We consider this important decision on brokers’ duty of care, in particular looking at the scope of a broker’s obligation to advise on materiality and non-disclosure.
In Avondale v AJG, the court was asked to consider the scope of a broker’s duty, in particular obligations to advise on materiality and non-disclosure.
The judgment provides useful guidance on whether a broker is under a duty to supplement advice in writing with oral advice, and provides welcome clarity for brokers in relation to the scope of their duty of care. It will be of interest to their insurers and professional negligence practitioners alike, and is also a reminder of the need to adduce expert evidence when appropriate.
In August 2012, the claimant (Avondale) suffered significant losses in a fire destroying its factory. Its property insurers, QBE, subsequently refused to pay out and avoided the policy for non-disclosure; Avondale’s director (W) had allegedly failed to declare that he had criminal convictions.
Avondale alleged that W and his wife had informed its broker, AJG (then Giles Insurance Brokers (Giles)) of the convictions on three occasions prior to the fire, and that Giles had been negligent in failing to disclose them to insurers or, alternatively, in failing to advise Avondale orally as to the meaning of "material facts" and that convictions needed to be disclosed.
The court rejected Avondale’s assertions that Giles had been informed of the convictions, finding that the alleged conversations did not occur, and found that Avondale had not shown that Giles were negligent in failing to advise orally as to what constituted a material fact, or that convictions were a material fact.
The duty to advise
Environcom involved a situation where standard form documents had been provided to the client and the client’s representative had changed over time; the court was not persuaded that relying on written standard form explanations and warnings annexed to proposals or policy documents is sufficient, making the obiter comment that:
“The broker must satisfy himself that the position is in fact understood by his client and this will usually require a specific oral or written exchange on the topic, both at the time of the original placement and at renewal (particularly if a new person has become that client's representative).".
Subsequently, in Synergy Health, the court observed (also obiter) that “Whilst it may be advisable to give…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…”
Avondale is the first case since those decisions which has had to decide the question of the sufficiency of written versus oral advice, and whether an insurance broker is under a duty to supplement advice in writing with oral advice.
On the facts, it was clear that Giles had repeatedly provided written information and advice to the claimant over a number of years, regarding both material facts, and convictions. Given the clear evidence of written communication of advice, the issue before the court was the extent of Giles’ obligation to “first, orally ask [W] whether he had any convictions; second, orally explain the requirements of disclosure.”
The court considered the line of authority established in Environcom and Synergy Health and confirmed that “…there is no general obligation, applicable in every case, to give an oral explanation of material disclosure and make an oral enquiry about convictions.”.
W’s evidence was that he did not read any of the documents provided to him by Giles, describing these as “bulky” with the relevant statements being allegedly “buried” within them. He also said that he was an unsophisticated person, such that he needed to be asked direct questions and be given an oral explanation of the duty of disclosure. However, the court found that:
- “… there is nothing to suggest that he was not as savvy as an ordinary businessman.”.
- “Insofar as there was an impenetrable mass of verbiage, it lay in the detailed terms and conditions of the policies, as it always does…However, …the material paperwork for present purposes was both limited in amount and clearly highlighted.”
- Time and again, the letters from Giles….identified specific documentation and made clear the need to check the accuracy of the information provided to the insurers. …The explanations of the duty of full disclosure of material facts were clear and full and attention was properly drawn to them; they were not tucked away where they might not be seen”.
- “there is no evidence that there was a professional standard requiring [the terms explaining the duty to expressly specify that convictions were material facts]…[further] unless all possible material facts are set out in the explanation of the duty, specific mention of one or more such facts is liable to be misleading as creating a false impression that the duty is restricted to particular matters; third, it is clearly impossible to set out all material facts…”.
These comments provide useful guidance as to the scope of written warnings and explanations as to material facts which must be given by brokers. That said, their import should not be overstated, as in this case the documentation repeatedly mentioned convictions elsewhere (which thus made it “entirely obvious” that they were matters properly to be disclosed).
Procedural issues and expert evidence
The judgment is also of interest as a reminder of two procedural points relating to case management and expert witnesses, which may be of interest to those litigating regularly:
The defendant successfully applied to have matters determined by way of a split trial on liability and quantum, which in this case enabled a swift resolution of the dispute. While such a process may not be suitable in every professional negligence case, where there are clear and discrete factual points that are fundamental to the issue of liability it is worthwhile considering whether to seek a split trial, which may save significant costs and time by hiving off any quantum issues initially.
Significantly, the court noted that Avondale had adduced no expert insurance broking evidence to support its secondary case. The court commented that Avondale’s failure to adduce expert evidence was “striking and significant”, and that the lack of expert evidence “… significantly limits, though it does not altogether exclude, the possibility of a finding that Giles’s conduct was such as to constitute a breach of the common-law duty of care or the contractual obligation to exercise reasonable skill and care….”.
There is no rule that expert evidence must be called in a professional negligence matter. However, it is up to a claimant to prove their claim, and there may be situations where such evidence is necessary to do so. It is clear that in this case the court considered that it would have been assisted by expert evidence, and the fact that the claimant had not called an expert was therefore significant. The decision as to whether or not expert evidence should be called on a particular matter is therefore finely balanced, but it is clear that even where there are previous decisions to assist the court as to the standard of conduct expected of a particular professional, parties should still give very careful thought to whether the court might be assisted by evidence from an expert.
This decision is of relevance to brokers, insurers and their legal advisors. It provides clarification in relation to circumstances in which it may be necessary for brokers to give oral advice as to the duty of disclosure, and as an illustration of when and how written advice might be sufficient. Further it acts as a reminder for all parties to be alive to the importance and significance of expert evidence in appropriate cases.