Shinedean v Alldown Demolition & AXA: Failing to co-operate with insurers within a reasonable period - does prejudice matter?
<br /><strong><u>Shinedean v Alldown Demolition & AXA [2006] EWCA Civ 939</u></strong> <br /><br />Perhaps surprisingly, until this case was decided, there was no authority on whether an insurance company is entitled to refuse to indemnify for breach of a condition precedent to provide information about claims if, even though there was delay in complying by the insured, the insurer was not prejudiced by the delay. <br /><br />S employed A to do some demolition and excavation works at No 113. Unfortunately, the big hole dug by A meant that No 111’s wall started to collapse. Not only did S have to pay considerable sums in damages to the owners of No 111, but S suffered its own losses because of the increased development costs. A became insolvent and S sought damages under both heads from A’s insurers, AXA, by claiming an indemnity under the Third Parties (Rights Against Insurers) Act 1930. S could only succeed against AXA if AXA would have been liable to A under the policy. <br /><br />A’s insurance policy contained conditions precedent that A should given AXA all information and assistance that it required. There was no challenge to the trial judge’s decision that there was an implied term that A should comply with these conditions within a reasonable time. A took two and a half years to supply a body of significant information. AXA declined indemnity to A because of the delay. The judge decided that A had complied with the obligations to provide information and assistance within a reasonable time since the delay caused no prejudice to AXA. Accordingly, AXA had not been entitled to refuse indemnity to and S could recover damages from AXA. AXA appealed. <br /><br />It was not suggested that AXA had suffered any prejudice by the delay, save for what the judge termed “miniscule” prejudice in not being able to close its books. (May LJ, giving the leading judgment, indicated that he did not necessarily agree with this description, but that he did not need to decide the point). S therefore had argued that the conditions precedent were intended to help AXA protect its position, not to act punitively, and the lack of prejudice was a factor in assessing what a “reasonable” time was. AXA said that actual prejudice was not the test: the clause was designed to enable AXA to investigate accidents and claims at the earliest opportunity. Two and a half years was not a reasonable time on any view. If the clause had to be assessed on the basis of actual prejudice, then whether the insured was in breach would depend fortuitously on whether documents were still available later. Neither party could determine whether there was a breach even when there was no co-operation and an enormous delay. <br /><br />The Court of Appeal allowed AXA’s appeal. May LJ said that there were two conflicting principles: firstly, the common position that you have to take all relevant circumstances into account when deciding what constitutes a “reasonable time”; secondly, insurers are entitled to have co-operation in order to assess their potential liability and decide what action to take, including taking control of the defence. What tipped the balance in favour of allowing AXA’s appeal was that if insurers felt that they had not had co-operation and information in good time, they must be entitled to know whether they would be right to decline indemnity, rather than having to wait to see whether the delay caused prejudice. <br /><br />The decision favours the need for both parties to know where they stand at the outset, rather than having to wait to see whether prejudice has been caused by the delay. When an insurer has put in a clause requiring co-operation and provision of documents and information, the power to refuse indemnity even where no prejudice is caused by failure to comply in time will certainly add some teeth to requests made to the insured. Those with such clauses in their insurance are warned.
Andrew Hogarth QC 'a creative and courageous lawyer' (Legal 500 - 2006)
