Claims co-operation: an insurer’s duty to speak up?

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Is an insurer required, during the claims process, to warn an insured that it may be at risk of jeopardising its claim under the policy, for example by failing to supply necessary information in breach of a condition precedent? This was one of the issues considered by the Court of Appeal in Ted Baker PLC & Anor v Axa Insurance UK PLC & Ors [2017] EWCA Civ 4097, in which judgment was handed down on 11 August 2017.

The clothing retailer, Ted Baker (TB), was insured by Axa and the following market against business interruption losses under a series of policies covering the years 2004 to 2008. The policies insured against loss of gross revenue on an ‘all-risks’ basis, subject to a per loss deductible of £5,000.

In 2008, TB made a claim under the policies in respect of goods allegedly stolen over a number of years by one of its employees. Axa denied liability. At a trial of preliminary coverage issues, the insurers lost on each of their arguments. At the subsequent trial of issues relating to notification, alleged breach of condition precedent and quantum, however, Mr Justice Eder rejected TB’s claims in their entirety, finding that TB had been in breach of a condition precedent to the insurers’ liability by not providing certain documentation relating to quantum requested by the insurers’ loss adjusters. Eder J also agreed with insurers that, insofar as Axa (as the lead underwriter) owed any relevant duty of good faith, it did not extend to any duty to give a positive warning to TB that it needed to comply with the claims conditions in the policy. Eder J went on to find that it was not possible on the evidence to reach any conclusions about the modus operandi of the employee concerned and that, largely on that account, he could not conclude that the loss of profit on any one theft exceeded the £5,000 per loss deductible. TB appealed.

The appeal was unsuccessful on the issue of quantum and the application of the policy deductible which were enough to dispose of the claim. These issues were decided on the basis of the specific facts in question but the Court of Appeal’s finding on the broader issue of whether and when an insurer may be under a ‘duty to speak’ and to warn an insured that its actions, or omissions may put its claim at risk, are of much wider significance.

The relevant facts were as follows. The loss adjuster appointed by the insurers had requested copies of various documents from TB, including their profit and loss accounts for the relevant years. In response, TB’s broker provided what were described as “headline details” of the loss but took the position that, as it would have been time consuming and costly to undertake the review and analysis of stock shortage that had been requested, it would not provide any further information until insurers had agreed in principle to accept liability. Approximately one month later the loss adjuster responded to the broker, stating that he had issued a further report to insurers and was awaiting instructions. In the event the loss adjuster never did revert on the issue but no point was taken by insurers on breach of condition precedent until they served their defence in the court proceedings.

Sir Christopher Clarke, giving the leading judgment in the Court of Appeal, noted that an insurer is, generally speaking, under no duty to warn an insured of the need to comply with a condition precedent or other policy condition. That was particularly so in the present case, where TB was represented by a highly experienced broker specialising as a claims advocate. Moreover, at trial Eder J had not been satisfied that the insurers had acted in bad faith or sought to ‘hoodwink’ TB by deliberately keeping quiet about the obligation to provide the information requested. The Court of Appeal found, however, that in the particular circumstances of this case, insurers were under a duty to tell TB that the outstanding documentation was required before there could be any resolution of the claim. This was because:

• TB’s failure to provide the documentation did not occur in a vacuum but in circumstances in which the loss adjuster was due to revert to the broker after taking instructions.

• It would have been simple for the insurers to confirm that, notwithstanding the delay in providing instructions to the loss adjuster, the outstanding materials were still required.

• The loss adjuster had said he would “advise [the broker] in the meantime if anything to report”. This message did not indicate that there was something outstanding from TB; on the contrary, the absence of any reference to that effect suggested the opposite.

• The broker subsequently called the loss adjuster and said that she had sent through all outstanding information and would like to know the present position. The insurers, through their loss adjusters, therefore knew that TB understood that it had provided all the information then required.

• Some months later the loss adjuster said that he looked forward to receiving any further claim submission TB wished to make without any suggestion that information already requested was outstanding.

On this basis, said the Court of Appeal, it would be “unjust and unconscionable” to allow insurers to escape any liability on the ground of non-compliance with the condition precedent.

Interestingly, Sir Christopher Clarke made it clear that the ‘duty to speak’ did not arise only in respect of insurance contracts (which are contracts of ‘good faith’) but was of general application.

Simon Cooper

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