notifies us promptly of the following within the period of insurance or at the latest within 14 days after it expires for any problem you become aware of within the seven days before expiry:(i) you or an insured person’s first awareness of any employment practice wrongful act that is likely to lead to a claim or investigation; or(ii) any claim or threatened claim against you or an insured person.”[19]Further provisions provided for Hiscox to take control of the conduct of the proceedings against the employee on Gas Tag’s behalf.
Relevant facts
[20]On 12 August 2020, the claimant presented a claim form to the tribunal alleging that Gas Tag had unfairly dismissed him.[21]Gas Tag presented its response to the claim on or about 17 September 2020. The response was on form ET3, accompanied by 49 paragraphs of Grounds of Resistance. Addleshaw Goddard LLP was named as Gas Tag’s representative.[22]On 14 October 2020, Gas Tag entered administration.[23]By letter dated 22 April 2021, the claimant’s solicitors notified Hiscox of the claimant’s claim against Gas Tag. The notification issues revisited[24]Having examined the Policy, and having heard the parties’ arguments in more detail, I have found it helpful to refine the notification issues and to alter the order in which they should be determined. Consequences of non-compliance[25]One issue (set out at paragraph 8(b) above) relates to the consequences of noncompliance. There are, in fact, two distinct disputes here.[26]One area of disagreement is about the effect of section 11(2) of the Insurance Act 2015. Is Hiscox prevented from relying on the notification clause to exclude its liability to Gas Tag?[27]The second dispute relates to the interpretation of the Policy. What did Hiscox and Gas Tag agree? Did they agree that, in the event of failure to notify Hiscox promptly of a claim brought by an employee, Hiscox should be entitled to withhold any payment in respect of that claim? Or did they agree that the consequences for Case Number: 2409723/2020 5 of 14 Gas Tag should be less severe than that? For example, is the proper interpretation that the notification clause was a mere warranty, breach of which might entitle Hiscox to claim damages for losses incurred by the late notification? Compliance[28]The issue at paragraph 8(a) above is whether Gas Tag did or did not comply with the notification clause. This issue turns on a single question: did Gas Tag notify Hiscox of the claim “promptly”?[29]Initially, it seemed as if there might be another contested matter to determine under his heading. Hiscox had previously sought to argue that, even if the notification had been prompt, Gas Tag still fell foul of the notification clause, because the notification occurred after the expiry of the period of insurance. That argument has since been abandoned.[30]Everyone agreed that event that set the clock running was the claimant’s presentation of his claim to the tribunal on 12 August 2020. (It might have been open to Hiscox to argue that earlier events called for earlier notification. Mr Budworth, for the claimant, gave the example of the claimant’s appeal against dismissal. As it turned out, Hiscox did not put forward such an argument.)[31]It was also common ground that the claim was first notified to Hiscox on 22 April 2021.[32]It was, of course, the claimant, and not Gas Tag, who notified Hiscox of the claim. Neither party contends that anything turns on that. Under section 9(2) of the 2010 Act, anything done by the third party in fulfilment of a condition is to be treated as having been done by the insured.[33]These helpful concessions enabled me to narrow the compliance issue still further: was it “prompt” to notify Hiscox of the claim 8 months after it was presented to the tribunal?[34]If Gas Tag complied with the notification clause, the two questions at 8(b) (which both relate to the effect of non-compliance) are academic. It might therefore be wondered why I have left it until last to decide whether or not Gas Tag actually did comply. The reason why I have taken that course is because of a disagreement of pure law about what “promptly” means. The claimant’s position is that, the more draconian the consequences of non-compliance with a term, the more generously the term should be interpreted at the stage of working out whether or not the alleged defaulting party has complied with it. In other words, if the consequences of not being prompt are that Hiscox can refuse to pay the claim altogether, the word “promptly” should be given a more generous interpretation than if late notification simply gave rise to a potential claim for damages. The respondent disagrees with this analysis. In view of the clash, I thought it best to determine what the legal effect of breach of the notification clause would be before deciding whether or not Gas Tag complied with it. Relevant law Rights of third parties
Relevant law
