The Unreported Employee Injury and the Liability Notification
A food-processing company holds a public and products liability policy with a limit of £2 million and a claims-made extension for employee injury claims. In January a maintenance worker suffered a back injury while lifting a heavy pump. The company's health and safety officer recorded it in the accident book but did not notify the insurer, believing the injury was minor and that the employee would not claim. In November the employee issued proceedings alleging breach of statutory duty and negligence, claiming £450,000. The insurer received notification in December and now asserts late notification and a failure to disclose the January accident at renewal in June, when the proposal form asked whether there had been 'any accident or incident likely to give rise to a claim'. The company says it genuinely thought the injury was trivial.
1. Assess the late-notification and non-disclosure issues and their effect on cover.
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Two separate issues arise. Late notification: the policy is occurrence-based for public liability but the employee injury extension may be claims-made, so the trigger and notification requirements must be checked. If notification is a condition precedent, the insurer must show prejudice; a delay from November to December after proceedings is short and prejudice is unlikely. If the January accident should have been notified as a circumstance, the delay is longer, but the insurer must still show it could not investigate - difficult here because the accident book and witnesses exist.
Non-disclosure at renewal: the proposal asked about incidents likely to give rise to a claim. The test is whether a reasonable insured, knowing the facts, would have realised the risk. A recorded back injury from lifting a heavy pump is plausibly claim-worthy, so the answer 'no' may be a misrepresentation. The insurer's remedy depends on the statutory regime: for a negligent misrepresentation it may avoid the policy or reduce the claim proportionately, but for an innocent one the remedy is more limited. The company's genuine but unreasonable belief does not automatically protect it. The exam answer should separate notification from disclosure, apply the prejudice test, and note that the renewal misrepresentation may affect the whole policy, not just this claim.
2. Explain how the insurer should handle the claim if it decides the non-disclosure was negligent rather than deliberate.
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If the misrepresentation was negligent, the insurer cannot simply avoid and walk away; the statutory remedy is proportionate. The insurer would ask: what would it have done had it known the truth? It might have declined the risk, imposed an employee-injury exclusion, or charged a higher premium. If it would have declined the risk altogether, it may treat the policy as never having existed and return the premium, but that is a severe outcome and must be justified by evidence of its underwriting stance. If it would have accepted on different terms, it may reduce the claim proportionately or impose the terms it would have applied.
The insurer should also consider whether the injury claim itself is covered on its merits: breach of statutory duty and negligence are covered perils unless excluded. The £2 million limit is ample. Practically, the insurer should reserve rights, investigate the underwriting file to establish its likely stance, and avoid waiving the point by paying without reservation. The model answer should show that the remedy is not automatic avoidance but a proportionate, evidence-based response, and that the insurer must not conflate the merits of the injury claim with the disclosure issue.