Most Read Contributor in New Zealand, September 2016
Court lays out broker's role in business interruption
A UK Court has distilled a series of principles from
insurance case law to guide brokers on their obligations to their
clients in relation to business interruption
The judgment may be persuasive to New Zealand
Eurokey Recycling Ltd (Eurokey) was suing its former
insurance brokers for breach of contract and negligence relating to
a policy for business interruption (BI) cover. The issue
arose after a fire wiped out Eurokey's main premises.
Eurokey was grossly under-insured, claimed this was because it
had been badly advised, and was pursuing the broker for the
shortfall between the pay-out it got from its insurers and the
amount it would have got had it been properly insured, together
with consequential losses.
Although much of the evidence was disputed, the Court found that
the broker had not breached its duties to Eurokey.
In the course of making its decision, the Court traversed the
relevant case law and laid out the following principles in respect
of the broker's duty to the client in the provision of BI:
the broker is not expected to calculate the BI sum insured or
choose the indemnity period but must provide "sufficient
explanation" to enable the client to make informed decisions
in relation to these matters
this will include explaining the method of calculating the sum
insured and will likely require explanations of terms such as
"estimated gross profits" and "maximum indemnity
the broker will need to take "reasonable steps" to
ascertain the nature of the client's business and insurance
needs and to ensure that the client fully understands the term
"Insurable Gross Profit"
the broker's responsibilities to the client are not
diminished if the brokerage firm offers an enhanced service at
additional cost and the client has chosen the non-premium product
the extent of the broker's obligation to assess a
commercial client's BI insurance needs will depend upon the
particular circumstances of the case, including the client's
sophistication and the extent of their past dealings
although as a matter of common sense, a client may not need a
repetition of previously given advice each time the policy is
renewed, the broker needs to be alert to whether there have been
any changes in personnel
any advice should be appropriately documented to provide
evidence that the broker's obligations have been met
if a client appears well-informed about the business, the
broker is not expected to verify the information given unless there
is reason to believe that it may not be accurate, and
where a broker has been given express instructions as to the
cover to be obtained, reasonable care must be exercised to adhere
to those instructions.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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