Court of Appeal

Published March 11, 2008

Kosmar Villa Holidays plc v Trustees of Syndicate 1243

Before Lord Justice Rix, Lord Justice Jacob and Mr Justice Forbes

Judgment February 29, 2008

Where insurers acknowledged a claim under a policy knowing that the insured had failed to comply with a condition precedent in the notification clause, they did not elect to waive the insured’s failure and accept liability.

The Court of Appeal so held allowing an appeal by the defendant insurers, Trustees of Syndicate 1243, from Mr Justice Gross who had allowed a claim brought by a tour operator, Kosmar Villa Holidays plc, for an indemnity from the defendants.

E was seriously injured during a holiday he had booked with Kosmar. The insurance policy between Kosmar and its insurers, the predecessors of the defendants, contained a condition precedent which required a claimant to give notice in writing, with full particulars, to the insurers immediately after the occurrence of any injury or damage.

In E’s case, Kosmar informed the insurers a year after the injury occurred when it was notified by E that he intended to bring proceedings against Kosmar.

Initially, the insurers proceeded to deal with the claim, receiving reports on the accident from Kosmar and asking for further information. No reservation of rights was made until two weeks later. Shortly thereafter the insurers repudiated liability for the claim.

On Kosmar’s claim against the insurers for an indemnity in respect of E’s claim, the judge held that nothing in general law or the express wording of the policy automatically discharged Kosmar’s liability. Accordingly, there was scope for election.

Kosmar knew when it had been informed of E’s claim that it had failed to report the occurrence and that that failure was a breach. It submitted the insurers’ initial communications with it demonstrated unequivocally the making of an informed choice to accept the claim. The judge accepted that argument.

Mr Graham Eklund, QC, for Kosmar; Mr Richard Slade for the insurers.

LORD JUSTICE RIX said that the primary issue on the appeal was whether breach of a condition precedent in a claims notification clause could be waived as a matter of election, or whether it was only susceptible to waiver in face of an estoppel caused by reliance on a representation. Election was the exercise of a right to choose between inconsistent remedies. It generally required knowledge of the facts giving rise to the choice on the part of the party electing, and knowledge of the choice on the part of the other party.

Once made, the choice was final and irrevocable. It typically arose where the parties had to know where they stood such as the acceptance of repudiation or the avoidance of contracts or the rejection of goods.

His Lordship had not be shown any case where the doctrine of election had been applied, in the context of a merely procedural condition precedent, to the conduct of a claim on behalf of an insured by an insurer, nor did he think it would be consistent with the paradigm examples of election, or with the nature of the doctrine which required unequivocal conduct which had irrevocable effect, to treat that doctrine as being by its rationale applicable to such a situation. The doctrine was ill-fitting in those circumstances, and unneeded.

Where it could be said that the handling of a claim by an insurer was an unequivocal representation that the insurer accepted liability and/or would not rely on breach of some condition precedent as affording a defence, and there was detrimental reliance by the insured as would make it inequitable for the insurer to go back on this representation, the insured would have all the protection that he needed under the doctrine of estoppel.

Lord Justice Jacob and Lord Justice Forbes agreed Solicitors: Kennedys; Hextalls.

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