?The High Court has warned of the importance of adhering strictly to the notification requirements in professional indemnity (PI) policies and those that cover on a ‘claims-made’ basis.

A key feature of all PI policies is that an insured can notify its current insurers when it becomes aware of circumstances that might later give rise to claims.

Subsequent claims relating to the notified circumstances are then covered by the policy.

In HLB Kidsons v Lloyd's Underwriters, Kidsons, a large firm of accountants, had owned and managed a company which marketed tax avoidance schemes.

Kidsons had received claims arising from the avoidance schemes and argued that these claims arose out of circumstances notified under its PI policy.

The key issue was whether the effect of a breach of the notification conditions would deprive Kidsons of the extension to the policy. It was accepted that Kidsons had not given timely notice.

The judge said a strict approach to the construction of the policy wording was justified so that all constituent parts of the notice provision had to be complied with to obtain the extension.

If an insured failed to comply strictly with the notice provision any later claims would not be covered under the insurance contract.

Beachcroft professional risks partner Marcus Campbell said: “For insureds, the ability to notify circumstances that might give rise to claims is a valuable extension to the claims-made cover provided under a PI policy.

“The corollary is that an insured must comply strictly with each constituent part of the notification provision.

“If it fails to comply in all respects, then cover under the extension will not be triggered.

“The judge could see that if this principle was undermined, the claims-made basis on which PI insurers underwrite risks would be undermined and a losses-occurring approach introduced by default.”