[35]Both counsel helpfully set out the statutory background of the 2010 Act and the legal principles to be derived from Irwell. I have not found it necessary to repeat them. They do not assist me to resolve the notification issues in their refined state. Case Number: 2409723/2020 6 of 14 Interpretation of a contract of insurance[36]Employment tribunals are used to interpreting contracts of employment and contracts for personal work. Distinct principles of interpretation apply to such contracts. At the risk of over-simplification, the tribunal must focus on the reality of the parties’ obligations and whether the contractual wording reflects that reality.[37]The Policy is a contract of a quite different nature. It is to be interpreted according to the general law of contract. If there any special principles of interpretation to be applied, they are to be found in the law of insurance, not in employment law.[38]Generally, when interpreting a written contract, a court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The starting point is the language of the agreement itself. Commercial common sense and the surrounding circumstances may be relevant, but the clearer the natural meaning of the contractual words, the more difficult it is to justify departing from that meaning. Authority for these propositions can be found in Arnold v. Brittan [2015] UKSC 36 at paras 15-23. Notification clauses[39]Notification clauses are commonly found in contracts of insurance. Typically they require notification at two stages. One is the “happening of an event which may give rise to a claim” (see George Hunt Cranes Limited v. Scottish Boiler and General Insurance Co Ltd [2001] EWCA Civ 1964). (In this context, a “claim” is the insured’s claim under the insurance policy.)The function of this obligation is “to put the insurer on notice that a claim may be coming rather than a necessary indication that it is time to investigate”. This is typically followed by an obligation to provide further information once a claim has actually been made under the policy and the insurer is in a position to investigate. The purposes of such this requirement are to enable the insurer to make a reasoned decision as to the amount of cover, the apparent amount of the loss and what investigations are necessary and advisable. Effect of non-compliance[40]The effect of non-compliance with notification clauses is addressed in Colinvaux’s Law of Insurance, 12th Ed at para 10-02, which contains this passage. “The consequences of the assured’s failure to comply with a claims condition depend upon its wording. The policy may well specify the consequences of a failure to comply with the notice provision, in which case those consequences must follow; in general, such a clause will confer upon insurers the right to reject the claim. However, notification of the loss may simply be expressed as a “condition”. Here, it is necessary to classify the condition in order to ascertain the consequences of its breach.”[41]I have added the emphasis. I might add that Mr Pourghadiri also emphasised these words in his skeleton argument.[42]When ascertaining the contractual effect of failure to comply with the notification clause, appellate decisions distinguish between “conditions precedent” and other types of term. Where a notification clause is a condition precedent to the insurer’s liability in respect of a particular claim, breach of that clause entitles the insurer to reject the claim altogether. It is not necessary in those circumstances for the Case Number: 2409723/2020 7 of 14 insurer to show that they have suffered any disadvantage (or “prejudice”) as a result of the non-compliance: see Colinvaux at 10-02 and McGillivray on Insurance Law at 19-039. By contrast, where notification is not a condition precedent, the insurer may have to fall back on a claim for damages against the insured.[43]The concept of a condition precedent offers helpful clarity, but, in my view, it is a means to an end. Ultimately, the tribunal’s task is to ascertain what the parties intended the consequence should be in the event of non-compliance with the notification clause.[44]When searching for the meaning of a notification clause, the tribunal should construe the insurance policy as a whole: Cox v. Bankside Members Agency Ltd [1995] 2 Lloyds Rep 437, 453. The notification clause should not be treated as a mere formality which is to be evaded at the cost of a forced and unnatural construction of the words. Rather, the words should be construed fairly to give effect to the object for which they were inserted. At the same time, the tribunal should seek to protect the policyholder from being trapped by obscure or ambiguous phraseology: George Hunt Cranes at para 11 and Denso Manufacturing UK Ltd v Great Lakes Reinsurance (UK) Plc [2017] EWHC 391 (Comm) at para 27.[45]Welch v. Royal Exchange Assurance [1939] 1 KB 294 provides an example of how an ambiguous notification clause was interpreted so as to defeat the insurer’s attempt to escape liability. In that case, the wording was, “no claim under this policy shall be payable unless the terms of this condition have been complied with”. Correctly interpreted, this clause was held to entitle the insurer to postpone payment pending compliance, but not to entitle the insurer to avoid payment altogether.