UK: (Re)insurance Weekly Update 30- 2017

Last Updated: 25 August 2017
Article by Nigel Brook

Ted Baker v AXA Insurance: Court of Appeal finds that insurer had a "duty to speak" on particular facts of case

The first instance decision in this case was reported in Weekly Update 41/14. After deciding, as a preliminary issue, that the insurance policy in question did cover employee theft, Eder J found that the insured had breached a claims cooperation clause (a condition precedent) by failing to provide certain profit and loss and management accounts ("the accounts"). The parties had agreed to "park" quantum issues pending determination of liability, but the judge had found that it would not have cost the insured anything extra to provide the accounts, which they already had, and so the condition precedent had been breached. In reaching this conclusion, the judge rejected an argument that there had been an estoppel or breach by the insurers of their duty of good faith. The insured appealed against that decision.

One issue raised at first instance had been whether an insured must comply with a policy condition even if the insurer has (wrongfully) rejected a claim. Eder J did not decide this issue, but by focusing his attention on the policy wording, it might be said that he impliedly accepted that the insured was still bound to comply with the claims cooperation clause even though insurers had rejected the claim. This issue was not discussed at all by the Court of Appeal. Instead, the appeal primarily focused on the issue of whether there had been an estoppel and/or breach of the duty of good faith.

This argument centred on a meeting which had taken place between (inter alia) the insured's representatives and the insurers' loss adjuster. When the insured had argued that the accounts should not be provided until liability was confirmed, the adjuster had responded by saying that he would take further instructions from insurers and revert. However, he did not then revert. Furthermore, in later communications between the insurers and the broker, there was no indication that anything was outstanding from the insured.

The Court of Appeal held that "the judge was entitled to find that it was not clear that a willingness to take instructions necessarily carried with it a representation that copies of accounts which required practically no expense to produce, and which the insurers still wanted, need not be produced until after the instructions had been obtained". Furthermore, there was limited caselaw authority on the duty of good faith post-contract operating to the benefit of the insured.

However, the Court of Appeal referred to authority in relation to commercial contracts generally which supports a "duty to speak" in certain circumstances. It was concluded that "The question is what a reasonable person in the position of the person asserting the estoppel would expect of a person acting "honestly and responsibly" so that irresponsible but not dishonest behaviour could itself give rise to an estoppel". Accordingly, an estoppel 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 (here [the insured]) would expect the other party (here the insurers) acting honestly and responsibly to take steps to make his position plain. Such an estoppel is a form of estoppel by acquiescence arising out a failure to speak when under a duty to do so".

On the facts of the case, it was found that the insured could have reasonably expected the insurers to say if they required the accounts (and did not consider this particular information "parked"), especially if failure to provide the information was said to be fatal to the claim and the insurers must have realised (or would have, had they thought about it) that the insured would have the documents to hand: "It would have been the simplest thing for them to confirm that, notwithstanding the wait for instructions, they still wanted the [accounts] before the upshot of those instructions was communicated".

The Court of Appeal stressed that this conclusion did not depend on the good faith relationship between and insurer and insured, but rather, derived from general commercial law: "It is not, therefore, necessary to decide the extent to which, if at all, the fact that it is such a contract [of utmost good faith] may enlarge the circumstances in which a duty to speak arises. It is however, clear that the fact that the contract is of such a nature will, if it does anything, increase the likelihood of a party having a duty to speak".

Thus, there was an estoppel even though the insurers had not acted dishonestly or with impropriety. On the particular facts of the case, it would be unconscionable to allow them to escape liability on the basis of a breach of CP in relation to the accounts.

However, the insured's claim failed on a separate basis: namely that it could not show that each theft had resulted in a loss of profits over the policy excess. The assumptions used by the insured's expert had been too speculative: "The assumed volume of stolen items for each theft was crucial for establishing the quantum of [the insured]'s claim but it was highly speculative".

COMMENT: Rather than choosing to elaborate on the nature of the post-contract duty of good faith in an insurance context in this case, the Court of Appeal has instead relied on general commercial caselaw to find that it would have been unconscionable for the insurer to rely on a breach of CP argument on the particular facts of this case (even though the insured was a large commercial organisation, advised by experienced insurance brokers).

Accordingly, care should be taken when liaising with insureds during the claims handling process in order to ensure that an estoppel argument does not unintentionally arise. This will be particularly important where an insurer might have given the insured a misleading impression and/or might easily alert the insured to a problem with the presentation of its claim, and the imposition of a reservation of rights may possibly not assist the insurer in such circumstances. In some ways, this may tie in with the late payment provisions introduced by the Insurance Act: ie insurers will be well advised to keep insureds fully informed at every stage of the claims process and to alert them to issues as and when they arise (especially if they are important and can be easily rectified by the insured – it seems more doubtful that a "duty to speak" will arise where the problem can't be rectified, eg the insured has already given notice too late).

