No.7 - Kajima UK Engineering Ltd v The Underwriter Insurance Co Ltd

Ten cases every consulting engineer should know

Kajima UK Engineering Ltd v The Underwriter Insurance Co Ltd [2008] EWHC 83 (TCC)

In summary

This case demonstrates how notification of a potential claim circumstance to professional indemnity insurers is only effective in relation to what has in fact been notified. 

Facts:

The Underwriter Insurance Co had provided Kajima with professional indemnity insurance cover for a period of two years. 

The policy was a ‘claims made’ policy, which required that any circumstances which might reasonably give rise to a claim should be notified during the period of insurance if any claim later arising out of those circumstances was to be insured.

Kajima was the main contractor employed under a design and build contract for a new-build block of apartments in the form of stacked accommodation pods. The pods were pre-fabricated and assembled on site. Works were carried out between September 1999 and June 2000, with the continuing involvement of Kajima over the following 5 years.  

During the construction stage, in February 2001, Kajima notified its insurers that the pods were settling, causing distortion to the adjoining roofing, balconies and walkways. 

The notification also referred to the risk of other possible damage and to the fact that an investigation was being undertaken to identify the cause of the settling and potential effects or risks. The investigation established that the problem was an anticipated one and that it had stabilised.

Further investigations were later carried out following the expiry of the policy against which Kajima had made its initial notification.   These investigations revealed a number of serious and extensive problems, only some of which were in the same area as those notified to The Underwriter. These other problems were either not of the same type as those that had specifically been notified, or were not directly associated with them. 

The subsequent investigations revealed that apartments were at risk of collapse due to wind loadings. The occupiers of the building were evacuated and Kajima reached a settlement with the employer. 

Kajima sought to recover an indemnity from The Underwriter in respect of the loss which it had incurred under settlement sum.  Kajima reasoned that all of the defects and/or damage which were covered the subject matter of the final settlement agreement fell within the scope of what had originally been notified to the insurers. 

The court held that: 

The policy would only cover defects to the extent that they had been the subject matter of the notification.  Notification was only effective in relation to the specific circumstances which had in fact been notified. 

The notification was ineffective in relation to any other matters, losses, defects or damage, save to the extent that either (i) they had caused, were related to, or had contributed to the circumstances that had been notified; or (ii) had themselves been caused by the notified circumstances. 

The court found that the wider, more serious defects which had been discovered during the investigations undertaken after the policy had expired did not relate to the matters which had been specifically notified. Any claim relating to those defects could not therefore be considered to have arisen out of the notified circumstances. 

To the extent that the settlement, movement or distortion of the pods was neither attributable to nor causative of any of the later discovered defects there were no grounds for claiming indemnity from The Underwriter. 

This case highlights the importance not only of prompt notification to insurers of circumstances which might be considered to give rise to a claim but to make sure that such notification discloses the full breadth of circumstances known about at the relevant time.  Insurers need to be kept abreast of further developments as they emerge so that if coverage issues do arise then you are more likely to be able to make a prompt notification to the insurers of subsequent policy years.