Ted Baker v AXA and Others

This case demonstrates the importance of knowing exactly which insurance terms and condition are in place for a particular risk and the importance of brokers placing a client's risk correctly.

The Facts

Ted Baker pursued a claim against AXA asserting that they had cover for a claim under the terms and conditions of their commercial combined insurance policy. First they said that there was cover for the losses under the Theft section of the policy. They then argued that consequential losses were covered under the terms of the Business Interruption section of the policy.

Over a number of years the retailer had been the victim of thefts by one of its employees who acted in collusion with delivery drivers. The retailer asserted that by reason of a standard form theft extension clause, cover was in place for this type of theft.

The claim was resisted by AXA on several counts. They alleged that theft by an employee was not covered under the terms of the policy as a matter of construction and that if "surreptitious theft" by an employee were to be covered by an insurance policy then it would only to be covered under the terms of a fidelity policy.

Other defences were also raised relating to mistake, rectification and estoppel. There were also co-insurers involved and they ran parallel defences but also alleged non-disclosure by the broker of the fact that this was unusual cover and that it ought to have been disclosed by the broker.

The Judgement

Despite 21 witnesses being called, the vast majority by the Defendants, the court held that the plain and simple words used in the theft extension clause meant that non forcible and violent theft by an employee was covered under the terms of the insurance policy and that the retailer was covered for its direct losses. It did not go against business common sense as alleged by the Defendants.

Similarly the Defendants could not allege that market practice was to the effect that this kind of cover was not available. The Defendants had attempted to give such evidence both with lay witnesses and with their expert. The judge found that the words used in the policy could not be displaced by any such allegation.

Similarly the Defendants attempted to argue that the parties were trying to replicate the cover formerly given by the defunct Independent Insurance Company. Again the court held that this could not displace the actual terms and conditions of the policy.

On the basis of the policy terms it was therefore found that Business Interruption loss was similarly covered under the terms of the policy. An exclusion clause based on "fraud and dishonesty" was held not to apply.

The court held that there were no "shared assumptions" and therefore the Defendants plea of estoppel also failed.

The Defendant's allegations of non-disclosure and misrepresentation on the part of the retailer's brokers also failed

Comment

The Judgement demonstrates that an insurance company faces an uphill task in trying to persuade a court that despite what a policy says, the terms did not represent what the parties wanted. In this case the majority of the Defendants' arguments were dismissed "in limine", in effect the Defendants' cases did not get over the first hurdle. Quite simply if the terms and conditions of a policy make it clear what is covered, the court will hold that to be the case.

You can read this case study in full here:

High Court Decisions - Baker v Axa

  

*We’d like to offer a special thank you to Nichola Evans at Browne & Jacobsen for providing a summary of this legal case study.

The agent's role in disclosing material facts

Yong Sheng Goldsmith Pte Limited v Liberty Insurance Pte Limited [2011]

This interesting case looks at the question of disclosure of material facts and the role that agents can play as a conduit between insurer and insured.

The Facts

The Claimant was a jeweller and held insurance with the Defendant company under a jeweller’s block policy. An armed robbery took place at the Claimant’s premises and the Claimant duly made a claim under the policy.

The Defendant sought to void the policy on the ground that there had been material non disclosure. They suggested that the Claimant should have advised they had been subject to harassment from a loan shark. The Claimant alleged that the information had been disclosed to the Defendant via the Defendant’s agent. This agent had dealt with the policy and the renewal process.

The Finding

Even thought the agent acted for a number of insurers the court found that he was the agent of the Defendant company, one reason being that he was registered as an agent of the Defendant. As he had knowledge of the loan shark this knowledge was imputed to the Defendant.

Comment

Again this case stresses the need for full disclosure of material facts. The insured would have been left in some difficulties had the material facts not been communicated to the agent. Insureds should make sure that all material facts are disclosed – and keep the documentation. It could prove invaluable in the event of a claim!

False statements come out in the wash

Synergy Health (UK) Limited v CGU Insurance PLC [2010]

A key question in many insurance cases is how and in what circumstances can an insurer void a policy of insurance where there has been the provision of incorrect information. This Commercial Court case decided in 2010 gives some guidance.

The Facts

The Claimants operated a laundry business in Dunstable. In late 2005 the Claimant said that the premises would very shortly be protected by an alarm. The Claimant’s material damage and BI policy were renewed some four months later. In February 2007 the Claimant’s premises were damaged by fire and a claim was  made under the terms of the insurance policy.

The insurers attempted to avoid the policy on the grounds of the false statement made. The assured had made the statement innocently based on incorrect information.

The Findings

The matter ran to trial and the Judge made the following findings:

• The Claimant had misrepresented matters. 
• Further, there was non-disclosure – the fact that there was no alarm ought to have been disclosed pursuant to s18 of the Marine Insurance Act 1906. 
• The non-disclosed fact was material.
• However the court found that the policy could not be avoided as there was no inducement. 
• Interestingly the insurers had not provided any evidence as to what their stance would be had they known the true facts, for instance as to whether this would have resulted in a higher premium.
  
