In holding that a broker was not in breach of duty by failing to give oral advice in relation to the disclosure of criminal convictions the Court has provided a useful reminder of the extent of a broker’s duty to advise in relation to disclosure. The Court also held that a lack of expert evidence materially limited, but did not exclude, the possibility of a finding that the broker breached its duty to act with reasonable care and skill.
The Claimant company (Avondale) manufactured exhibition equipment. It was run by Mr and Mrs Watkins. The Defendant broker (Giles) arranged, on behalf of Avondale, a policy of Commercial Combined Insurance with QBE Insurance (QBE) for a number of years including the 2012/13 policy period. In August 2012 there was a fire at Avondale’s premises that caused serious damage including the destruction of trading stock. Avondale duly made a claim under the Commercial Combined policy. Following an investigation QBE declined cover and avoided the policy for 2012/13, as well as previous years, on the basis that Mr Watkin’s previous criminal convictions had not been disclosed. At trial it was common ground between the parties that QBE was entitled to avoid the policy on the basis of non-disclosure. The essential issue for the Court was to determine who was at fault for not informing QBE about Mr Watkin’s convictions.
Avondale’s case was that:
Mr and Mrs Watkins had told Giles about the criminal convictions and therefore Giles was in breach for not passing this information on to QBE;
Alternatively, whether or not Giles had been told about the convictions, Giles was nonetheless in breach of duty by failing to take proper steps to bring to Avondale’s attention the need for appropriate disclosure.
The Court held that, as a matter of fact, Giles had not been informed of Mr Watkins’ previous criminal convictions. It therefore had to consider whether Giles was under a duty to advise Avondale about the duty to disclose material facts and whether it had complied with that duty. In assessing the scope of a broker’s duty in this regard the Court drew heavily from the two leading authorities in this area namely Jones v Environcom Limited  EWHC 759 and Synergy Health (UK) Limited v GCU Insurance Plc  EWHC (Comm). These lines of authority establish that a broker:
- Must advise his client of the duty to disclose all material circumstances;
- Must explain the consequences of not doing so;
- Must indicate the sort of matters which ought to be disclosed but which the client might not think it necessary to mention.
The underlying rationale for the imposition of the above duties on a broker is that non-disclosure can have harsh consequences not least because an insured client may not appreciate the causative significance of the non-disclosure. This is why, as stated in Jones v Environcom, it is important that “the lay client is told of the paramount duty to disclose and what it involves. Further, in case the client does not appreciate what may be material, (as will often be the situation) he needs to be advised to err on the side of caution so as disclose anything that might impinge on the judgment of a competent underwriter in assessing the risk and be helped to unearth such matters.”
In arguing that it had discharged its duty, Giles relied on certain written advice, about the need for disclosure, that had been sent to Avondale. In assessing whether written advice was sufficient the Court cited the judgment of Flaux J in Synergy v CGU where he stated that “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.” The Court went on to hold that, on the facts before it, the written warnings Avondale received were sufficient. Giles was therefore not liable.
In another important passage of the judgment the Court emphasised the need for Claimants to support allegations of professional negligence with suitable expert evidence. The Court stated, having cited a number of the key authorities, that there was no “rule of law that expert evidence is required in every case before a finding of professional negligence can be made.” However, the Court then stated that “it is striking and significant that Avondale asks the court to find that Giles fell below the standard of reasonably careful and competent insurance brokers without adducing any expert evidence as to the standards of that profession.”
This case serves as a useful reminder about the scope of a broker’s duties to clients regarding disclosure. While the Court held that written advice could suffice it would be advisable for brokers to consider giving both oral and written advice regarding disclosure. It would also be advisable for brokers carefully to document the occasions on which that advice is given. Further, if an insured is considering bringing a claim then careful consideration should be given as to whether or not to obtain expert evidence on the standard of conduct that the broker should have observed. While expert evidence is not always necessary a Claimant may face an uphill struggle in establishing professional negligence, by the broker, without an expert’s report.