Triton Global for defendant, Simmons & Simmons for third parties
The claimant sold secured loans and PPI. It retained the defendant producing broker, which in turn retained the third party defendant placing broker. In November 2008, the FOS Ombudsman's handed down a final decision (in a complaint which did not involve the insured) in which it had found that it is a defect in the selling process if a firm fails orally to set out the cost of the PPI. The insured then recognised (and told its producing broker) that "if the question was asked whether [the insured] had disclosed the cost of the PPI in addition to the loan the answer in 99% of cases would be that it was disclosed in the paperwork but not orally on the phone". In September 2009 (over a month before expiry of the insured's 2008/09 professional indemnity policy), the FSA (in response to its "serious concerns" regarding how PPI complaints had been dealt with by firms) published CP 09/23, which advised firms how to deal with such complaints. In particular, a full past business review would probably need to be conducted, and this would have identified the defect in the insured's sales process.
The placing broker then made a limited notification of circumstances under the 2008/09 policy of complaints which had already been made and rejected by the insured in relation to PPI. However, neither the placing nor the producing broker made a block notification to insurers of the entirety of the insured's 18,000 sales of PPI policies.
When a block notification was subsequently made under the following year (renewal) PI policy, it was not accepted by the insurer, who contended that any block notification should have been made under the 2008/09 year and relied upon a policy term requiring prompt notification of "any circumstances which may give rise to a loss or claim".
Cooke J noted expert evidence which showed "a market awareness of the unwillingness of underwriters to accept block notifications", but said that the pensions mis-selling scandals meant that the concept of such notifications was not unfamiliar and should not have been unfamiliar to brokers. Given that the policy referred to "any circumstances which may give rise to a loss or claim", the brokers had to consider whether there was a "real possibility", as opposed to a remote risk, of a claim. Although the judge accepted that there had been a risk that the insurer would reject a block notification under the 2008/09 year, legal advice would have confirmed that there would have been a strong case that such notification was valid: "It is clear that the "may" or "might" criteria creates a low threshold for notification of circumstances…. The risk of not obtaining cover for the ensuing year existed regardless of block notification to the earlier year. However it is not hard to envisage circumstances in which a renewal offer could be sought, obtained, and accepted, with disclosure of material facts prior to expiry of the current year, followed by block notification to the current year policy".
The judge therefore found that both the producing and placing brokers had breached their duties by failing to give the block notification (notwithstanding that the producing broker had played down the risk of multiple claims emerging against the insured to the placing broker): "this is a situation where both brokers were at fault because they each failed to grapple with the question of block notification at all in 2009 when they should have done in the light of the information each had (even though the information was different)". It was held that the insured would have sought legal advice and made a block notification had it been given appropriate advice by the brokers.
Adopting a broad brush approach, the judge held that the placing broker's responsibility for the loss was 30% and the producing broker's responsibility was 70%. The producing broker had already settled with the insured but the placing broker argued that it should not be held responsible for costs incurred after the date at which it argued a settlement should have been achieved. Cooke J held that: "when one is concerned with a settlement of this kind, it is the global figures which matter. In the context of a claim which, with costs, totalled over £6 million, a settlement of £2.55 million in all, together with the provision of an indemnity which is unlikely to be called on, constituted a very good settlement. It cannot in my judgment be said that there was any unreasonable element in the settlement, since the figures must be considered as a whole rather than broken down to the constituent parts in the way that [the placing broker] suggests. In any settlement there is a question of give and take and the way in which sums are attributed to particular elements of the claim and costs is ultimately neither here nor there, in the absence of some extraordinary feature".
There was little discussion in the case about the duties owed by a placing broker to a producing broker. Although the Terms of Business Agreement (TOBA) entered into between the brokers referred to the provision of advice by the placing broker "upon request" from the producing broker, the judge said that: "In a longstanding relationship between producing and placing brokers a duty to act as a prudent placing broker on the information provided to it is not easily displaced by such requests for a requirement or notice in writing. Such a request or notice was implied and was in fact acted on as appears from the history of the brokers' relationship".
COMMENT: This case continues the trend of the courts to accept the validity of block notifications in circumstances where few actual complaints have been made against the insured at the time of notification. The most recent example of this was the case of McManus v European Risk (see Weekly Update 03/13), where a blanket notification was validly made following discovery of widespread negligence by a firm. Here, it was apparent that there had been a defect in virtually every PPI policy sold by the insured, and so possibly an even stronger case for notification than that inMcManus existed. Equally, the insurer in this case was justified in arguing that the block notification which was eventually made was too late and excluded under the relevant policy.