  

Comment

Whilst on this occasion the court held that there had been no inducement to enter into the insurance contract, insureds or potential insureds must be very careful as to the information which they provide to their brokers and/or insurers. The court found that by telling their insurers four months before renewal that an alarm was being installed this went beyond a mere intent to install a system and sent out a message that work was underway. An insurance contract is a contract of utmost good faith and therefore if a fact looks relevant or may influence the terms of the insurance contract then it must be disclosed to insurers.

Information flow between parties is critical

Ground Gilbey v Jardine Lloyd Thompson UK Limited [2011]

Over the past few years we have seen a number of important decisions involving the role of insurance brokers and how critical it is that there is a flow of information between the parties. This case emphasises that and the consequences when people get it wrong.

Fact

This claim relates to a fire at Camden Market and was brought by the owner of Camden Market.

A survey of the premises was carried out in 2005 and identified the use of LPG portable heating appliances. The Claimant duly banned their use but stallholders continued to use them. On the renewal of the insurance policy in 2007 the policy contained a new endorsement – a survey condition requiring completion of all risk improvements. The Claimant alleged that this condition was not brought to their attention.

On 9 February 2008 a fire broke out at Camden Market. The owners made a claim under the terms of the insurance policy. The policy condition was raised by the insurers. The owners settled their insurance claim for £3.825M which represented approximately 70% of the claim leaving a shortfall of approximately £1.7M. The Claimant sought to recover the shortfall from their insurance brokers.

Findings

The court found that the brokers had acted in breach of duty in three respects:

• A failure to find a policy allowing the use of portable heaters.
• Failure to give advice on the policy condition.
• A failure to pass on a critical email in relation to the removal of portable heaters to the owners.

The Claimant was able to recover its losses in full and the court would not entertain an allegation that there had been any contributory negligence by the owners before the fire.

Comment

This case again shows the importance of essential information being passed between insureds and insurers and that this duty extends to the parties’ agents. When difficulties emerge in the context of a claim, it is important to investigate every angle, consider the documentation and investigate as to whether all information has been communicated to the parties.

The enigma of mysterious loss

Underwriting Services Ltd [2010] EWHC 3244 (Comm)

The discord between a "mysterious disappearance" clause, which discharges the insurer from liability if it can prove that the insured's loss was mysterious, and the accepted position under an All Risks policy that the insured is able to recover by proving a fortuitous loss is clearly illustrated in Underwriting Services Ltd [2010] EWHC 3244 (Comm).

The facts of the case are simple: a loss occurred which the evidence clearly indicated was caused by theft, and the insurers failed in their attempt to invoke the "mysterious disappearance clause". Nonetheless, Gloster J elected to comment on a number of issues of principle, ruling that under an All Risks policy the insured was tasked with proving that loss had accidentally occurred, with no requirement to demonstrate the specific cause of the loss. Given that the insured had satisfactorily proven such loss, the burden fell to the insurer to illustrate that the exception applied. The challenge was whether a "mysterious disappearance" clause affected that position.

In Widefree Ltd v Brit Insurance Ltd [2010] EWHC 3671 (a case in which this firm acted successfully for the claimant), the All Risks policy of a jeweller included a clause which prevented the insured from recovering where it was "unable to prove the date and circumstances of any loss". The court held the impact of the provision was that the jeweller had to prove its loss regardless of the fact that the policy was All Risks. This statement however was obiter since the provision only applied to losses which were discovered during stocktaking and, as the court subsequently held, the loss was revealed under other circumstances.

In AXL, the judge identified that the wording of the clause in Widefree varied substantially from that in AXL. Thus the correct interpretation in the case before Gloster J was that the insured was required simply to prove a loss – not to provide the cause of such loss – after which the burden of proof fell to the insurers to demonstrate that the loss concerned was mysterious. The analysis raises the predicament for insurers of when, under an All Risks policy, they can establish mysterious disappearance. Gloster J put forward two possibilities:

1. Insurers could convince the court that the evidence of the loss was so lacking with regard to the cause that it provided the real possibility that the loss was indeed a result of a "mysterious disappearance". Examples of such a case might include mis-delivery of goods or unauthorised delivery to an unknown recipient.
   
   
2. Insurers could present evidence that a real possibility existed that the loss was caused by a particular type of "mysterious disappearance".

Gloster J held that there was no requirement for an all-embracing or exclusive definition of the circumstances comprising "mysterious loss"' as the definition will be dependent on the context. Nonetheless, it will commonly involve circumstances where the basis of the loss cannot be established or where any explanation of loss is suspicious or based on speculation.

In AXL however, there were no such concerns since the evidence strongly implied that theft was the cause of the loss, and thus even if AXL had been required to disprove "mysterious disappearance", they had discharged that burden.

"When you have eliminated the impossible, whatever remains, however improbable, must be the truth." Sherlock Holmes.

Consequences of the Judgement
Gloster J's ruling highlights the discord between All Risks cover and a "mysterious disappearance" clause.

