In a recent High Court judgment dated 12 September 2014, Mr Justice Blair found that Giles Insurance Brokers (Giles) had given adequate advice to Eurokey Recycling Ltd (Eurokey) in respect of the level of business interruption cover required. The cover was placed on the basis of Eurokey's instructions and Giles had no reason to challenge the figures given to it.

This judgment gives a helpful steer to brokers on the extent to which they have a duty to advise in this area.

Eurokey Recycling Ltd v Giles Insurance Brokers [2014] EWHC 2989

Background

In May 2010 Eurokey, a waste recycling company, suffered a catastrophic fire at its main premises in Enderby, Leicestershire. As a result Eurokey made a claim under its insurance to cover its losses incurred as a result of the fire.

Eurokey's insurers, Paladin, took the position that Eurokey was grossly underinsured for material damage and business interruption cover.  Paladin threatened to avoid cover on this basis and, as a result, a settlement was reached between Eurokey and Paladin whereby Eurokey accepted the sum of £1.5 million in settlement.

Thereafter, Eurokey commenced proceedings against Giles.  It alleged that it had been underinsured as a result of Giles' failure properly to advise as to how the sum for business interruption cover ought to be calculated.  Eurokey claimed the difference in what it alleged it would have received from Insurers had it been properly advised, and what it in fact received from Paladin, was some £16 million.

Giles defended the claim on the basis that, while it had a duty to take reasonable steps to ascertain the nature of Eurokey's business and its insurance needs, it was not expected to calculate the business interruption sum to be insured or choose the indemnity period but to provide an explanation of the relevant terms. Giles contended that it had complied with its duty and was entitled to rely on the figures provided by Eurokey.

The Judgment

Mr Justice Blair dismissed Eurokey's claim.  Having looked closely at the instructions given by Eurokey to Giles and Giles' advice, in both 2009 and upon renewal in April 2010, Mr Justice Blair was satisfied that Giles had provided an adequate explanation to Eurokey of business interruption cover in 2009 and 2010.  He was further satisfied that the sums to be insured were provided by Eurokey following such advice and Giles had no reason to doubt those figures.

While Eurokey's claim had been defeated, Mr Justice Blair also considered whether a discount for contributory negligence would have been applied had Eurokey been successful.  He took the position that a discount of 50% would have been applied due to Eurokey's failure to read key documents and to provide appropriate turnover figures to Giles.

Comment

Mr Justice Blair's detailed consideration about the nature of business interruption cover and the duties of a broker when obtaining such cover on behalf of a client will be of interest to brokers.

In particular, he clarified that it is a matter for a commercial client and not the broker to calculate the level of business interruption cover to be obtained and to choose the maximum indemnity period (although the broker of course has to provide an adequate explanation to enable the client to calculate the sum insured and the maximum indemnity period).

He also confirmed that the scope of a broker's obligation to assess a commercial client's business interruption cover needs will depend on the circumstances of the case, including the level of the client's sophistication and the nature of the previous relationship between the broker and client, including the number of times the broker had met the client in the past; if a client appears well informed as to its business and the level of cover required, a broker is, however, entitled to accept that information unless he has reason to believe it is inaccurate.

Mr Justice Blair's assertion that he would have awarded a discount of 50% for contributory negligence may also, whilst fact sensitive, prove to be a useful comment for those defending brokers' negligence claims.