In Ted Baker Plc and another v AXA Insurance UK Plc and others [2014] EWHC 548 (Comm), the Commercial Court rejected a business interruption (BI) claim made by a clothing retailer because of the insured's failure to comply with a claims co-operation clause which was a condition precedent to Insurers' liability and which required the insured to provide Insurers with information that was "reasonably required".

The Court also noted that the insured's failure to show that the losses incurred exceeded the value of the excess would also have proven fatal to its claim.

This note examines what may be regarded as a somewhat harsh decision for the insured and the significance of the insured's failure to co-operate with Insurers' "reasonable" requests for information after notification.

BACKGROUND

Between 2006 and 2008, clothing retailer, Ted Baker (TB), noticed various items were missing from its storage warehouse when conducting its stock take. An anonymous tip-off finally alerted TB to an employee at the warehouse who had, over a number of years stretching back to 2003, stolen a substantial amount of stock in collusion with a third party delivery driver. The employee would steal several boxes of Ted Baker merchandise at a time although the total amount stolen by the employee was a matter of dispute in the case.

TB claimed against Insurers under its combined commercial policy for BI losses incurred as a result of its employee's thefts.  It also originally advanced a claim for loss of stock, however, this aspect of the claim was dropped prior to trial for reasons that remain unclear.

In an earlier judgment which dealt with a number of preliminary issues on liability (Ted Baker Plc v AXA Insurance UK Plc  [2012] EWHC 1406 (Comm)) the Commercial Court held that TB's combined commercial policy did provide cover for BI losses caused by employee theft.

TB's combined commercial policy contained a term which provided that:

"15  Condition Precedent

It is a condition precedent to any liability on the part of the Company under this Policy that…the terms hereof so far as they relate to anything to be done or complied with by the Insured are duly and faithfully observed and fulfilled by the Insured and by any other person who may be entitled to be indemnified under this Policy."

The BI Section of the policy also contained Special Conditions relating to claims co-operation:

Claims Condition 2(b)(i) stated that, "in the event of a claim being made under this Section, the Insured at their own expense shall (not later than 30 days after the expiry of the Indemnity Period or within such further time as the Company may allow) deliver to the Company in writing particulars of their claim…"

Claims Condition 2(b)(ii) also required TB to "deliver to the Company such books of account and other business books, vouchers, invoices, balance sheets and other documents proofs information explanation and other evidence as may be reasonably required by the Company for the purpose of investigating or verifying the claim." (emphasis added)

The Special Conditions were subject to the following provision:

"If the terms of this condition have not been complied with no claims under this Section shall be payable"

The policy also contained an excess which was stated to be "£5,000 each and every loss."

DECISION

Claims Condition 2(b)(i): provision of particulars of claim

This provision required TB to deliver "particulars of claim" to Insurers not later than 30 days after the expiry of the indemnity period or within such further time as Insurers may allow.  TB's claim for BI losses covered a period of approximately 5 years under a series of insurance policies with broadly the same terms.

Insurers alleged that TB had failed to deliver any "particulars of claim" until an email was sent on 17 February 2009 containing headline details of the claim. Insurers argued this precluded any claim in respect of theft occurring before 18 January 2008 (the time limit for delivery of "particulars of claim" being the Indemnity Period of 12 months after each incident plus 30 days).

Mr Justice Eder held that TB was not in breach of Claims Condition 2(b)(i). In reaching this decision he noted the wording "in the event of a claim being made under this section…"  which he said could override the 30 day time limit.  He noted the unusual nature of the claim in that TB did not discover the basis for a claim until after the expiry of the time limit.  This is in contrast with traditional BI claims which normally involve a single adverse event immediately known to the insured. He held that Insurers allowed TB to produce its particulars of claim after the time limit by positively engaging with TB and seeking further information in late 2008. He also noted that Insurers' lack of complaint at the time about any possible non-compliance was an indication of allowing such an extension.

Claims Condition 2(b)(ii): documents "reasonably requested" by Insurers

Mr Justice Eder went on to conclude "[without] any great enthusiasm", that TB's claim should be rejected in its entirety because of its failure to comply with Claims Condition 2(b)(ii).

The provision required TB to deliver to Insurers such evidence "as may be reasonably required" by Insurers for the purpose of investigating or verifying the claim.

Following notification of the claim by TB, Insurers requested seven categories of documents. The Court recognised that the majority of these documents included information that would be difficult, time consuming and expensive for TB to obtain, such as computerised registration systems and information detailing the performance of each stock item.  Therefore, in relation to the majority of the document requests Mr Justice Eder held that it was not reasonable for Insurers to require them prior to admitting that employee theft was an insured peril.  This was a fact specific decision and he noted that generally speaking it would be reasonable for Insurers to reserve their position on admitting liability pending receipt of further documents where a review of such documents is necessary to decide whether or not cover exists.

However, Mr Justice Eder held that it was reasonable for Insurers to have requested one category of documents – copies of TB's profit and loss accounts and management accounts for certain years.  Unlike the other categories of documents, these were easy to obtain and their delivery would not have involved any additional costs of an accountant.  All expert witnesses were in agreement on this.  TB failed to provide any such information and such failure constituted a breach of Claims Condition 2(b)(ii), proving fatal to the claim in its entirety as compliance was a condition precedent to Insurers' liability.

There was some discussion as to whether Insurers were precluded from relying on TB's lack of provision of documents on the basis that the parties had agreed to "park" issues concerning quantum until liability was established.  TB raised a number of arguments based on waiver, estoppel by representation and/or acquiescence and/or convention and/or bad faith.  However, on the facts of the case Mr Justice Eder found that there had been just one agreement (or alternatively an estoppel by representation) in respect of a limited issue (that Insurers would revert on a request by TB for accountancy input in respect of certain of the information requested by Insurers, under a Professional Accountants clause in the policy).  Mr Justice Eder emphasised the limited nature of that agreement.  In particular, he noted that there was never any unequivocal representation that TB was not required to deliver copies of the profit and loss accounts and management accounts that Insurers had requested.  It was the failure by TB to deliver these documents that was fatal to TB's claim in the proceedings.

Excess: each and every loss

A further argument put forward by Insurers concerned the excess under the policy which was expressed to be "£5,000 each and every loss".  

Mr Justice Eder noted, obiter, that TB would not have been able to make any recoveries as it had not been able to show on the balance of probabilities that the claimed losses exceeded £5,000 each and every loss.  The nature of the thefts meant that TB did not know the number of incidents of theft in a given period, the number of boxes taken on each occasion or the number of items in each box.

COMMENT

The decision is of interest for a number of reasons.

The case reflects the court's unwillingness to construe claims co-operation clauses against insurers, unless genuine ambiguity exists (this principle was established in Gan Insurance v Tai Ping [2001] Lloyds Rep IR 667).

The case also highlights the uncertainty concerning what information an insurer may "reasonably require" with regards to claims cooperation.  In this case, what was "reasonable" related to the level of time and expense that would have to be borne by the insured in complying with it. 

It is also a reminder to insureds of the need to comply strictly with conditions precedent in a policy and to be aware of general "sweep up" clauses (such as Condition 15 in this instance), which operate to make all obligations on the part of the insured a condition precedent.