Insurers are often asked what a notifiable circumstance is and how is it different to the notification of a claim.

Helpfully, there have been recent developments in case law dealing with notifications under claims made policies and the operation of section 40(3) of the Insurance Contracts Act 1984.

In part one of this two-part insight series, we explore the fundamental concepts of a notifiable circumstance and valid notification in the context of claims made policies.

Notifying is not optional

When your client should notify a circumstance to their insurer, what that notification should include and whether a subsequent claim attaches to that notification can give rise to intriguing issues. You might think notifying is optional. This is a common misconception. Here is why:

• Section 40(3) of the ICA gives your client a legal right to provide notice to their insurer of a circumstance that might give rise to a claim before the expiry of the policy period. The insurer cannot later decline liability for the claim (when made) on the basis that the claim was made after the policy expired as long as the notification is a valid notification.
• For your client, failing to notify the insurer about a circumstance creates a risk that a subsequent claim (as defined in their policy) may not be covered under the relevant policy. Valid notifications safeguard your client’s entitlement even if the claim eventuates at a later time. This creates peace of mind knowing that if a claim is made the insurer already knows about it.
• Brokers who invest time educating their clients about notifications can create practical advantages for them when a claim eventuates. Further, and consistent with their professional responsibilities, brokers who have been informed by a client about a circumstance need to understand the circumstance, advise on the requirement to notify, and support lodgement of a valid notification to the insurer on behalf of their client.

What is a circumstance?

Have you ever looked for the meaning of “circumstance” in a policy wording? If you have, there is a good chance you will not find one. This is because “circumstance” is often left undefined in an insurance policy. Accordingly, circumstance is given its ordinary meaning and case law has developed guiderails to assist in this regard.

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