Exactly how far the duty to speak might go, though, remains to be seen. The Court of Appeal accepted that "an insurer is, generally speaking, under no duty to warn an insured as to the need to comply with policy conditions" and that was especially the case here, given the involvement of the brokers. But what if the insured/brokers read the policy but have clearly made a mistake about what it requires? Will it be the insurer's duty to alert them to the problem, or will the insurer instead be able to say that they should have read the policy more carefully, and so sit back and do nothing more?

BAE Pensions v RSA: Judge determines issues under the Third Parties (Rights Against Insurers) Act 2010

The Third Parties (Rights Against Insurers) Act 2010, which came into force on 1 August 2016,  provides that a third party can bring a single action against the assured and its liability insurers, rather than bringing an action against the assured and then seeking to enforce it in separate proceedings against the insurers (as was the case under the 1930 Act). As a result, the court can decide the issue of coverage under the policy as a preliminary issue and so, if there is no coverage, an expensive trial on the assured's liability can be avoided.

One of the issues in this case was whether the court has jurisdiction to hear a claim where cover is disputed by the insurer.

The insurer argued that it was entitled to rely on a clause in the policy which provided that there would be no cover if the insured was aware of the harmful event when the policy was taken out (which it argued was the case here). Section 2(1) of the 2010 Act provides that where a person "claims to have rights under a contract of insurance by virtue of a transfer under section 1 but has not yet established the insured's liability which is insured under that contract" (emphasis added), he/she may bring proceedings against the insurer. The insurer's argument was that section 2(1) was not engaged because it did not provide cover. That argument was rejected by the judge. She held that section 2(1) is engaged "even where there is a potential dispute as to whether or not there is the appropriate cover under the policy".

The judge said that if a claim was made against an insurer which was "simply unarguable", the proceedings could be struck out. Nor could it be said that the insurer had no right to step into the insured's shoes to defend the underlying claim: "if [the insurer] is joined as a Defendant in these proceedings, clearly it is entitled to make such submissions and call such evidence as it wishes to make in response to the claims by the Claimant". The insurer can either decline to conduct a substantive defence of the underlying claim by the claimant (on the basis that there is no coverage) or seek declarations and/or have preliminary issues determined in respect of the coverage issue.

The other issue in the case was whether the English court has jurisdiction to hear the claim under the 2010 Act where the policy is governed by the law and jurisdiction of another country. Here, the policy provided for both the exclusive jurisdiction of the French courts and French law and also for arbitration. The judge did not determine which provision applied in this case, and instead concluded that the coverage dispute would be covered by one of them. Accordingly, the English court did not have jurisdiction to hear the coverage issue. The judge joined the insurer to the English proceedings but then stayed proceedings relating to the insurer's liability to the insured and/or third party claimant (she granted a stay just in case she was wrong on the point and this part of the proceedings became time-barred in the meantime).

COMMENT: The conclusion of the judge on the first point (coverage) is supported by prior caselaw under the 1930 Act and textbook commentary, although this is the first time that the issue has been confirmed in relation to the 2010 Act.  However, the conclusion on the second point (jurisdiction/choice of law) might be contrasted with the recent CJEU decision in Assens Havn v Navigators (see Weekly Update 27/17) (which was handed down the day before this judgment), where it was held that a third party claimant bringing a claim under the Danish equivalent of the 2010 Act was not bound by the jurisdiction/choice of law clause in the insurance policy.

Dring (Asbestos Victims Support Groups Forum), Re: Whether company entitled to its costs in defending application for access to documents filed at court in another case

The background to this application can be found in Weekly Updates 14/12, 18/16 and 26/16 (Chandler v Cape Plc and Cape Distribution v Cape International). A parent company was held to owe a direct duty of care to an employee of its subsidiary who contracted asbestosis. That decision was based in part on the fact that the group's medical adviser had carried out research and become an international authority on asbestos-related diseases. The subsidiary's employers' liability insurer had then sought to bring a subrogated claim against the parent company.

The applicant in this case is a non-profit unincorporated association representing 12 asbestos victims support groups in the UK. It seeks to obtain copies of documents filed by the parties in the litigation described above.

CPR r5.4C allows non-parties to obtain certain documents from the court file without the permission of the court. However, the non-party needs the permission of the court to obtain copies of any other documents (as was the case here). In particular, the applicant seeks documents which have been described as "crucial knowledge documents (ie in relation to what was known, by whom, and when, about the risks of asbestos exposure historically)".

