In Shinedean v Alldown, the courts looked once again at the thorny question of reinsurers reliance on conditions precedent, and whether reinsurers must show prejudice. Daniel Silver, reinsurance solicitor at Beachcroft LLP, examines this recent Court of Appeal decision.

Alldown were demolition specialists, who were contracted by Shinedean to carry out demolition and excavation works at a property in Kent. Unfortunately, the job went badly wrong. The works caused serious structural damage to an adjoining property, which started to collapse. Shinedean paid £110,000 in settlement to the property owners, and looked to recover from Alldown. Soon afterwards Alldown became insolvent. Shinedean amended its claim to include a claim under the Third Party (Rights Against Insurers) Act against Alldown’s insurers, Axa. Axa, in turn, denied cover to Alldown, on the basis that Alldown had breached a condition precedent that it should provide insurers with “all such proofs and information relating to claims as may be reasonably required”.

It was common ground at trial that Alldown was required to provide this information within a reasonable time. In the event, it did not provide information relating to the claim until more than two and a half years after the incident. The question for the Court of Appeal was whether the time taken by Alldown to provide the information could be said to be reasonable (despite the obvious and lengthy delay); on the basis that Axa had suffered no prejudice as a result.

The Court of Appeal held that it could not. It found that the question of whether or not insurers had suffered prejudice did not determine whether a claims co-operation obligation had been satisfied within a reasonable time. What constituted a reasonable time was a question of fact, to be judged in all the circumstances of the case. In this case, the two and a half years taken by Alldown was unreasonable. The Court noted that insurers include claims co-operation provisions in policies to ensure that they can assess potential liability early and take appropriate action, including taking control of the case. An insurer does not need to show prejudice to decline cover where a condition precedent has been breached. In these circumstances, the Court of Appeal was unwilling to import back in the concept of prejudice on the question of what constituted a “reasonable time” for provision of information.

This judgment reaffirms the traditionally understood position that an insurer who wishes to rely on a condition precedent does not need to demonstrate prejudice. Of course, it is also a reminder to reinsured’s of the need to be aware of, and compliant with, their claims co-operation obligations.

This Viewpoint item appeared in issue 108 of JTW News - September 2006

Author: Daniel Silver - Beachcroft LLP