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We recently had a claim declined under service and repair due to our clients' terms and conditions. The insurer has paid previous service and repair claims for this client and they have said the policy would respond here as well but for the terms and conditions. These haven©t change in 15 years, so I believe a precedent has been set in paying the previous claims, or am I missing something?

Reply:  Crossley Gates

Accepting a claim under a liability policy (sparking cover for defence costs) and making a claim payment to a third party to satisfy the alleged liability are two different things.

It sounds like your client's terms and conditions contain an exclusion of liability clause that applies in the circumstances. If it is sufficiently widely worded, it will exclude all liability at law. If the underwriter has previously paid a claim to a third party in these circumstances, it may have done so in error. This does not stop it correcting that error now in relation to this claim.

You refer to the claim being declined. You may be referring to the underwriter's refusal to pay the third party. If not, the underwriter should not decline the claim (despite the defence) if the nature of the liability alleged is covered. The claim should be accepted, triggering cover for defence costs, and liability to the third party denied. Then if the third party sues, the insured has the benefit of the defence costs cover to defend it, presumably successfully.

In my experience, this is how cover under a liabilty policy is meant to work, even when the alleged liability appears to have a complete defence. Sometimes third parties sue even in the face of a complete defence.

September 2020

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