Kajima UK Engineering Ltd v The Underwriter Insurance Company Ltd

Factual and Procedural Background

The Plaintiff, Company A, was the main contractor employed by Company B to design and build a residential block of flats at [Number] Main Street, The City. The contract was dated 1 October 1999 for a development known as "Caspar II", involving the innovative use of stacked pre-constructed pods and flat pack construction over five stories. The work was carried out primarily between September 1999 and June 2000, with ongoing involvement over the next five years.

The Defendant, The Underwriter Insurance Company Limited ("The Insurer"), provided professional indemnity insurance to Company A from 20 May 2000 to 19 May 2002 under a 'claims made' policy with provisions for notification of circumstances that might reasonably be expected to produce a claim.

On 22 February 2001, Company A notified The Insurer of settlement and excessive movement of accommodation pods causing distortion to adjoining roofing, balconies, and walkways, with an investigation underway to identify causes and risks. The insurance period expired on 19 May 2002, after which The Insurer ceased underwriting.

Subsequent investigations and extensive remedial works revealed a wider range of serious defects, some related to the originally notified circumstances and others unrelated. A significant engineering report in 2005 identified risks of collapse due to wind loading, leading to tenant evacuation and a settlement in 2006 where Company A purchased the flats from Company B, considering repair uneconomic.

The dispute centers on whether the defects and damage discovered after the original notification and insurance expiry fall within the scope of the February 2001 notification and thus are covered by the insurance policy.

Company A initiated proceedings in January 2007, seeking declarations regarding the extent of coverage under the insurance policy. Directions were given for a trial of preliminary issues in July 2007.

Legal Issues Presented

1. To what extent do the defects and damage identified after the original notification and expiry of the insurance coverage fall within the scope of the circumstances notified to The Insurer on 22 February 2001?
2. Whether claims arising from defects and damage discovered post-expiry can be deemed to have been made within the insurance period pursuant to the notification clause of the policy.
3. The proper interpretation and application of the 'circumstances notification' clause in a claims made professional indemnity insurance policy.

Arguments of the Parties

Appellant's Arguments

• The investigation referred to in the February 2001 notification initiated a continuum of investigations and remedial works, all relating to the notified circumstances.
• The losses, costs, and liabilities incurred by Company A over subsequent years arose out of the originally notified circumstances, regardless of whether the specific defects uncovered later differed in detail.
• At minimum, Company A is entitled to indemnity for losses attributable directly to the originally notified circumstances.

Appellee's Arguments

• The notified circumstances were limited and specific, relating only to settlement and movement of pods causing distortion to adjoining structures.
• The investigation mentioned in the notification was confined to those specific circumstances and did not extend to general or unrelated defects.
• Subsequent discovery of additional defects unrelated to the originally notified circumstances falls outside the scope of the notification and thus the policy coverage.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
HLB Kidsons v Lloyds Underwriters and others [2007] EWHC 1951 (Comm)	Interpretation of notification clauses in claims made professional indemnity policies; requirement for prompt and specific notification of circumstances that might give rise to claims.	The court relied heavily on this authority to clarify the scope and timing of notification obligations and the objective interpretation of notified circumstances.
Investor's Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896	Principles of contractual construction in commercial contracts, including contextual interpretation.	Supported the approach to interpreting the insurance policy and notification clause in its factual matrix.
Friends Provident Life and Pensions v Sirius [2005] 1 Lloyd's Rep IR135	Nature and purpose of claims made insurance policies and notification requirements.	Reinforced the commercial rationale for prompt notification and insurer's ability to manage claims exposure.
Thorman and Others v New Hampshire Insurance Co. (UK) Ltd [1988] 1 Lloyd's Rep 7	Scope of a notified claim under professional indemnity insurance.	Referenced as a comparison point, but distinguished due to the nature of notified circumstances in the present case.
Government Insurance Office of New South Wales v RJ Green and Lloyd Pty Ltd [1966] 114 CLR 437	Interpretation of the phrase "arising out of" in insurance coverage.	Provided marginal guidance on the breadth of causation required between notified circumstances and claims.
Dunthorne v Bentley and Others [1999] 1 Lloyds LR 560	Further authority on "arising out of" in insurance context.	Supported the principle that "arising out of" may be broader than "caused by", relevant to interpreting claims coverage.

Court's Reasoning and Analysis

The court began by confirming the accepted validity of the February 2001 notification, emphasizing the contractual nature of the insurance policy and the importance of construing the notification clause objectively within its factual matrix.

Relying primarily on the HLB Kidsons decision, the court reiterated that the purpose of a notification clause in a claims made policy is twofold: to enable insurers to investigate potential claims promptly and to extend coverage for claims arising from notified circumstances even if made after policy expiry.

The court noted that the notified circumstances must be specific to matters of which the insured was actually aware at the time of notification. The notification in this case related specifically to the settlement and excessive movement of the accommodation pods causing distortion to adjoining roofing, balconies, and walkways, with an investigation underway into these specific issues.

The court rejected the appellant's argument for a broad "continuum" interpretation that would encompass all defects discovered subsequently, holding that the notification could not be expanded laterally by the coincidental discovery of unrelated defects or damage.

It was emphasized that the investigation mentioned in the notification was limited to the notified circumstances and was not a general investigation into other potential defects. The insured was required to give further notifications as it became aware of new circumstances potentially giving rise to claims.

The court analyzed the evidence regarding defects and concluded that only those defects, symptoms, or consequences causally related to the notified settlement and movement of pods fell within the scope of the notification and thus the policy coverage.

The court acknowledged that some defects discovered later were unrelated or coincidental and therefore outside the scope of the notified circumstances, limiting the insurer's liability accordingly.

Holding and Implications

HOLDING: The court held that the insurance notification dated 22 February 2001 was effective only in respect of the specific circumstances notified—namely, the settlement and excessive movement of accommodation pods causing distortion to adjoining structures—and any claims arising therefrom. The notification did not extend to unrelated defects or damage discovered subsequently unless those were causally connected to the notified circumstances.

The court emphasized that the insured must notify new circumstances as they become aware of them for coverage to extend to those matters. The claim in respect of defects and damage not related to the notified circumstances was not covered by the policy.

Implications: The decision clarifies the strict interpretation and application of notification clauses in claims made professional indemnity policies, reinforcing the requirement for prompt and specific notification of circumstances. It limits insurers’ exposure to claims by preventing the expansion of notified circumstances based on later discoveries unrelated to the original notification. This ruling provides guidance on the causal connection needed between notified circumstances and subsequent claims, impacting how insurers and insureds manage claims and notifications in similar contexts.