Master McCloud initially ordered that a trial bundle which contained the electronic disclosure by the parties should be re-lodged at court on a hard disk drive in a format readable by the court without the use of proprietary software. That was done because there had been prima facie evidence to suggest that there was a likelihood that that disclosure may imminently be destroyed (the relevant bundle having been removed from court).

In this case, she has now held that the Cape parties may make representations regarding the application for access to the documents on condition that they may not seek any order for costs against the applicant. In reaching this decision, she noted that the Cape parties (an "interested party") had not sought an order to restrict the right of the public to access documents on the court file (an order which could have been sought under CPR r5.4C(4)). She continued that "I must consider the public interest in avoiding the serious risk that the resources brought to bear by Cape, which may choose to incur considerable cost to oppose access to court records in its own commercial interest, would snuff out the application, leaving the question whether these documents should or should not be copied from the court record, and the related question as to whether they are part of the court record at all, unanswered".

Caretech v Oakden: Court considers various service issues where claim form sent to solicitors (not instructed to accept service) for information only

The claimant failed to effect personal service of the claim form on the defendant. Prior to the expiry of the 4 month period for service of the claim form, a photocopy of the claim form (and no response pack) was delivered by post and email to the defendant's solicitors. However, it was common ground that those solicitors had not been authorised to accept service.

The claimant applied under CPR r6.15(2) for an order that "steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service".

Although the defendant had argued that CPR r6.15(2) cannot apply where there has been no service (as opposed to mis-service), Master McCloud decided the case on a different basis. She held as follows:

(1) Service is an objective question and party who says he is not delivering a claim form by way of service, but for information only, is to be taken at his word. The content of the letter enclosing the claim form is therefore material.

(2) Generally, good service requires delivery of a hard copy document, as sealed and issued by the court (unless, for example, service is by fax or email).

(3) When considering relief under CPR r6.15(2), it is critical that the form and contents of the claim form has come to the attention of the defendant, but that alone is not enough. CPR r6.15(2) cannot be used where a claim form has been provided expressly for information only (ie not for service) (by contrast, a claim form bearing no such statement can be treated as served).

(4) Even if the Master was wrong on the points above, the statement that a document is provided "for information only" forms part of all the circumstances as to whether there is good reason for validating service. Various matter can be taken into account when deciding if there is "good reason". The reason why the claim form could not be served in time, the conduct of the parties, the absence of a Limitation Act time bar and prejudice to the defendant will all be relevant factors. The payment of a further issue fee if a claimant has to re-issue is not a relevant factor. Furthermore, the new form of the overriding objective points towards a more rigorous approach to requiring compliance with the rules.

(5) Finally, the use of the word "or" in CPR r6.15(2) does not prevent the court from validating service where there has been a failure of both method of service and also location of service.

So, on the facts of the case, the Master declined to exercise her discretion to grant relief under CPR r6.15(2). Although the claim form had been delivered to the solicitors in order to bring it to the attention of the defendant, that step was not capable of being service because the claimant had elected to state that delivery was "for information". Alternatively, there was no good reason to allow a claim form which was expressly delivered on that basis to be validated as service after the event: the claimant "should be held to its word and a party should be able to know that when its lawyers receive documents which on their face are not being served, that such can be relied on".

Mott v Long: Court grants relief from sanctions where costs budget filed 10 days late

The defendants applied for permission to be able to rely on their costs budget, which was filed some 10 days late (an earlier costs budget was not filed due to IT problems, although the defendants' solicitors thought it had been filed). Grant HHJ held (applying the principles laid down in Denton v TH White (see Weekly Update 26/14) that the delay here was serious or significant, in part because "lateness in serving a cost budget has the capacity to prejudice the very process of co-operation in the cost budgeting process which the rules are designed to achieve". Furthermore, although IT failures can amount to a good reason, the defendants had not established a good reason on the evidence, no witness statement from someone in the solicitors' IT department having been produced.

However, the judge was prepared to grant relief taking into account all the circumstances in the case. The costs budget had now been served (some 9 days before the CMC) and, importantly, there was a significant difference between the figures in the costs budgets for the claimants and the defendants. That was because of a difference in approach between the parties eg the claimants wanted to adduce expert evidence from two categories of expert, the defendants from only one. It was possible that the parties might not have been able to agree these matters and so would have had to make oral submissions at the CMC (with a revised costs budget likely to then be ordered): "In those circumstances, the process of cost budgeting would not have been completed today in any event... The fact that the parties are now in precisely the same procedural position in which they would have been so far as the process of cost budgeting is concerned, had the defendants served their cost budget in time, is a highly significant circumstance in the case, and one to which the court should have proper regard".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nigel Brook
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