In ARC Capital Partners Ltd v Brit UW Ltd and another  EWHC 141 (Comm),  4 WLR 18, Mr Justice Cooke had to address some common provisions of a professional indemnity policy issued to the Claimants and to determine what would amount to a claim or claims “arising from” or “in any way involving” an act, error or omission committed prior to the specified date when the insurers first came on risk. Cooke J’s decision is considered by Jonathan Hough QC of 4 New Square.
ARC, an investment manager, claimed indemnity from its professional indemnity insurers in respect of its potential liability to an investor (ARC’s associated company ARC Holdings Ltd, “the Fund”) for the negligent investment of some US$75m of ARC Holding’s funds into a property business, Orient House Group (“OH”), pursuant to a 2010 agreement.
The Defendants were ARC’s second excess layer insurers under a policy covering the period from 23 October 2013 to 23 October 2014. The policy contained the following Retroactive Date Clause:
“This Broker Insurance Document shall not indemnify the Assured against any claim and or claims arising from or in any way involving any act, error or omission committed or alleged to have been committed prior to the 5 June 2009”
The primary basis of the underlying professional negligence claim was that ARC had arranged for the Fund’s investment to be paid over without ensuring that adequate security was obtained (e.g. by monies being paid into an escrow account) pending completion of a share transfer. All the relevant allegations founding that primary case were of conduct post-dating 5 April 2009. However, the claim was also put on an alternative basis, namely that ARC had concluded a Capital Injection Agreement in 2008 which it should not have done.
The Defendants relied on two policy defences to decline the claim. First, the Fund’s claim involved acts and omissions committed before 5 April 2009. Secondly, an assertion in correspondence from the Fund’s lawyers that they had a “strong” claim against ARC was a “claim” which had not been notified to the Defendants “as soon as practicable” in breach of a condition precedent.
The judge held that the expression “acts, errors or omissions” in the Retroactive Date Clause should be construed in the same way as the same words as used in the term “Wrongful Act” which was defined in the policy. As a result, the “acts, errors or omissions” had to be “matters which could in principle create liability under the policy”.
Having decided that “arising from” and “in any way involving” had to have different meanings (otherwise the latter phrase would be otiose) the judge concluded that the terms in this context meant, respectively, “proximately caused by” and “indirectly caused by”. Accordingly, the clause required some act, error or omission which was “genuinely part of a chain of causation which leads to liability for the claim in question” to have taken place before the specified Retroactive Date. It was not enough that circumstances had arisen prior to the Retroactive Date in which a wrongful act had later taken place.
The judge held that, on the facts of the case, the 2008 agreement and its aftermath were only the background or historical context which preceded the 2010 agreement and allegations of breach of duty with which they had no causative connection. The allegations concerning conduct prior to the Retroactive Date were limited to an alternative case which was not actively being pursued. In the circumstances, the Retroactive Date Clause provided no defence to the insurers.
In respect of the notification condition, the judge held that this did not afford a defence for two reasons. First, the letter on which the Defendants had relied was not a claim for the purposes of the Policy. Secondly, even if it was, the policy would still provide cover. The notification condition had to be read in conjunction with the Continuity of Cover clause (5(j)) which extended cover in respect of any claim which should have been notified under a preceding policy, provided that insurers remained ARC’s insurers without interruption. The point of this clause was to extend cover to a claim where there had been a breach of a condition precedent in an earlier policy.
The Claimants’ declarations were granted.
This case provides a helpful analysis of contractual language in an insurance policy which juxtaposes the phrases “arising from” and “in any way involving”. These phrases often appear together in exclusions and other commonplace provisions. The phrase “arising from” was sensibly construed (like many similar phrases) as connoting proximate cause. The phrase “in any way involving” was also found to have a causal component, and to require a causal connection (albeit one less direct than is inherent in the concept of proximate cause). This also makes good sense, because it is difficult to draw any sensible connection between an event and a claim without there being some causal link.
The case is also noteworthy for the Judge’s approach to the late notification defence. He distinguished between correspondence identifying a potential claim (and reserving rights) and an actual demand constituting a claim. He also refused to construe and apply a notification condition in such a way as would frustrate the Continuity of Cover clause, so suggesting that such clauses are to be given precedence in order to give effect to their commercial purpose.
Keywords: Conditions precedent, Exclusion Clauses, Notification of claims and circumstances, Professional Indemnity Insurance