[46]Reported cases abound in relation to the classification of notification clauses. Contractual terms are capable of being “conditions”, “warranties” or “innominate terms”. See, for example, Alfred McAlpine plc v BAI (Run-Off) Ltd [2001] 1 Lloyd's Rep 437. In the reported cases it has been important to decide which of these types of term a particular notification clause was. Some of the reported cases address deeming provisions, in which the contract purports to classify all the terms as being “conditions” or “conditions precedent”. Other cases concern the entitlement of the insurer to repudiate the contract for breach of a term, in the absence of an express agreement as to what the consequences of the breach should be. In my view it is unnecessary to set out these cases. They do not address clauses in which the parties expressly and specifically provide for the consequences of non-compliance with a notification clause. This point was emphasised by the Court of Appeal in George Hunt Cranes at paragraph 21.[47]It is worth mentioning one further observation in George Hunt Cranes. Where the clause in question requires immediate notification of “a happening likely to give rise to a claim” (the first stage identified above), the courts are generally very slow to hold that the clause is a condition precedent to the insurer’s liability. But that is where the parties have not specifically stated what the consequence should be of non-compliance with that particular term. The extent of the obligation[48]A notification clause also needs to be interpreted in order to establish whether or not the policyholder has complied with it. There must be some means of Case Number: 2409723/2020 8 of 14 ascertaining how long the policyholder has before his or her time runs out. In this case it comes down to what Hiscox and Gas Tag meant by the word “promptly”.[49]I am told that there is no legal principle defining what “promptly” means.[50]Where the obligation was to provide notification “within a reasonable time”, it was held that what amounts to a reasonable time will depend on the facts of the individual case. There is no rule that the timing is always reasonable unless the insurer can show some disadvantage caused by the delay: Shinedean Ltd v. Alldown Demolition (London) Ltd and another [2006] EWCA Civ 939.[51]In my view, when interpreting the word “promptly” in a notification clause, the tribunal should bear in mind the following: 51.1. The Policy as a whole. Other wording may shed light on the parties’ intentions as to what “promptly” should mean. 51.2. The consequences of non-compliance. Before directing myself in this way, I had to resolve the competing legal arguments summarised at paragraph 34 above. I prefer the claimant’s argument on this point. The more draconian the agreed consequences of a particular failure to comply with a term, the more likely it is that the parties would intend to reduce the time pressure for complying with it. On Hiscox’s case, the agreed consequence of failure to notify “promptly” would be to absolve Hiscox completely from any liability in respect of the late-notified claim. Mr Pourghadiri took issue with the label, “draconian” to describe that consequence. He pointed to other clauses (such as misleading presentation of the risk) that allow Hiscox to refuse to pay out on any claims at all. By contrast, he observes, the notification clause bites only on one claim. Whilst that is true, I do not think it the word, “draconian” is inapt to describe the complete rejection of a claim on the ground of late notification. If that is what the parties intended should happen, it is more likely that they intended that the word “promptly” should give Gas Tag a reasonably generous timescale in which to notify. 51.3. The facts of the individual case. The parties are likely to have intended that, depending on the circumstances, a given number of days may be prompt in one case but not in another. Otherwise they would have specified a finite number of days. 51.4. The purpose of the notification provision. This includes informing the insurer that the stage has been reached that there is claim that will need to be investigated, so that the insurer can make reasoned decisions, including what kind of investigation to make. A person is less likely to be found to be acting promptly if the length of the delay is such as might frustrate those purposes. Insurance Act 2015[52]Section 11 of the Insurance Act 2015 provides, relevantly: 11Terms not relevant to the actual loss(1) This section applies to a term … of a contract of insurance, other than a term defining the risk as a whole, if compliance with it would tend to reduce the risk of one or more of the following— (a)loss of a particular kind, (b)loss at a particular location, Case Number: 2409723/2020 9 of 14 (c)loss at a particular time.(2) If a loss occurs, and the term has not been complied with, the insurer may not rely on the non-compliance to exclude, limit or discharge its liability under the contract for the loss if the insured satisfies subsection (3).(3) The insured satisfies this subsection if it shows that the non-compliance with the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.[53]It is common ground that section 11 applies to a term regardless of whether that term is classified as a condition precedent, warranty or innominate term.[54]When deciding whether or not section 11 applies to a term, the tribunal must assess whether or not compliance with that term would tend to reduce the risk of loss in one of the listed ways. That assessment is objective. At this stage of the analysis, the tribunal should focus on the clause itself, and not pay regard to whether or not compliance with the term actually did affect the risk when the loss actually occurred.