DMC Category Rating: Confirmed

Background
The claimant, Shinedean, was the owner of premises in Sydenham, Kent. It contracted with an associated company, Xen Ltd, to develop the site and Xen contracted with the insured, Alldown, to carry out demolition and excavation work.

On 24 April 2002, after Alldown had excavated a large hole on site, the flank wall of the neighbours' building began to collapse. Emergency measures were undertaken to stabilise the site and Shinedean had to carry out further work on its own premises and a redesign of the development, all of which delayed completion.

Alldown notified its insurer, AXA, on 25 April 2002 but went into creditors' voluntary liquidation in September 2002. On numerous occasions from April 2002 until June 2003, the insurer's loss adjusters requested documents from Alldown but nothing was received. In June 2003, some drawings were provided, but none of the other documents specified. That same month, AXA declined the claim on the ground that Alldown had failed to comply with the claims control clause in the policy.

The neighbours' claim against Shinedean was settled in October 2003 for £110,000, including interest and costs. In April 2004, Shinedean began these proceedings against Alldown, obtaining a default judgment in June 2004 for an amount to be decided by the court. Prior to the assessment hearing, AXA was added as a party to the proceedings and Shinedean amended its claim to include a direct claim for an indemnity under the Third Party (Rights Against Insurers) Act 1930.

The insurance policy
Alldown's insurance covered public liability and contractors' all risks. Section 3 of the general conditions provided that the insured must notify the insurer immediately of any loss or damage likely to give rise to a claim under the policy, and

Under General Condition 12, the insured was to provide the insurer with all necessary information and assistance to enable it to settle or resist a claim or to institute proceedings. Condition 15 stated that observance of policy terms was a condition precedent to insurer's liability. The public liability section of the policy contained equivalent provisions.

At first instance, the judge found that, since the policy did not specify a time limit, it was an implied term that the information would be provided within a reasonable time. Alldown had failed to provide any significant information for two and a half years after the incident giving rise to the policy claim.

Nevertheless, the judge held that there had been no breach of the reasonable time obligation because AXA had not, in fact, been prejudiced in any material way. AXA acknowledged that the settlement with the neighbours was made in good faith and that Shinedean (exercising its rights under the 1930 Act) was entitled in principle to recover the £110,000 and its reasonable costs. In the judge's view, the only prejudice AXA had suffered was that it been unable to close its books, and this was "miniscule".

Prejudice
AXA appealed, arguing that the issue of whether or not it had been caused prejudice was immaterial. Shinedean, however, maintained that what is a reasonable time depends on all the relevant circumstances and prejudice to the insurer is one of those circumstances.

The Court of Appeal agreed with AXA. Each case turns on its own facts, but there is no determinative principle that states that an insured's obligation to provide relevant information within a reasonable time will not be breached if the insurer suffers no material prejudice as a result. The question of what is reasonable cannot be divorced from the purpose of a claims control provision, which is to enable the insurer to investigate claims at the earliest opportunity and, if necessary, control their disposal. An insurer is entitled to know where it stands.

Once hindsight was left out of the equation, Alldown had clearly breached the condition precedent. Different considerations might apply if the information had not yet come into existence, but to delay providing documents that were readily available until over two years after the event giving rise to the claim (and then only in the course of litigation) was unreasonably late and obviously so.

Whether or not AXA had, in the end, suffered prejudice was not relevant, although the Court of Appeal noted that, had these documents been provided earlier, AXA's participation in the litigation might have been avoided. Until it received the information, AXA could not decide what it might need to do. On the facts of this case, AXA was entitled to avoid liability.

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