The English Court of Appeal recently decided that an insured which did not provide its insurer with reasonably required quantum documents had not breached its claims obligations because the insurer had a duty to tell the insured that the documents were outstanding. South African insurers should be wary that their conduct (even by silence or inaction) may, in appropriate circumstances, similarly prevent them from relying on apparent breaches of claims obligations by their insureds.
In Ted Baker PLC and Another v AXA Insurance UK PLC and Others  EWCA Civ 4097, the court considered an appeal by the insured following the lower court upholding the insurer's rejection of a claim for business interruption losses arising from theft by an employee over a prolonged period of time. The lower court upheld the rejection for a number of reasons, one of which was that the insured had breached a condition precedent to the insurer's liability by not providing certain quantum documents which had been requested by the loss adjuster appointed by the insurer. The relevant claims conditions read that "in the event of a claim being made under this section the insured at their own expense shall deliver to the company such books of account and other business books, vouchers, invoices, balance sheets and other documents, proofs, information, explanations and other evidence as may be reasonably required by the company for the purposes of investigating or verifying the claim" and that "if the terms of this condition have not been complied with no claims under this section shall be payable".
It was common cause that the quantum documents fell within the type of documents the insured had to provide under the claims conditions and that such documents had not been furnished.
In the circumstances, the insurer argued that the insured could not persist with its claim. In response, the insured argued that the insurer was precluded from raising this argument due to estoppel and waiver.
On the facts, the court seems to have accepted that the insurer (through the loss adjuster) knew that the insured was under the mistaken impression that it had submitted all the outstanding documents, whereas it had not, and that the insurer did nothing to correct that impression.
In considering whether or not the insurer had a "duty to speak", the court took into account the fact that:
- An insurer does not generally have a duty to warn an insured that it needs to comply with policy conditions (especially where the insured is represented by a broker);
- The insurer did not appear to have deliberately kept quiet about the claims obligations in order to trick the insured into breaching them;
- The insurer had not represented that the documents did not need to be provided; and
- A duty to speak may arise if, in the light of the circumstances known to the parties, a reasonable person in the position of the insured would expect the insurer, acting honestly and responsibly, to take steps to make its position known.
The court believed that if the insurer had acted openly and informed the insured that the documents were outstanding, the insured would have provided them and that it would therefore be unconscionable to allow the insurer to escape liability.
There are some differences between South African law and English law on the issue of estoppel but the case sounds a warning to South African insurers about the dangers of inaction, particularly when there is a risk of a "duty to speak".