QB Leeds Mercantile Court 13 March 2007

Where a company was underinsured for business interruption as a result of its broker’s negligent advice, it was reasonably foreseeable that the failure to effect sufficient cover would adversely affect the profitability of the business were a claim to be made under the policy. There is no principle preventing the recovery of damages for loss of profits in such circumstances, since this was not a claim for damages for late payment under a policy.

Comment: this case is worrying for brokers since it indicates that claims may not be capped by reference to the level of cover which should have been in place. Applying the SAAMCO principle, which requires the breach of the duty of care relied upon to have caused the relevant loss to the claimant (South Australia Asset Management Corp v York Montague Ltd), the judge considered how the company would have performed had it received full payment under its business interruption policy following a fire. In addition to the shortfall in insurance proceedings of nearly £300,000 resulting from the broker’s failure to advise as to the appropriate method of calculating the insured gross profit, the insured was also awarded more than £310,000 for the company’s loss of profits.