Lloyd’s placing broker Senior Wright (SWIL) and producing broker Oval Insurance Brokers Limited (Oval) were each found partly responsible for failing to advise client Ocean Finance and Mortgages Limited (OFML) to make a “block notification” of “circumstances that may give rise to a claim”, under its 2008/9 PII policy. This failure led to OFML suffering loss after its 2009/10 (i.e. renewal) excess. PII insurers rejected the block notification of such circumstances which was later made to that (renewal) policy, on the grounds that notification of circumstances was required “as soon as practicable” in order to engage cover for any claims which later arose out of those circumstances, and the block notification was a year late.
The claims were set against a complex background of PPI mis-selling by OFML, a finance broker, the rising tide of Financial Ombudsman findings upholding PPI mis-selling complaints, and the FSA’s increasing focus on PPI sales. The possible existence of systemic defects in OFML’s selling practices, the risks associated with a root cause analysis and of a full past business review being required, and the assessment of these factors against the comparatively low policy threshold of “circumstances that may give rise to a claim” were all considered in some detail by Mr. Justice Cooke.
Both producing and placing brokers were experienced in PII but had little experience of PPI. OFML had sued Oval for failure to advise it to make a block notification before expiry of its 2008/9 excess policy, of the entirety of its 18,000 PPI sales. Shortly before trial, Oval settled OFML’s claim (at a substantial discount) and admitted that a block notification should have been made (and that 2009/10 excess insurers were right to decline cover for the claims.) Oval claimed under CPR Part 20 and the Civil Liability (Contribution) Act against SWIL.
Mr. Justice Cooke outlined the familiar risks of block notification of circumstance under PII policies. On the one hand, that delaying notification/disclosure until after a renewal might amount to a non-disclosure of material facts, thus impairing the validity of the renewal and the possibility of rejection of future related claims under the “prior knowledge” exclusion or late notification provisions in the renewal policy. On the other hand, that premature notification might (if too vague or remote) be invalid and rejected as such by current underwriters (who it was noted were generally unwilling to accept block notifications) and might simultaneously deter underwriters from offering renewal terms, especially in connection with hotly topical activities such as PPI sales. The balancing of these risks can be a very difficult exercise involving complex questions of fact and law (and sometimes, as here, involving vexed questions of whether individual claims are likely to aggregate and exceed a policy notification threshold.) Given that the viability of OFML’s business required it to maintain PI insurance, the stakes were high in this case.
SWIL had taken it upon itself (without instructions from Oval or OFML) to make a limited notification of certain PPI-related “circumstances” under the 2008/9 policy, and had thus assumed a duty in contract and tort to Oval (and potentially a duty in tort to OFML, although the Judge did not rule on the duties owed by and the liability of a sub-broker to an insured) in relation to making appropriate notification to the 2008/9 insurers, and to act with due care and skill in making any notification that was required.
The Judge recognised that, in its discussions with SWIL, Oval may have downplayed certain risks regarding systemic defects in OFML’s selling practices, which leaned in favour of earlier block notification of circumstances. Notwithstanding this, he held that had SWIL acted as any reasonably competent broker should and its personnel would, in the light of the systemic causes of which they should have been aware, have seen the risk of non-notification of circumstances as greater than any risk involved in notification. He said that, whatever difficulties surrounded the making of such a notification and the decision taken to make it, no competent broker would have failed to consider notifying and recommend to the insured that they should, subject to taking legal advice, take such action.
The reasonableness of Oval’s pre-trial settlement with OFML was not contested by SWIL, save for an element of OFML’s costs which Oval had paid, since SWIL argued that the settlement with Oval should have been achieved earlier, with a correspondingly smaller contribution to costs. The judge said it was not appropriate to consider the constituent parts (i.e. the costs element) of Oval’s settlement “in the absence of some extraordinary feature”, and it was right to look only at the “global figures” in deciding that a settlement of £2.55 million was reasonable in the context of a claim exceeding £6 million. Apportioning liability for this sum in a “broad brush” way, he found that Oval were 70% and SWIL were 30% responsible for OFML’s loss, which reflected Oval’s superior knowledge of the facts which should have led to an earlier block notification of circumstances.
See the judgment at: http://www.bailii.org/ew/cases/EWHC/Comm/2016/160.html