Marchant Structural Engineers: a known circumstance, late notification and insolvency
Marchant Structural Engineers Ltd designed the steel frame for a warehouse in 2019. Its professional indemnity policy is claims-made, with a retroactive date of 1 January 2015, a limit of £2m, and a clause requiring the insured to notify the insurer "as soon as practicable" of any claim or of any circumstance which may give rise to a claim. The policy states that compliance with the notification clause is "a condition precedent to any liability of the insurer". In June 2023 a director learned that the warehouse owner was complaining about cracking and had instructed solicitors. He mentioned it at a board meeting but did not notify the insurer. The policy renewed on 1 January 2024 on the same terms; the renewal proposal asked about "any circumstances which may give rise to a claim" and the answer was "none". The owner issued proceedings in October 2024. Marchant notified its insurer in November 2024. In January 2025 Marchant entered creditors' voluntary liquidation with liabilities of £1.8m.
1. Can the insurer rely on the late notification to decline?
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Construction first. The clause must be read as a whole. Two limbs matter: the trigger ("any circumstance which may give rise to a claim") and the timing ("as soon as practicable"). The trigger is deliberately wide – a circumstance may give rise to a claim. The director's June 2023 knowledge of a complaint and instructed solicitors comfortably qualifies; it is not necessary that a claim be likely.
Timing. Notification came in November 2024, some 17 months later, and only after proceedings. That is not as soon as practicable.
Effect. Because the policy makes compliance a condition precedent to liability, the insurer can decline regardless of whether it suffered prejudice. The classic authority is Friends Provident Life & Pensions Ltd v Sirius International Insurance, which confirms that where the parties have agreed a condition precedent, the insurer need not show detriment.
Does the Insurance Act 2015 help the insured? No. s.9 (terms not relevant to the actual loss) addresses terms that reduce cover for a loss; a claims notification condition governs the conduct of the claim, not the loss. s.11 governs terms requiring the insured to do something to safeguard against loss and does not cover notification clauses. The Act does not abolish conditions precedent.
Consequence for the insured. The 2024 policy year claim fails. Had the director notified in June 2023, the circumstance would have attached to the 2023 policy, which would have responded. The failure moved the claim into the wrong policy year and then destroyed it.
2. Does the non-disclosure at the 2024 renewal give the insurer a stronger or weaker defence?
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Materiality. Under s.3 of the Insurance Act 2015 the insured must disclose every material circumstance. A known complaint with solicitors instructed about cracking in a structure the firm designed is squarely material to a professional indemnity underwriter – it goes to claims experience, the estimate of outstanding liabilities and whether to write the risk at all. The answer "none" to a direct question is not substantially correct, so the presentation was also misleading.
Knowledge and culpability. The director knew about the complaint; he attended the board meeting where it was discussed (s.4). Answering "none" is very likely deliberate or reckless within s.8: either he knew the statement was wrong, or he did not care whether it was true.
Remedy. For a deliberate or reckless breach the insurer may avoid the contract, refuse all claims and retain the premium (Schedule 1, paragraph 1). If the breach were found merely careless, the insurer would instead show what it would have done: refuse altogether (avoidance with return of premium), or charge more (proportionate reduction).
Which is stronger? Non-disclosure is the more robust defence. It is easier to evidence (the signed proposal and the board minute) and its consequence is total avoidance, not merely a defeated notification. Notification depends on showing the director knew of a qualifying circumstance and on the condition-precedent wording. Best practice is to plead both in the alternative, notify the insured promptly and reserve all rights.
3. The warehouse owner wants to recover from the insurer directly. How does the Third Parties (Rights against Insurers) Act 2010 work here, and what is its key limitation?
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Trigger. The Act transfers the insured's rights against its liability insurer to a third party where the insured becomes insolvent. A creditors' voluntary liquidation is a winding-up, so Marchant is a relevant person and the 2010 Act applies. Note that the 2010 Act improved on the 1930 Act by allowing the third party to proceed without first obtaining judgment against the insured.
Procedure. Under s.1 the third party may bring proceedings directly against the insurer, either by establishing the insured's liability in those same proceedings (joining the insured or its liquidator) or after liability is established by judgment, settlement or arbitration. Under s.2 the third party can serve a notice requiring the insured or its liquidator to provide information about the insurance, and the insurer must identify itself.
The key limitation – s.9. The third party stands in the insured's shoes. The insurer may rely on every defence it would have had against Marchant, including late notification under the condition precedent and avoidance for non-disclosure at the 2024 renewal. There is no additional protection for the innocent claimant.
Practical consequence. The owner's claim is only as good as Marchant's cover. If the insurer validly avoids the 2024 policy, the owner recovers nothing under the policy and must prove in the liquidation, where it will rank as an unsecured creditor for a fraction of £1.8m of liabilities. Before committing to litigation the owner should use s.2 to obtain the policy, the proposal and the insurer's coverage correspondence, because the coverage defences will decide the case.