The claimant's insurer avoided for non-disclosure and misrepresentation following a fire at the claimant's premises. The claimant then sued its broker for breach of the broker's duty to advise on the duty of disclosure. The broker was unable to defend the proceedings after its own insurers avoided its professional negligence policy and judgment was entered against it, damages to be assessed (the broker then went into liquidation).
The assessment of damages in this case is highly fact-specific, the judge finding that the claimant would have made full disclosure had the broker performed its duty correctly. The judge also accepted the level of cover which the claimant said it would have sought and that there was no reason to believe that the claimant had been uninsurable had all material information been disclosed. The claimant had also sought to argue that there should be no reduction to reflect a loss of chance. That argument was rejected by the judge, who held that there was a risk that the insurer (and other insurers) might have refused to insure the claimant, but the judge thought that risk was "fairly low" given "the relatively standard nature of the risk and…the type of premium" (the premium was just over £5,000, although the judge held that an additional premium of £2,000 would have been charged had the true circumstances been known), and so he ordered a reduction of 25% to take into account that chance.
COMMENT: This case is in line with prior caselaw which has held that a cause of action can accrue against a broker in respect of its alleged breach of duty in failing to advise its client as to how to comply with the disclosure obligations and in failing to take reasonable care to elicit matters which ought to be disclosed. So, for example, in Jones v Environcom (see Weekly Update 14/10) it was common ground between the parties that where a change in personnel led to a new person being responsible for insurance matters in the client's organisation, the broker must ensure that an appropriate understanding of questions of materiality is held by that person. Similarly, in this case, the person at the insured charged with placing the insurance had no prior experience or understanding of insurance matters. However, in Jones v Environcom, the judge concluded on the facts that, had the information been disclosed, the insured would have been unable to obtain cover from either the particular insurer in question or from any other group of underwriters. The same argument did not fully work in this case though.