The notification that arrived twice

Probably yes, if the 2021 notification was sufficiently specific. A claims-made policy responds to claims first made against the insured and notified during the policy period. A notification of circumstances can attach a later claim to the earlier policy, but only if the circumstances are more than a vague worry: they must identify the potential claim with enough specificity that the insurer can investigate, and there must be a real, as opposed to fanciful, risk of a claim.

The March 2021 notification named the project, the client and the alleged settlement cracking. That is likely enough to identify the circumstances, even though no claimant was named and no loss was quantified. The 2024 proceedings arise from those same circumstances. If the policy's notification clause is a condition precedent, the key question is whether the 2021 notice complied with it; if it did, the 2024 claim is treated as notified in the 2019/20 period. The 2018 design is after the 1 January 2015 retroactive date, so the retro date does not exclude it.

The insurer should still check the precise wording: some clauses require notice 'as soon as practicable' and some require the insured to give details of the claimant. A poorly drafted notice is not automatically invalid, but the insurer is entitled to investigate whether it was given in good faith and with sufficient detail.

The May 2024 settlement without consent is a breach of the policy condition. The insurer's response depends on whether the clause is a condition precedent to liability or an ordinary condition. If it is a condition precedent, the insurer may decline indemnity for the settlement sum. If it is not, the insurer may claim damages for the breach, and the measure is likely to be the amount it would not have paid had it controlled the settlement.

The insurer appointed solicitors in March 2024, so it had taken control of the defence. The insured then instructed its own counsel and settled. That undermines the insurer's right to control and may also make the insured's own costs non-recoverable.

The insurer should not simply avoid the whole policy. It should:

• reserve all rights in writing;
• obtain the settlement agreement, the insured's counsel's advice and the correspondence;
• assess whether the settlement was reasonable and whether the insurer suffered prejudice;
• consider whether it has waived any right by its own conduct, for example through delay or inconsistent handling;
• decide whether to pay the settlement sum, pay defence costs only, or decline.

The insurer should also check whether the settlement included amounts that would not have been covered in any event, such as the claimant's costs or uninsured heads of loss.

The limit is £5m, costs inclusive, and the deductible is £250,000. Costs inclusive means defence costs are paid inside the limit, so every £1 of defence cost reduces the amount available for damages. On the figures given, the settlement is £3.9m and defence costs are £1.1m, totalling £5.0m. That exactly exhausts the limit before the deductible is considered.

The deductible is borne by the insured. Whether it reduces the limit or only the indemnity depends on the wording; commonly the insured pays the first £250,000 of loss, and the limit remains £5m. If the deductible applies to the total, the insurer's maximum payment is £5m less the deductible, subject to the limit; if it applies only to damages, the calculation differs. The insurer should read the clause rather than assume.

If the insurer declines the settlement sum for breach of the consent condition, it may still be liable for defence costs incurred before the breach, subject to the limit. Costs incurred after the insured instructed its own counsel are unlikely to be covered. The insurer should calculate separately: covered defence costs to the date of breach, the disputed settlement sum, and the remaining limit. On these numbers there is no room for both the full settlement and the full costs, so the order in which they are applied matters.