Insurers' duty to speak

The Court of Appeal has considered for the first time the circumstances in which insurers may have a duty to tell an insured that its actions or omissions during the claims process may jeopardise a claim.

The Court of Appeal has considered for the first time in Ted Baker v AXA [2017] EWCA Civ the issue of whether and in what circumstances an insurer might be under a duty to speak and, in particular, make its position clear in order to avoid being estopped from running certain procedural defences at a later stage.

The underlying dispute arose out of the sustained theft over a number of years of stock from Ted Baker’s distribution centre by an employee. Ted Baker claimed under its Commercial Combined insurance policy for business interruption losses. At first instance, the court held in favour of Insurers on breach of condition precedent (failure to provide certain documentation relating to quantum as requested by the loss adjuster) and quantum.

Whilst Ted Baker was unsuccessful on appeal in respect of quantum, the Court of Appeal reversed the first instance decision in respect of breach of condition precedent on the basis that Insurers were estopped from making that argument in circumstances where they were aware that Ted Baker regarded the production of the quantum documentation as being parked pending resolution of liability issues. Insurers had a duty to speak if that was not in fact the position as far as they were concerned.

The Court of Appeal held that, whilst there is no general obligation on insurers to warn an insured of the need to comply with policy conditions, a form of estoppel by acquiescence arose out of Insurers’ failure to speak when under a duty to do so. The duty to speak “may arise if, in the light of the circumstances known to the parties, a reasonable person in the position of the person seeking to set up the estoppel would expect the other party acting honestly and responsibly to take steps to make his position plain.”

The estoppel did not require dishonesty or an intention to mislead on the part of Insurers, nor was it dependent upon the contract being one of the utmost good faith. However, the fact that an insurance policy is of such nature will increase the likelihood of insurers having a duty to speak.

The judgment can be found here.

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