In this article we review a number of professional negligence claims against insurance brokers that have been successfully pursued through to trial.
We have produced a corresponding guide, with answers to a number of the questions frequently asked by businesses and individuals contemplating a professional negligence claim against an insurance broker. This can be accessed here.
The aim of this article is to offer an insight into the types of errors and omissions made by insurance brokers that can give rise to a successful claim. It is not, and is not intended to be, an exhaustive account. Successful claims can arise from all manner of mistakes, not all of which have previously been considered by the courts.
It should be noted that while each claim listed below was pursued all the way to trial, the vast majority of professional negligence claims are resolved without the need to do so. Indeed, many claims are resolved without the need to issue court proceedings at all.
Failing to ascertain a client’s insurance needs
In the case of Standard Life Assurance Ltd v OAK Dedicated Ltd & Others the claimant commenced legal proceedings against both its insurers and its insurance broker. The claimant had been involved in the mis-selling of mortgage endowment policies and had paid compensation to over 97,000 investors. Although the individual payments averaged less than £10,000, collectively they totalled over £100 million.
When the claimant sought to recover these payments under its own professional indemnity insurance policy, its insurers asserted that a policy excess of £25 million applied to each investor claim, meaning that no indemnity payment was required under the policy.
At trial the judge found that the insurers had correctly applied the policy excess, such that no payments were due to the claimant under its policy. The judge further found that the ability to aggregate investor claims was critical to the claimant and that the insurance brokers had been negligent in arranging insurance cover which did not provide for this. The judge confirmed that:
‘It is the duty of a broker to identify and advise about the type and scope of cover which the client needs and, in doing so, to match as precisely as possible the risk exposures that have been identified within the client’s business with the coverage available.’
Failing to convey material information about a risk to an insurer
In McNealy v Pennine Insurance Co Ltd & Others the claimant, a property repairer and part-time musician, instructed the defendant insurance broker to arrange a motor insurance policy. Upon being asked what his occupation was, the claimant advised that he was a property repairer. The defendant then placed cover with an insurance company offering low rates to a restricted class of motorist, which excluded ‘whole or part-time musicians’.
In due course the claimant was involved in an accident and made a claim against his policy. However, his claim was rejected on the basis that he was a part-time musician and was excluded from cover. The claimant therefore commenced a professional negligence claim against the broker.
At both first instance and on appeal, the court concluded that the broker had known about the exclusions to the policy. It also found that the broker had been negligent in failing to ascertain from the claimant and disclose to the insurer the material fact that the claimant was a part-time musician. On appeal, the court stated that:
‘It was clearly the duty of the broker to use all reasonable care to see that the assured, Mr McNealy, was properly covered…the judge was quite right. The broker was liable for not taking proper care to effect the insurance, and he is therefore liable for the full amount of the claim.’
Failing to arrange insurance cover for a particular risk
In Transport & Trading Co Ltd v Olivier & Co Ltd the claimant had instructed the defendant insurance brokers to arrange insurance for a vessel owned by the claimant, known as the El Kahira. The cover required was for Particular Average Loss, being accidental and unforeseen loss caused by perils of the sea.
Unfortunately, while the vessel was in Algiers, a fire broke out. However, when the claimant sought to make a claim against its policy, the brokers were unable to produce a copy of it. The claimant therefore commenced a professional negligence claim against the broker.
At trial, and based on the evidence before it, the court concluded that no policy had been placed. By way of damages, it therefore awarded the claimant the amount it had paid by way of policy premium which, unusually in this case, was greater than the value of its policy claim.
Failing to arrange insurance cover on terms requested by a client
In Dunlop Haywards (DHL) Ltd & Others v Barbon Insurance Group Limited & Others the claimants carried on business as property consultants, which included significant commercial property valuation work. After receiving a number of damages claims from various lenders arising from the negligent and/or fraudulent valuation reports provided by the first claimant (DHL), DHL made claims against its professional indemnity insurance policy.
However, DHL’s excess layer insurer declined cover on the grounds that the indemnity provided by its policy was limited to ‘commercial property management’ and did not extend to valuation services. In turn, DHL commenced a professional negligence claim against the defendant broker for failing to act in accordance with instructions. These were to obtain cover for DHL which was the same or equivalent to the cover it had previously enjoyed, which had included excess layer cover for valuation services.
In concluding that the brokers had been negligent, and endorsing the views expressed by the expert witnesses, the judge confirmed that an insurance broker would generally be expected to act:
‘…carefully to review the terms of any quotations’ and ‘to use reasonable skill and care to draw up a policy, or to ensure that a policy was drawn up, that accurately reflected the terms of agreement with the underwriters and which was clear and unambiguous, so that the client’s rights under the policy were not open to doubt.’
Failing to arrange insurance which meets the needs of a client
In Ground Gilbey Ltd & Another v Jardine Lloyd Thompson UK Ltd the claimants were the owners of Camden Market in London, where a substantial fire occurred after an LPG portable heater was left on in one of the stalls. The claimants claimed against their insurance policy, but cover was declined on the grounds that they had failed to comply with a Risk Improvement Measure (RIM) requiring the immediate removal of all such heaters. After settling their policy claim with insurers, the claimants commenced a professional negligence claim against their broker.
The claimants firstly alleged that the broker had been negligent in failing to take reasonable steps to ensure that they had a policy which was suitable and which clearly and indisputably met their needs. The judge agreed. He noted that once the broker knew that the RIM had been imposed, given its knowledge of the presence and permitted use of portable heaters, it should have appreciated the policy was no longer suitable.
The claimants further alleged that the broker had been negligent in failing to advise them on the RIM. In concluding that the broker had been negligent on this basis too, the judge commented that:
‘…in my view the imposition of the RIM had a “material and potentially deleterious effect on the insurance cover”…and the brokers were under a duty to act in their clients’ best interest by drawing it to their attention and obtaining their instructions in relation to it. I accept the claimants’ contention that advice needed to be given explaining that the cover might be prejudiced if nothing was done by removing the PHAs [portable heating appliance]…’
Failing to notify a claim in accordance with policy terms and conditions
In Alexander Forbes Europe Ltd v SBJ Limited the claimant, who was itself an insurance broker, maintained a claim for professional negligence against its own professional indemnity broker. The claimant’s negligence claim arose after the claimant’s insurers declined to provide cover for various claims made against the claimant, resulting from pension mis-selling.
The claimant alleged that the defendant broker had been negligent in notifying the potential claims against it under the wrong insurance policy. Instead of notifying under its own policy, the potential claims had been notified under a separate, group policy.
In concluding that the broker had indeed been negligent, the judge commented that:
‘Brokers owe duties going beyond those of a post box. It was for the brokers to get a grip on the proposed notification, to appraise it and to ensure that the information was relayed to the right place in the correct form … it was the duty of [the brokers] to have a strategy in place … that ensured that when such information was received from clients, the broker was alive to making such notifications accurately and promptly.’
Further legal assistance
As professional negligence specialists, we act for clients nationwide to resolve claims against a wide range of professionals, including insurance brokers.
If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at email@example.com.
As you can discover here, at PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.