The Collapsed Retaining Wall and the Late Notification
A commercial combined policy covers a small hotel under a 'property damage' section that insures 'buildings and contents against accidental physical loss or damage' and excludes 'loss caused by faulty or defective workmanship, but this exclusion does not apply to resultant damage to other property'. The hotel's rear retaining wall, built in 2019 by a contractor, collapsed after heavy rain in March, damaging a garden terrace and two parked guest cars. The insured notified the insurer in late June, explaining that the manager believed the wall failure was the contractor's responsibility and only reported it once the contractor's insurer declined. The policy requires notification 'as soon as practicable'. The wall repair quote is £180,000; terrace damage £22,000; car damage £14,000. An engineer reports the wall failed because the contractor omitted weep holes and used substandard drainage, and that the terrace and cars were damaged by falling masonry and water runoff.
1. Advise whether the late notification is likely to prejudice the insurer's position, and whether the insurer can decline the whole claim on that ground.
Read the worked answer
Late notification is a condition precedent only if the wording says so; here the phrase 'as soon as practicable' is a condition of the policy but the insurer must show prejudice before declining. Prejudice can arise because evidence has degraded: the collapsed wall has been exposed to weather for months, the contractor's work cannot now be inspected in situ, and the cars may have been repaired. The insurer would argue it lost the chance to investigate causation and subrogation early.
However, a three-month delay based on a genuine, reasonable belief that another party was liable is often treated as excusable, particularly where the insured cooperated once the position changed. The insurer cannot decline the whole claim automatically; it must show that the delay materially affected its handling of the specific heads of loss. A proportionate response might be to pay the terrace and car damage (which were promptly documented) while investigating the wall separately. The key exam point is that a notification clause is not a trap: the insurer must demonstrate actual prejudice, and the burden is on the insurer.
2. Apply the defective workmanship exclusion to the wall, terrace and car damage, and state the likely indemnity payable.
Read the worked answer
The exclusion removes loss caused by faulty workmanship. The wall itself is the defective work - the omitted weep holes and poor drainage are the very defect - so the £180,000 wall repair is excluded. The wording carves out 'resultant damage to other property', so the terrace (£22,000) and the cars (£14,000) are covered, subject to any policy limits and deductibles. The engineer's report supports causation: falling masonry and runoff physically damaged separate property.
A common error is to exclude everything because the root cause was defective work. That is wrong where the wording expressly preserves resultant damage. The indemnity is therefore £36,000 less any excess, subject to the late-notification analysis. If the policy had contained a 'defective workmanship' exclusion without the resultant-damage carve-out, the answer would differ, so always quote the wording. The insurer may also consider subrogation against the contractor, but the insured's own claim is assessed on the policy wording, not on the contractor's liability.