Claims cooperation clauses – when is an information request unreasonable?
The recent decision of the High Court in Ted Baker Plc v Axa Insurance UK Plc considered the implications for policyholders of failing to comply with an information request by insurers.
Between 2003 and 2008 an employee at one of Ted Baker's warehouses in North London repeatedly stole boxes of stock, as a result of which the company suffered significant losses. The company brought a claim under its commercial combined policy for approximately £1 million in respect of the lost stock and roughly £3 million for consequential losses and business interruption costs. Insurers, AXA and others, initially declined cover on a number of grounds prompting Ted Baker to bring a claim in the High Court where Mr Justice Eder found, by way of preliminary issue, that the company was covered in principle for the losses.
The judgment on the preliminary issue, which was handed down in 2012, is of interest itself for policyholders, as is the February 2014 Court of Appeal's subsequent judgment in which the first instance decision was upheld. Both courts rejected AXA's attempts to avoid coverage in reliance on standard "industry practice" and the "normal" extent of cover offered under policies of a particular "type" and instead upheld the express policy wording.
Of further interest is the recent judgment in the case, also by Mr Justice Eder, which was handed down at the end of October 2014 in which it was held that Ted Baker's Business Interruption claim failed entirely because the company had not complied with a claims cooperation clause in its policy.
The claims cooperation clause
The courts having previously established that Ted Baker's claim was covered in principle under the policy, insurers went on to argue that the retailer had failed to comply with a number of so called "claims cooperation" conditions, which are commonly found in commercial insurance contracts. In Ted Baker's case, the policy contained a requirement to provide:
"such books of account … and other documents proofs information explanation and other evidence as may be reasonably required by [insurers] for the purpose of investigating or verifying the claim …"
The term was stated to be a condition precedent to insurers' liability to pay.
AXA said that Ted Baker had failed to provide certain information requested in a "shopping list" by the loss adjuster, which included the company's profit and loss and management accounts for the period 2005 to 2008. The question then arose as to whether the documents and information had been "reasonably required".
In respect of the vast majority of the documents and information requested by the loss adjuster that had not been provided, Eder J accepted that these had been reasonably required "in an abstract sense". In other words, the requests were prima facie reasonable. He concluded, however, that in circumstances where insurers had wrongly denied liability and refused to admit that the loss was even an insured peril, it was not reasonable to require Ted Baker to provide the requested information having regard to the time and expense that the company would have had to incur to comply with the request. With regard to one category of information that had been requested, however, namely the company’s profit and loss and management accounts for the years 2005 to 2008, Eder J held that there was no good reason why these had not been provided and that such requests were "routine for commercial claims". As a result of Ted Baker's failure to provide that information, therefore, the company's Business Interruption claim failed in its entirety.
The judgment provides a reminder to policyholders of the importance of complying with all conditions precedent in their policies, even when a claim has been rejected by insurers. Under English law, policyholders continue to be bound by the conditions of their insurance unless and until insurers' repudiation of the policy is accepted by them. In the present case the simple act of failing to provide the company's management accounts cost Ted Baker several million pounds.
On the other hand, the court's approach in relation to the vast majority of the information requested serves as a warning to insurers that, in circumstances where they have unreasonably rejected a claim, documentation and information requests which might otherwise be considered reasonable may not be binding on policyholders. Of course, insurers are quite entitled to reserve their position in relation to a claim pending receipt of further information and, in such circumstances, the question remains (and will vary depending on the circumstances of each case) as to what level of cost or time would be sufficient to render an information request unreasonable.