Insurers' 'duty to speak'
We previously reported on the decision in Ted Baker Plc v Axa Insurance UK Plc, in which the High Court considered the implications for policyholders of failing to comply with an information request by insurers. As a result of Ted Baker's failure to provide profit and loss and management accounts to its insurer, the company's business interruption claim failed entirely. The decision of the High Court was appealed by Ted Baker and earlier this month the Court of Appeal handed down its judgment.
The Court of Appeal upheld the decision of the High Court refusing Ted Baker's claim. In doing so, however, it provided some interesting commentary on an insurer's so-called 'duty to speak'.
By way of a reminder, Ted Baker's insurer, AXA, alleged that the retailer had failed to comply with a claims cooperation clause in the policy, which required Ted Baker 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 investigation or verifying the claim…"
The term was stated to be a condition precedent to liability. AXA argued that Ted Baker had failed to provide copies of the company's profit and loss and management accounts and that there was therefore no liability to pay under the policy.
In fact, Ted Baker had alleged that a 'professional accountants (PAC) clause' in the policy meant that AXA had to pay the reasonable charges incurred by the company's accountants in providing the requested documents. AXA had disputed the relevance of the PAC clause and Ted Baker had refused to incur the costs of providing the documents until it knew that AXA would, in principle, pay its claim.
Ted Baker submitted that the question of providing the accounts was effectively "parked" and that AXA knew this. In the circumstances, Ted Baker said that AXA should be estopped (prevented) from relying on the non-provision of the accounts on the ground that the insurer did not make it clear that it expected to receive the information.
What is the 'duty to speak'?
The Court of Appeal noted that there was only very limited authority on the operation of the duty of good faith after a contract of insurance has been entered into. Nevertheless, even in relation to general commercial contracts (where there is no general duty of good faith) there is authority to support a "duty to speak" in certain circumstances, namely:
"… where a reasonable man would expect the [other party] acting honestly and responsibly to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations."
Ordinarily, absent a relationship of good faith, partnership or something akin to a joint enterprise, it was noted that the courts would not impose a duty to speak in the absence of some sort of impropriety or deception by the other party. In the case of an insurer/insured relationship, however, where there is a relationship of good faith, it is not necessary to show impropriety.
Did the duty arise in Ted Baker's case?
In Ted Baker's case, the Court of Appeal found that:
- insurers are not generally under a positive duty to warn policyholders that they need to comply with policy terms
- whether an estoppel arises is wholly dependent on whether the insurer has made some representation express or implied
- an estoppel may arise if the policyholder would expect the insurer, acting honestly and responsibly, to take steps to make its position plain
- AXA's loss adjuster had represented that he would get back to Ted Baker after taking instructions
- the correspondence between the parties made it clear that Ted Baker regarded the issue as having been 'parked'
- in the circumstances, it was reasonable for Ted Baker to expect AXA to say if it still required the information before the loss adjuster reported back.
The judgement is important for policyholders because it establishes for the first time that there are circumstances in which insurers may be obliged to warn policyholders that they need to comply with policy terms.
The judgement does not alter the basic position that there is no general duty on insurers to warn policyholders about non-compliance with policy terms. With regard to information requests, policyholders would be well advised to seek their insurer's confirmation that all requested information has been provided to the insurer's satisfaction, thereby placing the onus back on the insurer to confirm if anything is outstanding.