A recent case in the English High Court1 highlights the continuing importance of the broker in ensuring an adequate flow of information between an insured and an insurer. It also demonstrates the risks to which brokers who fail to achieve this may be exposed.
The owners of Camden Market in north London, Ground Gilbey Ltd (the insured), brought a claim against their former insurance brokers, Jardine Lloyd Thompson (JLT), following a major fire in part of the market on 9 February 2008 that caused almost £6m of damage. The fire was the result of a liquefied petroleum gas portable heating appliance (PHA) being left on and subsequently setting light to clothing from one of the market stalls.
The relevant “Property Owners’ Policy” insurance policy was underwritten by Fusion Insurance, as agent for the insurer (Aviva/Norwich). The March 2005 cover stipulated the removal of PHAs from the market, but PHAs continued to be used in the market by the stallholders, even in breach of their tenancy agreements.
Shortly after the renewal of cover in 2006, Fusion carried out a further “Risk Improvement Survey” on behalf of the insurer, requiring “confirmation that all unacceptable heating appliances have been removed” and that these steps were to be “implemented immediately”. This information was forwarded to the insured by JLT.
Shortly before the 2007 renewal, a further survey was carried out in the presence of a representative from JLT. This survey report noted that, despite reminders, the stallholders were still using PHAs.
The renewal policy issued in March 2007 contained a new endorsement (the Survey Condition): “cover under this Policy is conditional upon” receipt of acceptable survey reports and also “completion to the Underwriters’ satisfaction of all requested risk improvements within timescales stipulated by the Underwriters”. In addition, the insurer expressly reserved the right to amend the terms of the cover, including the withdrawal of cover if either condition was not satisfied. This was not specifically drawn to the insured’s attention by JLT.
Further, in October 2007 Fusion sent an email to JLT that stated that “all PHAs are to be removed from the premises ... Completion: Immediate”. Critically, JLT failed to forward this email and the latest risk improvement measures to the insured. JLT accepted this was in principle a breach of duty on its part.
Several emails were exchanged between Fusion and JLT between October 2007 and January 2008 regarding the continuing use of PHAs in the market. During a meeting in January 2008, the negotiations focused on the possible use of alternative, safer PHAs, but this was not resolved before the fire took place.
The insured’s claim under the 2007/08 policy was eventually settled for £3.8m, approximately 70% of the full claim value. The insured then issued proceedings against JLT to recover the remaining portion of its loss. JLT denied liability.
The Scope of JLT’s Duty
In broad terms, the insured argued that if JLT had advised it in October 2007 that, unless all PHAs were removed from the market immediately, there might be no insurance in the event of a loss, then it would have taken appropriate steps to ensure the removal of the PHAs.
JLT’s contrary position was that, even if it had specifically advised the insured that its cover might be in jeopardy following the 2007 survey, this would not have made any difference to the stallholders’ conduct. JLT relied upon the fact that the results of the 2006 survey and required “risk improvements” had been previously communicated to the insured with a warning that the heaters should be removed immediately. They therefore argued that even though the requirements arising out of the second survey report had not been forwarded along with any advice regarding the consequences of non-compliance, to the insured, it was already fully aware of the substance of the required risk improvements and, notably, had done nothing to ensure compliance during 2006/2007 or thereafter.
JLT’s arguments were rejected by the Judge (Mr. Justice Blair). Finally, he found that JLT’s duty was to obtain cover appropriate to the insured’s needs and, following inception, to communicate to the insured any information that might affect the coverage.
The Judge also held that on the facts there were three breaches of duty by JLT: a failure to obtain a policy that allowed the use of PHAs; a failure to provide advice regarding the 2007 Survey Condition; and a failure to forward to the insured the email of 9 October 2007. He ultimately accepted that the effect of JLT’s failures “was to deny the claimants the opportunity to enter into a constructive and detailed dialogue with the insurer regarding PHAs, by failing to impart the insurers’ views and the importance of the subject”.
Finally, he found that, as a result of JLT’s breach of duty, the insured found itself “with doubtful or uncertain rights against insurers when [it] should have had a clear, unequivocal right to indemnity for a loss”.
These findings underpinned the Judge’s view of the settlement reached by the insured with the insurer. He considered that the settlement figure of 70% “was within the range of settlements which reasonable commercial people might have made ... albeit towards the edge of the range”.
Having already found that there was a breach of duty by JLT, the Judge considered that it was therefore right that the insured should recover the settlement shortfall of approximately £1.7m from the broker.
It is now well-established under English law that a broker owes its insured client a (continuing) duty (1) to take reasonable steps to obtain a policy which clearly meets the insured’s needs and (2) to protect the client against unnecessary legal disputes with the insurer.