Going for Broke

Wednesday 15 February 2012

An Insurance Broker has a duty to ensure that a policy meets the needs of its client. This is a continuing duty and requires a Broker to advise his client of any changes to the policy throughout its duration. A Broker who fails to comply with this duty could find themselves facing a negligence claim with a substantial liability.

The case of Ground Gilbey Ltd & Davey Autos Ltd –v- Jardine Lloyd Thompson UK Ltd concerned the owners of part of Camden Market in North London and their Insurance Broker. The claim followed a major fire in February 2008 which had been caused by a liquefied petroleum gas heater which had been left on in one of the stalls and had ignited clothing set out for sale. The Claimant’s Insurers alleged that they had failed to comply with the terms of their policy and the Claimants in turn alleged that this had been caused by the failure of their Insurance Broker to inform them of various conditions of that policy.

The Broker had failed to pass on to the Claimant details of the policy conditions which required immediate removal of the gas heaters and a survey condition making cover conditional upon satisfactory completion of certain risk improvements. The Claimant settled their claim against their Insurance Company in the sum of £3.8 million, which was approximately 70% of its value. The Claimant then brought a claim against their Broker in negligence.

Mr Justice Blair sitting in the Commercial Court of the Queen’s Bench Division held that the Broker had been negligent in failing to advise the Claimant of the terms of their policy. The Broker’s breach of duty had caused the Claimant to settle their claim against their Insurance Company for £1.7 million less than they would have done had there been no issues with the policy. This sum was recoverable from the Broker as it represented the difference between the amount actually recovered from the Insurers and the amount which would have been recovered had the Broker not been negligent.

In this particular case, the Broker well knew that the stall-holders were using the gas heaters and they failed to inform the Claimant that the policy of insurance no longer met their requirements.

As a result of their failure, the Claimant was left with uncertain rights against their Insurer and suffered a loss.

The Court found that a Broker owes a duty to his client to take reasonable steps to obtain a suitable policy which meets the needs of his client. Part of that duty is to avoid exposing the client to unnecessary risks of legal disputes with their Insurer. The Broker’s duty includes drawing to the attention of his client any unusual or onerous terms and conditions and explaining the nature and effect of the same. The Broker’s duty continues throughout the life of the policy and if he becomes aware of material information which may affect the policy, he must act in the best interests of his client by drawing it to his attention.

The Court held that it had been reasonable for the Claimant to settle its claim against the Insurer at 70% of its value given the uncertainties in their rights under the policy. This was despite arguments from the Broker that the Claimant had settled for commercial reasons as a result of their financial position. Mr Justice Blair considered it was at least arguable that the Claimant’s cover had been prejudiced by the Broker and their rights under the policy were uncertain or doubtful. This was sufficient for the claim against the Broker to succeed.