Jones v Environcom Ltd – brokers’ liability for property damage
When the claimant companies (Environcom) made a claim under their insurance policy in respect of a fire at their electrical goods waste recycling premises, insurers avoided the policy for non-disclosure relating to the use of plasma cutters in the “de-manufacturing” of fridges and previous fires. Environcom alleged in turn that their brokers, Miles Smith Insurance Brokers, had negligently caused them to lose the security of their insurance by failing to advise them properly as to their duty of disclosure.
Steel J held that the brokers had breached their duty properly to advise Environcom but Environcom failed to prove that they had suffered any loss as a result. The judge found that, in the light of their previous history of fires and their risk profile, Environcom would have been uninsurable had proper disclosure been given to potential insurers.
Environcom appealed, putting their case in a way which had never been pleaded and which only arose in the course of argument at the end of the trial. They argued that the brokers were liable for causing the fire and not for causing the failure of cover. Their loss arose not out of the failure properly to obtain cover but out of their brokers’ failure to ensure that Environcom’s working practices were such as to render cover unnecessary. Steel J had rejected this argument on the ground that the loss claimed was not of a kind for which the brokers ought fairly to be taken to accept liability (see The Achilleas) nor was it within the reasonable contemplation of the parties as likely to result from the breach of retainer.
The Court of Appeal rejected Environcom’s appeal. It concluded that such a significant new allegation of breach of duty, which raised a complex issue of mixed fact and law, had to be pleaded and the application to amend was made far too late in the day. Environcom accepted that the new case would require a retrial of perhaps two to three days to establish additional facts (for example, the issue of contributory negligence would have to be explored). Recent Court of Appeal decisions such as Swain-Mason v Mills & Reeve indicate that permission to raise a fundamentally new case is unlikely to be given even by the trial judge, let alone on appeal.
David Steel J’s decision below caused some consternation since it suggested that, even where the insured is not a consumer, brokers should follow up any conversations about the duty of disclosure with a note of their advice and the insured’s response to it, ideally asking the insured to confirm in writing that they have understood the advice given (see the guidance for brokers offered in the light of this decision in Covernote Issue 3 2010).
In Synergy Health (UK) Limited v CGU Insurance plc, Flaux J said that Jones v Environcom did not make it an immutable requirement that brokers should have given oral advice about disclosure and he said that evidence to this effect from Synergy’s broker expert was too inflexible. He continued:
“Whilst it may be advisable to give such oral advice in a particular case, whether it is necessary to do so and whether the failure to do so is a breach of duty, will depend upon the circumstances. In the present case, there had been a long history of dealings with the client and the Risk Register sent to the client spelt out the duty of disclosure in clear terms.”
It had been hoped that these two potentially conflicting first instance decisions would be reviewed by the Court of Appeal in the present appeal and some clearer guidance given about brokers’ duties. This issue was not touched on at all by the Court of Appeal so the position remains uncertain.