[55]The Explanatory Notes to section 11 give an example of a term falling within section 11(1): “For example, where a property has been damaged by flooding, it is expected that an insured could show that a failure to use the required type of lock on a window could not have increased the risk of that loss. In this case the insurer should pay out on the flood claim.”[56]Section 11 was enacted to give effect to Law Commissions’ July 2014 Report Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment. This report also provides examples of terms that would be caught by section 11(1). These are: 56.1. A requirement for a particular type of padlock 56.2. A requirement for a fire safety system 56.3. A requirement for a night-watchman.[57]The obligation to pay the premium is given as the example of a term wholly unrelated to the risk.[58]The application of section 11(1) to notification clauses has not been considered at an appellate level, but has attracted the attention of academic commentators. Writing in the Law Quarterly Review at LQR 2016, 132 (July) 445-469, Robert Merkin QC and Ȍslem Gürses gave this opinion: “The IA 2015 is not designed to have any effect on policy terms unrelated to the risk. Such terms include notification provisions, co-operation, mitigation and subrogation protection. Conditions precedent relating to such matters have full effect and, if broken, give insurers an absolute defence even though there is no prejudice to the insurers. It might be argued that the words in s.11(1), "if compliance with it would tend to reduce the risk of … loss of a particular kind", could refer to the insurer’s loss and not that to the assured. Thus, if the assured under a claims-made liability policy fails to notify insurers within the policy year of a claim made against it, or of circumstances becoming known to the assured that might give rise to a claim, the insurer may be unable to defend the assured properly in subsequent proceedings: thereby giving rise to "loss of a particular Case Number: 2409723/2020 10 of 14 kind". That interpretation is, however, strained. The word "loss" as used in s.11 appears to refer to the assured’s loss only: that is the only possible interpretation of the words "liability under the contract for the loss" in s.11(2). This is not an oversight or flaw in drafting, but a deliberate decision by the Law Commissions to confine reform to risk clauses only.”[59]In broad terms, I agree. I would add this: 59.1. The “loss” mentioned in section 11(1) must be the loss to the insured, not the loss to the insurer. Otherwise, section 11(2) would make no sense. The contract is not for the insurer’s loss. 59.2. Compliance with notification clauses, in general, does not tend to reduce the risk of loss to the insured. Usually, by the time the obligation to notify arises, the risk of loss has already materialised and cannot be reduced. Using the examples of property damage insurance drawn from the Law Commission, it is only once the policyholder’s property has been burgled or flooded or firedamaged that the policyholder will generally be required to inform the insurance company. That is, no doubt, why all the examples of section 11(1) risk terms relate to precautions that make the burglary, flooding or fire damage less likely to happen. 59.3. That said, it would, in my view, be an error to hold that a notification clause can never fall within section 11(1). There is no substitute for applying the statutory test to a given notification clause.
Conclusions
[60]I return once more to the notification issues. Can Hiscox rely on the notification clause to limit liability?[61]I start with the question of whether Hiscox was or was not prevented from relying on the notification clause to limit its liability to pay Gas Tag in respect of losses arising out of the claimant’s claim.[62]The parties disagree about whether or not the notification clause fell within the definition in section 11(1).[63]Hiscox does not contend that the notification clause was a term “defining the risk as a whole”. Rather, Hiscox’s position is that a notification clause does not deal with risks at all.[64]I have already rejected the argument that there is a hard and fast rule excluding notification clauses from section 11. What I must consider is whether, objectively, compliance with the notification clause would or would not tend to reduce the risk of loss of a particular kind or at a particular time. When doing so, I bear in mind that, in general, notification clauses are considered not to be risk clauses. There must be something about this particular term that affects risk in such a way as to distinguish it from notification clauses in general.[65]It is worth remembering what “loss” is relevant for the purpose of this exercise. If section 11(1) applied to the notification clause, the relevant loss would have to be the loss that was covered in the Section headed “Management liability – employment practices liability”. That loss is defined. It is the amount that Gas Tag becomes liable to pay, following a tribunal award of compensation or earlier settlement, in respect of a claim by an employee for an employment practices Case Number: 2409723/2020 11 of 14 wrongful act, plus the legal costs of defending such a claim. Employment practices wrongful acts include unfair dismissals (as alleged in this case). They also include acts of discrimination and harassment. The loss is incurred when a tribunal makes the award, or Gas Tag settles the claim or (as the case may be) Gas Tag becomes liable to pay its own legal costs. The magnitude of the risk of that loss depends in part on the loss suffered by the unfairly-dismissed or harassed or discriminated-against employee. It also depends on how effectively Gas Tag defends the claim. If Gas Tag contests the claim and wins, it faces no liability and no loss under that heading. If Gas Tag instructs particularly expensive solicitors, it increases its losses.