Under the All Risks cover, the insured must prove solely that a fortuitous loss has been suffered, after which the insurers must demonstrate that some aspect of the loss was mysterious. It then falls upon the insured to disprove that assertion by proving how the loss happened, a concept which is entirely alien to All Risks Cover. A mysterious loss clause thus appears incompatible with All Risks cover, and any decision by an insurer to repudiate a claim on that basis should be scrutinised carefully

Edwin Coe LLP work with CCS and kindly contributed this article for your information.

Relying on the competence of predecessors

Beazley Underwriting and another v Travelers Companies Inc [2010]

The scenario is this:
"Broker 1 negligently arranges an insured's policy of insurance, and that error is repeated at renewal by Broker 2. Can Broker 2 escape liability and blame Broker 1 in the event of a loss, or at least obtain a contribution from Broker 1?" The short answer is no.

In Standard Life Assurance v Oak Dedicated [2008] it was held that the policy of the client, Standard Life, was deficient in certain cover provisions and that the broker, Aon, was negligent for providing unsuitable insurance. But Aon was not the original broker of the policy; it had simply renewed cover that had been established by a prior broker (Special Risk Services) which was acquired by the Minet Group, which was further acquired by Aon. Part of the acquisition terms of the Minet Group by Aon was for a deed of indemnity against loss, liability, claims or costs which arose out of an event that occurred prior to the Minet acquisition. Therefore, upon being found liable for negligence, Aon sought an indemnity from Travelers (the previous owner of the Minet Group). Travelers settled with Aon and then claimed against its insurers for the amounts paid to Aon.

"Undeservedly you will atone for the sins of your fathers" - Horace

However, in Beazley Underwriting and another v Travelers Companies Inc [2010] the court found that the unsuitability of the insurance policy provided to Standard Life was solely the negligent act of Aon who had renewed the policy following the acquisition of Minet. It did not matter that Minet (or Special Risk Services) had made the original error in terms of suitability of cover, as, upon renewal, Aon owed a duty of care to Standard Life to obtain suitable insurance cover.

The judge in Beazley –v- Travelers did not consider what competent brokers do in practice – he simply imposed a duty on brokers which did not take into account evidence of what a component broker does or should do.

Even if expert evidence had been considered, it is likely that the same conclusion would have been reached. The FSA makes very clear the distinction applied to advised and non advised sales, and describes at length the extent of the documentation required to establish a retainer based on an execution only transaction.

"Here's what I've got now, see what you can do..."
If the sale is made without advice, the firm that sold the product should be able to demonstrate through their records that the customer selected the product without any specific recommendation. If it is unable to demonstrate that agreement, then the fact that the insurance was previously arranged by a reputable broker, or was required at short notice, or was sought solely to obtain a cheaper premium ("here's what I've got now, see what you can do") will not absolve the current broker when a problem arises.

Edwin Coe LLP work with CCS and kindly contributed this article for your information.

Developments in Consumer Insurance Law

The Consumer Insurance (Disclosure and Representations) Act 2012 received Royal Assent last month and is expected to come into force in 2013.

The Act provides welcome update of consumer insurance law, shifting the balance of the law in favour of the consumer. It follows on from the Law Commission's 2009 Report on Consumer Insurance Law, which set out to ensure that consumer insurance law be clear, straightforward and fair. The reform also demonstrates the benefits in responding to industry consultation papers, which address potential changes in legislation.

'Clear, straightforward and fair'

The Act defines a "consumer insurance contract" as a contract of insurance between an individual who enters into the contract wholly or mainly for purposes unrelated to the individual's trade, business or profession.

Main legal changes to consumer insurance

• The Act abolishes a consumer insured's duty to volunteer information to the insurer. A consumer's duty will be limited to making sure it answers questions raised by insurers honestly and reasonably.
• Insurers will have to ensure they ask for any information they need to assess the risk being insured. If a consumer acts honestly and reasonably the insurer will have to pay the claim.
• Where a consumer acts carelessly, a proportionate remedy will be applied; the test will be what the insurer would have done had it known the full facts.
• An insurer will only be able to refuse to pay a claim if a consumer acts deliberately or recklessly in making misrepresentations.
• An insurer will need to prove on the balance of probabilities that a consumer knew:
  a) that a deliberate or reckless misrepresentation was untrue or misleading, or did not care whether it was or not; and
  b) that the matter was relevant to the insurer, or did not care whether it was or not. If a misrepresentation does not pass this test then
  it will be a careless representation and must be treated accordingly.
• If the intermediary is an appointed representative of the insurer, or is acting as the insurer's agent, they will be considered as acting for the insurer. In all other cases the intermediary will be presumed to be acting for the consumer.
  

Other provisions Insurers will be prohibited from contracting out of the effect of the Act. Importantly, the Act also abolishes basis of contract clauses, so that statements made by the consumer will not automatically be transformed into warranties.

For group schemes, if a group member makes a misrepresentation, this will only have consequences for the particular individual concerned.

If a consumer takes out life insurance on the life of another and the insured makes a careless or deliberate misrepresentation, the insurer will have the normal remedies.

The Act is a small but welcome step in redressing the balance of power between Insurers and consumers, and brings the law into line with the practice already adopted by the Financial Ombudsman Service and Financial Services Authority rules.

Edwin Coe LLP work with CCS and kindly contributed this article for your information.