This case concerned an insurance claim arising out of a yacht fire. Insurers sought to avoid the policy on the basis that the insured had failed to disclose the true market value of the yacht. Alternatively, insurers contended that the insured had failed to comply with claims conditions in relation to the filing of a proof of loss within 90 days. The court found in favour of insurers. This placed the producing and placing brokers in the firing line.
The court addressed the failure of the producing broker to ensure that the insured was aware of, and understood, the duty of disclosure, and held that a broker cannot reasonably rely upon a standard clause printed in a cover note as a substitute for giving direct advice. Moreover, a broker should seek to elicit matters which ought to be disclosed, bearing in mind that an insured may not realise without assistance that a particular matter is or is arguably material.
The court also found that the producing broker had failed to take care to ensure that the proposal form was properly completed.
However, with regard to the claims position post loss, the court held that there is no rule of law which obliges a broker who has not been asked to assist the insured in dealing with a potential claim to volunteer advice on claims procedures, and so, on the facts, the hull and machinery claim failed as a matter of causation (although the increased value claim succeeded).
Considering the position of the placing broker, the court held that he did not owe any duty of care directly to the insured and did not commit any breach of the duty of care which he owed to the producing broker. With regard to the former, it is necessary to establish that there has been an assumption of responsibility so as to short circuit a contractual chain. In BP v Aon, Mr Justice Colman identified the essential question as being whether in all the circumstances, judged objectively, the placing broker’s conduct amounts to a representation to the insured that the placing broker assumes responsibility for the services provided “as explicitly as if he were personally contractually binding himself to provide ...the services”. In that case, such a duty was held to exist in view of the close relationship between Aon and BP involving repeated direct contact.
On the facts of this case, as there had been no contact at all between insured and placing broker, or even knowledge of the placing broker’s existence, it was held that there was no evidence of reliance by the insured upon the placing broker’s expertise. The insured was entirely indifferent as to whether the producing broker undertook the tasks himself or sub-contracted them, and if the latter, to whom. It could not reasonably be inferred that the insured was looking to the placing broker to obtain the quotation or place the insurance; the insured was relying solely upon the producing broker for that purpose.
This is the latest case to address the difficult question of when a sub broker owes a duty of care in tort to avoid economic loss to the broker’s principal. On the facts of the case, this question was relatively easy to resolve. However, this will always depend upon the nature of the instructions given to the placing broker and the nature of the responsibility taken on.