[66]The nature of the covered losses is therefore such that the risk of loss is still capable of being reduced after the occurrence of the employment practice wrongful act. Indeed, the risk is still capable of reduction after the aggrieved employee presents their claim to the employment tribunal.[67]For the claimant, Mr Budworth seizes upon this possibility to argue that compliance with the notification clause in this Policy did tend to reduce the risk of losses of this kind. He gives the example of an act of harassment. The harassed employee raises a grievance, making it likely that he will present a claim, and triggering the obligation of prompt notification. Compliance with that obligation would enable Hiscox to manage the grievance process to prevent escalation into a tribunal claim. It might prevent further acts of harassment occurring or being alleged.[68]In my view, there are a number of difficulties with this argument. 68.1. First, the notification clause provided for two stages of prompt notification: one when the claim became likely, and a further when the claim was presented. These are, in my view, separate terms and, as has been discussed, are regarded differently by the courts. The term with which we are concerned was the requirement to notify Hiscox of the employee’s presented claim, not the requirement to notify of the likelihood of a future claim. 68.2. Second, and in any event, the effect on risk depends on what action Hiscox decides to take following notification. Hiscox might intervene; they might not. Intervention would be less likely in my view at the stage when the employee raises a grievance in advance of a tribunal claim. Looking at the Policy as a whole, it does not appear to be part of a package of human resources support, by which Hiscox becomes involved in the minutiae of internal grievance disputes. 68.3. Third, there is an additional layer of speculation about how effectively Hiscox would manage to reduce the risk of loss. If Hiscox does intervene, and instruct solicitors, they might do a better job than Gas Tag’s own managers and/or its own solicitors. But the intervention might also make things worse. Hiscox’s solicitors might inflame the situation and make a tribunal claim more likely than if Hiscox had let Gas Tag instruct its own solicitors. In other words, it is possible that compliance with the notification clause might actually increase the risk of the defined type of loss.[69]Mr Budworth’s argument has a similar difficulty when it comes to notification after the employee has presented the claim to the tribunal. True it is that prompt notification might cause Hiscox to instruct their own solicitors, whose early involvement might secure a more favourable outcome for Gas Tag in the litigation Case Number: 2409723/2020 12 of 14 than if Gas Tag instructed their first choice solicitors to defend the claim. Hiscox’s solicitors might negotiate a reduced settlement, or improve the chances of a tribunal finding in Gas Tag’s favour. But these are not the only possible outcomes. Another distinct possibility might be that Hiscox’s solicitors do a worse job than the solicitors whom Gas Tag might otherwise appoint. Or Hiscox’s solicitors might be broadly as effective than Gas Tag’s first choice solicitors, but no better. Of course, compliance with the notification clause gives Hiscox the opportunity to assess and manage the risk of Gas Tag’s losses arising from the claim. But that does not mean that Gas Tag’s compliance, objectively, tends to reduce the risk.[70]In my view, section 11(1) does not capture the notification clause and there is nothing in the section that prevents Hiscox from relying on it.[71]If I am wrong about that, I would need to examine whether or not the condition in section 11(3) is satisfied. Here the claimant encounters a further difficulty. If the relevant term is the requirement to notify promptly following the claim, the claimant has to be able to show (for the purpose of section 11(3)) that the failure to notify Hiscox promptly of the claim could not have increased the risk that Gas Tag would suffer the loss (liability to the claimant) that actually occurred. But this subsection only arises if the claimant can show that, objectively, compliance with the requirement to notify Hiscox promptly of a claim would tend to reduce the risk of a tribunal award, settlement liability or legal costs. The only mechanisms by which notification might tend to reduce those risks are the very mechanisms which the claimant is saying would have had no chance of being effective in this particular case. The claimant cannot have it both ways. Consequences of non-compliance – interpretation of the term[72]Having held that Hiscox can rely on the notification clause, I now turn to the contractual consequence of Gas Tag’s failure to comply with it. That is a matter of interpreting the term.