Ground Gilbey Ltd & another v Jardine Lloyd Thompson UK Ltd [2.2.11]
JLT placed material damage cover in respect of Camden Market for the owners, the Claimants. An ongoing issue was the removal of portable heating appliances (PHAs) used by stall holders. Insurers added an endorsement to the policy at the 2007/2008 renewal that required completion of all risk improvements, one of which was the removal of PHAs as designated by a survey.
A major fire broke out in 2008 caused by the use of PHAs. There was an arguable case that insurers were discharged from liability as a result of the Claimants’ failure to remove PHAs, as required by risk improvement. The Claimant settled with insurers for £3.825 million, 70% of the claim value, and pursued JLT for the shortfall.
The High Court held that JLT knew that PHAs were still being used and should have done more. JLT were found liable for failing to draw to the Claimants’ attention and explain information which might affect coverage. It would not have been enough simply to forward a copy of the risk improvement to the Claimants, JLT should have drawn their attention to it and obtained instructions. The court was satisfied that the Claimants would not have ignored the information had it been passed on.
JLT sought to challenge the settlement with insurers but the court held it was reasonable. It is not a question of whether the insurer had a good defence but whether, in all the circumstances, the settlement was reasonable. In order to establish that a settlement was not reasonable, the defendant must displace the inference that the terms of settlement were prima facie reasonable because it was entered into on legal advice.
Quantum was assessed on the basis of the value of the claim in the absence of coverage issues, less the recovery from insurers. There was no deduction for contributory negligence before the fire.
This case further exemplifies the onerous duties of brokers. Brokers have continuing obligations and are required to do more than simply pass on information. Where an insured’s actions may affect policy coverage, the broker is required to bring this to the insured’s attention.
The court’s refusal to allow a challenge to the reasonableness of the settlement also underlines the risk for brokers of not taking a more active part in presenting the claim and negotiating a settlement of it. The court did view JLT’s arguments over construction of the risk improvement condition as strong and acknowledged that the insured settled with their insurer in part to achieve an early settlement. However, it still ruled that the settlement was a reasonable one.
The insured was allowed to recover the balance of the claim from the broker. This will surely seek to encourage potential claimants to “have a go” and pursue their broker where there is a shortfall in recovery under an insurance policy and uncertainties as to coverage.