Honesty is the best policy – Ted should have known better!
The Court of Appeal recently considered a £3m business interruption and a consequential loss claim by Ted Baker arising from an employee theft of £1m worth of stock from warehouses in London (wow! that’s a lot of clothes you might be thinking).
The Policy provided that insurers did not have to pay out if Ted Baker failed to provide certain information. Insurers believed that Ted Baker thought it could put off providing the required information until further notice but unfortunately this turned out not to be the case. Instead, the insurers did not correct that mistake and sought to rely on the breach to decline the claim.
There is no general duty to “speak up” and inform someone if they are doing something to their detriment. However, where an ordinary person would feel compelled to say something, the Courts have shown they will stop someone taking advantage of their silence. That is what happened here; the insurers were prevented from relying on the breach to decline the claim. Where the dividing line is fact specific – if a coffee shop assistant only charges you for one coffee when you received two, some people would point out the error, others would enjoy the ‘free treat’. If it was four coffees, more people would feel compelled to speak up as they would probably feel like they are taking too big of an advantage. As the relationship between an insurer and insured is one of utmost good faith a Court has indicated it will be more willing to find a duty to speak up than in ordinary commercial relationships.
Lesson for the future then - Insurers will already be careful to avoid any conduct which might not be regarded as treating their customers fairly, but this case emphasises the need to be transparent with their insureds when investigating possible policy breaches.
Casename - Ted Baker plc & Anor v Axa Insurance UK Plc & Ors