In a recent decision, the Court of Appeal has found that, in certain circumstances, an insurer has a duty to tell its policyholder that their conduct is at risk of jeopardising their claim for cover.
The obligation is described as a "duty to speak" and, in principle, is not restricted solely to disputes arising over insurance. However, the fact that insurance is a contract of utmost good faith increases the likelihood of a party having an obligation to speak up.
The dispute before the Court of Appeal concerned the theft of stock (by an employee) from a Ted Baker distribution centre. Ted Baker made a claim on its insurance for the lost stock and loss of profits. In response, the company's insurers, AXA, asked it to provide various documents, including accounting information, to substantiate the claim. Ted Baker met with AXA's loss adjuster and explained that it would be both costly and time-consuming to provide all of the information requested. The loss adjuster said that he would seek instructions and get back to them, but never did.
AXA subsequently relied upon Ted Baker's failure to provide the information as breach of a condition precedent in its policy and thus grounds for denying cover. Ted Baker, understandably, complained that it believed the issue had been parked, following the meeting with the loss adjuster. The Court agreed that AXA was not entitled to take the point without having first made it clear to Ted Baker that, as far as it was concerned, the request for documents remained outstanding and was in issue.
It remains the case that an insurer has no general duty to warn a policyholder of the need to comply with their policy conditions. However, policyholders may now expect their insurers to engage in a more meaningful way with regards issues that are in dispute, and hopefully avoid any nasty surprises.
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