Insurance brokers’ duties: duty of disclosure and the eliciting of information from an insured

In a decision that will be welcomed by the broking community, the court has taken the opportunity to set limits upon the duties owed by brokers (where an extremely high standard has been set in recent years), both in the activities that a broker must undertake to comply with its duties and also in the context of the client with whom the broker is dealing. Reaffirming a broker’s duty to advise an insured of its duty of disclosure, and to elicit information from the insured, the court noted that there is no general obligation for a broker to ask oral questions of an insured but that the position should be assessed on a case-by-case basis. The court also highlighted that a failure to adduce expert evidence in professional negligence cases severely limits a party’s prospects of success.

Background

The claimant company manufactured and erected exhibition stands, and was owned jointly by a husband and wife. The cover which the defendant broker arranged for the claimant included a policy of Commercial Combined insurance, underwritten by the same Insurers for the years 2010/2011, 2011/2012 and 2012/2013.

In August 2012, the claimant made a claim under the 2012/2013 policy in respect of a fire at its business premises which damaged the property and destroyed the trading stock. After investigations, the insurers declined cover for the 2010/2011, 2011/2012 and 2012/2013 policies. The ground of avoidance was that the claimant had failed to disclose two prior criminal convictions of the husband co-owner, for both of which he received prison sentences.

It was common ground between the parties that insurers were entitled to avoid on this basis; the question before the court was whose fault it was that insurers had not been informed of the convictions. The claimant’s primary case was that the broker had been told about the convictions and, negligently, had failed to pass this information to insurers. The broker denied that it had been informed of the convictions. The claimant’s secondary case was that the broker breached its duty of care in failing to elicit the relevant information from the claimant. The broker denied breach of duty. The claimant aimed to recover in excess of £1.5 million.

The court made an order for a trial of preliminary issues, including the issue of breach of duty.

Brokers’ duties

At the commencement of his analysis, the judge summarised the law relating to the duties of brokers, insofar as it was relevant to the issues in the case. His summary was taken from two cases: Jones v Environcom Limited (2010) and Synergy Health (UK) Limited (2011), best surmised in Environcom as being “the broker should take reasonable steps to ensure that the proposed policy is suitable for the client’s needs. By definition, a policy which is voidable for non-disclosure is not suitable”. The judge relayed that it is not sufficient to rely upon “written standard form explanations and warnings annexed to proposals or policy documents”, a broker must be satisfied that the position is in fact understood by his client. However, a broker will not be negligent if he fails to ask questions about the risk which he had no reason to ask or if he does ask appropriate questions and the insured does not disclose important information. Failing to give oral advice to an insured, is therefore not necessarily indicative of a breach of duty and this is a point that “is not susceptible of a general answer applicable to all circumstances but has to be decided upon the facts of a particular case”.

Decision

On the trial of preliminary issues, the court considered: (1) whether the broker had been told about the convictions; and (2) whether the broker had been in breach of its duty to take steps to draw to the claimant’s attention the importance of making necessary disclosure.

The judge was not persuaded on the evidence that the claimant had disclosed the existence of the convictions to the broker. HHJ Keyser QC noted that none of the broker representatives had taken any action having allegedly been told of the convictions, and that the available documentation, such as the proposal forms signed on behalf of the claimant, supported the position that the broker had not been told.

With regards to the alleged breach of duty of failing to take reasonable steps to bring the claimant’s attention to the importance of the necessary disclosure and to elicit such information from the claimant, the judge held that the broker was not in breach notwithstanding that it had not asked oral questions of the claimant.

The judge summarised the role of a broker to “act as intermediary between the client and the insurer and, in particular, to ensure that correct information and all material information is given to the insurer”. The claimant’s case was that the necessary information had not been given to the insurer and this was a prima facie indication that the broker had not adequately fulfilled its role; the husband co-owner was not a sophisticated businessman; and the broker could and should have asked the straightforward question.

Applying Environcom and Synergy, the judge rejected the claimant’s case on the following evidential grounds:

(1) The judge held that “it is usual for a court to require expert evidence as to the standards ordinarily observed within a profession before it will find that a professional’s conduct amounts to negligence”. No such evidence had been adduced by the claimant to support its allegations that the broker had acted in breach of duty and whilst this did not exclude the possibility of a finding of breach, it inhibited the judge’s ability to make such a finding.

(2) The judge was not impressed with the contention that the husband co-owner was not sophisticated, but rather considered that he was someone who had “paid more attention to the detail of his insurances than he was willing to admit in evidence”.

(3) The judge did not agree that the broker’s documentation was bulky and complex; and, even though the broker acknowledged that he did not realistically expect his clients would read the full extent of the documentation sent, the judge found that the factual bases set out in the documentation were clear, concise and easy to read and verify or correct. The judge said that the broker had “identified specific documentation and made clear the need to check the accuracy of the information provided to the insurers”.

(4) The judge did not agree with the claimant, on the facts, that there were particular occasions where the broker was under a duty to make oral enquiries of the claimant, or to provide oral advice, “every engagement of a broker has an initial occasion of contact, so the fact that [the broker] had an initial meeting with [the husband co-owner] does not explain why a relevant duty [to require specific oral enquiries or advice] should arise in this case”.

Comment

This case summarises and reaffirms a broker’s duty to advise an insured regarding the duty of disclosure, as set out in Environcom and Synergy. However, the judgment places the need to consider the application of those authorities within the fact specific nature of the claim; they cannot just be relied upon by claimants as authorities for hard and fast rules when advancing negligence claims against brokers. This case is also a reminder that it is standard practice where allegations of professional negligence are made, that they be supported by expert evidence (Pantelli Associates Ltd v Corporate City Developments Number Two Ltd).

Further Reading

Avondale Exhibitions Ltd v Arthur J Gallagher Insurance Brokers Ltd [2018] EWHC 1311 (QB).

Jones v Environcom Limited [2010] EWHC 759 (Comm).

Synergy Health (UK) Limited v CGU Insurance Plc [2010] EWHC 2583 (Comm).

Pantelli Associates Ltd v Corporate City Developments Number Two Ltd [2010] EWHC 3189 (TCC).