[73]In my view, the language of the term is clear. The parties agreed what the consequences of non-compliance would be. The agreed consequence of failure to notify Hiscox promptly of the claimant’s claim was that Hiscox would not pay Gas Tag in respect of that claim. There is nothing obscure or ambiguous about the phraseology. There is nothing that might have lured Gas Tag into thinking that notification was a mere formality.[74]The clearly-defined consequences were suited to the object of the negotiation clause. Hiscox was entitled to know where it stood. Failure to notify Hiscox promptly of the claim would deprive it of the opportunity at least to know that a claim under the Policy was coming. Because of the nature of the insured risk, a failure to notify promptly would also affect Hiscox’s ability to assess, investigate and control the losses whilst the risk of them was still capable of being influenced.[75]The claimant argues that the wording was ambiguous when set against the Policy as a whole. Mr Budworth invited me to contrast the notification clause with other terms such as “Presentation of the risk”, which prescribe the consequences of noncompliance in a different form of words. I do not accept that these comparator terms in any way dilute or cloud the meaning of the notification clause. Both clauses clearly set out what the parties intended should happen if Gas Tag did not do what the clause required. The agreed consequences of misleading presentation of the risk were more severe than the consequences of late Case Number: 2409723/2020 13 of 14 notification, but that does not affect the clarity with which both consequences were spelled out.[76]If necessary formally to classify the notification clause, I would classify it as a condition precedent. That classification is based upon the clear language.[77]Had the contractual wording left room for doubt, I would have been inclined to give Gas Tag (and therefore the claimant) the benefit of that doubt. As directed by the appellate decisions, I would have started from the standpoint that it was unlikely that the parties would intend the consequence of late notification to be so draconian. But the language of the term is so clear that there is no space in which to allow that principle to operate. Was there compliance with the notification clause?[78]The question is a stark one. Was it “prompt” to wait 8 months from the presentation of the claim before notifying Hiscox of it?[79]Before answering this question, I reminded myself of the following considerations: 79.1. The parties are likely to have intended that Gas Tag should have a reasonably generous timescale for compliance, because the consequences of non-compliance were so severe. 79.2. In the notification clause itself, the parties had expressed an indicative guide to what might be considered “prompt”. This can be seen in the special provision relating to claims brought by an employee during the final week of the period of insurance. For those claims, Gas Tag had the benefit of a two-week extension. This timescale was not determinative, but tends to show that the parties thought that a notification would be prompt if it would be in the order of three weeks. 79.3. Part of the purpose of the notification clause was to enable Hiscox to intervene at an early stage in the claim. This can be seen from the provisions entitling Hiscox to take over the conduct of the proceedings on Gas Tag’s behalf. The first few weeks of an employment tribunal claim are critical. Generally speaking, once the claim has been sent to the respondent by the tribunal, the respondent has 28 days in which to present its response to the claim. The respondent requires the tribunal’s permission to resile from admissions made in the response, or to raise issues that were not raised in the response. Hiscox had a legitimate interest in taking control over that step in the litigation. 79.4. What Gas Tag was required to do was relatively straightforward and capable of being done quickly. “Prompt” should be understood in that context. There were no particular difficulties in, for example, Gas Tag discovering whether or not the Policy existed, or having to notify Hiscox following any elaborate or onerous way. Gas Tag could be reasonably expected to have the resources to inform Hiscox without delay. 79.5. The insolvency administration of Gas Tag does not alter the analysis. This is because(a) by the time of entering administration, two months had already passed; and(b) the administrators could reasonably be expected to inform Hiscox as part of their responsibility to minimise Gas Tag’s liabilities. Case Number: 2409723/2020 14 of 14[80]Having borne all these factors in mind, I have concluded that Hiscox was not promptly notified of the claimant’s claim and there was accordingly a failure to comply with the notification clause.
Outcome
[81]The effect of my conclusions is that Hiscox was entitled under the notification clause to withhold payment from Gas Tag in respect of the claimant’s claim.[82]Hiscox therefore has no liability under the Policy to Gas Tag in respect of that claim. This means that Hiscox has no liability to the claimant under the 2010 Act.[83]The claimant’s claim against Hiscox is therefore dismissed.