Policyholder Update: When Does Your Insurer Have A 'Duty To Speak'?

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...