An insurer’s ‘duty to speak’

a man and a woman in suits talking at a table with papers in front of them

Does an insurer have a duty to tell you that unless you take certain steps, you will lose rights under a policy of insurance? Depending on the facts, the answer may be yes.

In the first Ted Baker Plc. and others v. AXA Insurance Company and others (2012) case, the Court determined that Ted Baker’s commercial combined all risks policy did cover them for the stock thefts they had suffered at the hands of an employee. However, this decision did by no means the end of the insured v. insurer battle.


A full explanation of the original case can be found in my previous blog, but just to recap: the loss of the stock was in excess of 1 million pounds, and Ted Baker also claimed a further £3m for consequential loss. AXA originally rejected the claim on the basis that they simply were not on cover for the loss. They claimed that if Ted Baker had wanted their combined all-risk policy to cover theft by employees, then they should have purchased a specific fidelity policy or ticked the box for coverage for theft by employees. However, the Court determined that the “all risks” nature of the policy prevailed and AXA were on the hook for the loss.

The case

In February 2017, Ted Baker brought another case to the Court of Appeal; this time to appeal the decision of the insurers and Judge to reject their business interruption claim in relation to the same stolen goods. Ted Baker had failed to provide profit and loss, and management accounts to its insurers and thus breached a condition precedent concerning the provision of information.

Ted Baker maintained that the provision of the documents would be both expensive and time-consuming and the Professional Accountants Clause (PAC) in the policy entitled them to hire forensic accountants at AXA’s expense. Ted Baker were happy to provide the information themselves, but did not want to incur the costs until they received “agreement in principle that losses of gross profit adequately demonstrated would be reimbursed.” AXA on the other hand would not commit to paying under the PAC while liability under the policy remained uncertain. The issue therefore remained firmly ‘parked’ by AXA, and despite AXA’s loss adjuster telling Ted Baker he would revert back on the topic, he failed to do so. On this basis therefore, Ted Baker believed that AXA should be estopped from using the breach of condition as a basis of claim refusal.

The decision

The Judge dismissed the relevance of the PAC on the grounds that the documents could have easily been produced by Ted Baker and thus it was actually AXA’s decision to ‘park’ the entire issue that remained contentious.

AXA displayed no evidence of bad faith in the form of ‘hoodwinking,’ as an insurer has no duty to warn an insured about the need to comply with policy conditions. However, commercial contracts generally support a ‘duty to speak’ in certain circumstances. The judgment concluded that;

“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 Ted Baker) 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.”

Thus, Ted Baker could have expected AXA to say that they required the accounts, especially as failure to do so proved fatal to the claim. Despite there being no dishonesty or impropriety from the insurer, an estoppel was permitted and AXA could not dismiss the claim on the failure to provide the accounts alone.

Ultimately, Ted Baker’s appeal failed as they were unable to show that the loss of profit on any theft exceeded the 5 thousand pound deductible, but the case still sheds an interesting light on when an insurer has a ‘duty to speak.’

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Directors & Officers, Fidelity, Insurance and Risk Management, Property, Risk Culture | Tags: , , ,

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