In this brief guide we provide answers to a number of the questions frequently asked by businesses and individuals contemplating a professional negligence claim against an insurance broker.
What role is an insurance broker expected to fulfil?
An insurance broker usually acts as the agent of a policyholder, not the insurer. This is notwithstanding that the broker is frequently remunerated by the insurer, not the policyholder.
However, the day-to-day role of an insurance broker is not pre-ordained and can vary from one appointment to another. Therefore, before commencing any claim, it is important to ascertain the scope of the broker’s appointment, in order to determine what its legal obligations were and the extent to which it has failed to comply with them.
Generally, the role of an insurance broker is to:
- Ascertain the insurance needs of its client
- Arrange insurance cover which meets those needs
- Explain the nature of any cover arranged and any limits or conditions to it
- Assist with the notification and progression of claims
What legal duties does an insurance broker owe?
Insurance brokers are regulated by the Financial Conduct Authority (FCA) and are required to comply with the rules of professional conduct set out in the Insurance Conduct of Business Sourcebook (ICOBS). Insurance brokers owe a variety of legal duties to their clients. These include:
- Contractual duties, expressly or impliedly contained in written retainers / letters of engagement
- Statutory duties, such as those found in the Financial Service and Markets Act 2000
- Tortious duties, to act with reasonable skill and care
- Fiduciary duties, such as not to act where there is a conflict of interests
If, as a result of an insurance broker’s failure to comply with one or more of these duties, you suffer a financial loss, a legal claim for damages is likely to arise.
What type of mistakes usually give rise to claims against insurance brokers?
Frequently, a claim against an insurance broker is based on one or more of the following mistakes:
- A failure to ascertain a client’s insurance needs
- A failure to convey material information about a risk to an insurer
- A failure to arrange insurance cover for a particular risk
- A failure to arrange insurance cover on terms requested by a client
- A failure to arrange insurance which meets the needs of a client
- A failure to notify a claim in accordance with policy terms and conditions
We have written a corresponding article which provides, for each of the mistakes listed above, a real-life example of a claim that has been successfully pursued against an insurance broker. This can be accessed here.
What difficulties can arise in claims against insurance brokers?
One of the key battlegrounds in claims against insurance brokers is causation. A successful claimant will need to persuade the court that it is more likely than not that but for the broker’s errors or omissions, suitable insurance cover would have been in place.
To defeat a claim against it, a broker may well seek to assert that:
- Suitable cover was not available in the market
- Suitable cover was not available at an acceptable / affordable price point
- The conditions of cover would not have been complied with in any event
- Cover for the claim would have been declined in any event
Where such arguments are deployed, evidence from an expert witness may be required to address them.
What sort of compensation is recoverable from insurance brokers?
In many cases, a claimant will seek by way of damages the sum which would have been paid by insurers under the terms of a suitable policy. However, in appropriate circumstances, damages may also be recovered for:
- The costs of any negotiations with or coverage claim against insurers
- Loss of profit arising from the delay in receiving a policy payment from insurers
- The management time expended on mitigating any loss
A claimant will not usually be able to recover costs that would have been incurred in any event or which were not reasonably foreseeable. Examples may include the fees of a loss adjuster or the loss of profit from an unanticipated or undisclosed contract or order.
A more detailed examination of the types of loss for which damages are recoverable in claims against insurance brokers can be found in our related article: Compensation awards for broker negligence
Can claims be made by third parties?
Typically, there is a contractual relationship between the insurance broker and the party wishing to pursue a professional negligence claim. However, in certain circumstances, a claim can be made against an insurance broker by a non-client. This can be possible where, for example, an affected party is named or was intended to be named as a co-insured on a policy or where a policyholder acted detrimentally on the basis of incorrect information or advice given by an un-appointed insurance broker. More information about third party claims is available here.
What issues need to be considered at the outset of a claim?
In addition to the merits of a claim, some of the other issues to consider when contemplating a claim against an insurance broker are:
How to fund a claim is something that should always be considered at an early stage. While professional negligence claims can be relatively expensive to pursue, they are not always so and many are resolved at an early stage and without any need to go to court. There are also more funding options available now than ever before. You can learn more about these options here.
Like all professional negligence claims, there are time limits within which claims against insurance brokers must be pursued. If you fail to comply with these limits, you will be prevented from pursuing any claim. Again, you can learn more about these time limits here.
As an injured party, you are invariably under a duty to take reasonable steps to mitigate your loss. What this means in practice will vary from one case to another. In certain circumstances, you may be obliged to engage in coverage negotiations with your insurer or even to commence legal proceedings against your insurer. In the latter example however, and while there is no invariant rule, this is generally not expected.
Further guidance on the duty to mitigate is available in our article: The duty to mitigate in professional negligence claims
Do I first have to make a complaint against an insurance broker?
Generally, you do not have to make a complaint before commencing a claim for compensation. However, you always have the option of doing so and may request a copy of the broker’s complaints handling procedure.
If you do make a complaint and it is not resolved to your satisfaction, you may then be entitled to make a complaint to the Financial Ombudsman Service (FOS). The FOS can provide an efficient mechanism for resolving low value complaints, particularly ones that are relatively straight forward. However, it is less suitable for large and/or complicated matters.
Do I have to instruct a solicitor?
While you are not obliged to instruct a solicitor in order to commence a complaint or claim against an insurance broker, it is often sensible to do so. A solicitor specialising in professional negligence claims should be able to provide you with independent advice on a range of issues, including the merits of your claim or complaint and the losses that you might reasonably expect to recover.
Professional negligence claims are often complicated and time consuming, and a successful outcome can very much depend on the way in which a claim is presented and pursued.
To help you decide between instructing a solicitor and pursuing a claim as a litigant in person, we identify and comment on some of the key factors to consider in our guide: Professional negligence claims – Do I need a solicitor?
What should I do next?
If you think you may have grounds for making a professional negligence claim against an insurance broker and 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.