Assessment of damages in a broker negligence case where insurance policy was not placed
Judgment in default was obtained against an insurance broker who had negligently failed to obtain indemnity insurance for the claimant. However, the judge assessed damages at nil, on the basis that the insurers would have been able to rely on two exclusions in the policy and/or would have found that the claims did not arise out of the claimant's conduct of his insured business as a chartered accountant (in so doing, the judge rejected an argument that the insurer would not have wanted a reputation for refusing indemnity).
On appeal, the claimant sought to argue that there was a significant prospect that the insurers would have sought and received legal advice which would have caused them to take a different course. The Court of Appeal held that the insurers would not have taken legal advice: "It has to be remembered that insurers, not unnaturally, can be very influenced by what they perceive to be the flavour of the case… In these circumstances the attempt to persuade this court that the insurers would probably have taken legal advice was in my view forlorn. They might have done, but that is speculation. The claim stank, and in the view of their own insured it was a contrivance". Furthermore, the QC clause in the policy did not assist the claimant: the role of the QC does not extend to resolving disputes as to the scope of cover. It is instead limited to deciding whether, in the event that cover is accepted, the insurers can require their insured to defend a third party claim: "The reason for this is obvious. Professional men ought not to be required to defend claims in circumstances where no defence can conscientiously be advanced".
(The Court of Appeal declined to express a view on the two exclusions in the policy, although in relation to the exclusion for claims or loss arising from any express or implied warranty or guarantee relating to the financial return of any investment or portfolio of investments, the Court of Appeal saw force in the argument that it relates principally to contractual claims against the insured (rather than a particular type of financial advice, namely that relating to financial return guarantees). In relation to the other exclusion (excluding cover for loss "arising from" trading losses or liabilities), the Court of Appeal recognised that "arising from" required the excepted cause to be the proximate cause, and agreed that the proximate cause of the claimant's liability here was not that a trading loss had been made, but accepted that "it may be too simplistic to assert that exception (6) serves simply to exclude liability in respect of the insured's business activities carried on in businesses other than the insured professional practice").
The Court of Appeal agreed with the judge at first instance that "This would have been a claim which insurers would have stoutly resisted from the outset on the basis that it was a plain contrivance in an attempt to formulate a claim in such a manner as to engage [the claimant]'s professional indemnity cover".