The recent case of Cafe de Lecq Limited v R A Rossborough (Insurance Brokers) Limited amounted to a David v Goliath battle for the insurance world in Jersey.
It also put an end to the cry "it's in the small print".
The case has made anyone wishing to rely on an exclusion clause sit up and take notice; but, more importantly for insurers, it saw an expert label so-called 'quote engines' as laying the ground for "the next big miss-selling scandal".
For such an important case the facts are quite simple. On 8 May 2007, Cafe de Lecq burnt down. The cause was agreed to be overheating of cooking oil by a deep fat fryer.
It was also agreed that the insurer was able to decline payment on the policy because of a clause stipulating that deep fat fryers should have a thermostat and automatic cut out system. The fryer in question had no such safety features.
The case hinged on whether the broker (Rossborough) had discharged its duty of care to its client (Cafe de Lecq) and the extent to which that duty may be affected by the experience of the client.
Jersey's insurance broking industry is regulated by the Codes of Practice for General Insurance Mediation Business issued by the Jersey Financial Services Commission. The Code requires that the broker must demonstrate it has provided the best advice, or exercised the necessary discretion, appropriate for its customers' needs.
In this case the broker had, in fact, simply sent the documentation to the client and told them to "check the details shown on the attached schedule of cover to ensure that they remain in accordance with your requirements". The Court stated that the crucial text was "if not quite 'buried' among other provisions of the policy, far from immediately apparent".
The court agreed with an expert that "leaving a client to find it for himself in the policy quotation, schedule or full wording is not good enough". A warranty is an onerous obligation and an important restriction on cover. The assumptions by the broker that the client was sufficiently experienced fell below the standard required.
The Court found that reliance on a so-called 'quote engine' played a role in the broker's shortcomings. The software enabled the broker to offer quotations on behalf of, but without further reference to, the insurer. The process depends on the broker using information supposedly gleaned from the client. However, default settings meant that any information insufficiently explored with the client could lead to arbitrary assumptions being incorporated in the quotation. The broker conceded that to a "large extent" he had populated the software with information not specifically discussed with the client. This, the court said, placed the broker more closely allied to the insurer than is healthy.
The Court found the client/broker relationship is pivotal. The whole premise of that relationship was that "it should accomplish something over and above what the client could do for himself were he to approach an insurer direct". That had clearly not happened in this case.
The warnings are clear. If you wish to rely on an unusual, limiting or exempting provision then it must be brought to the client's attention. It may be necessary to take a step back from automated processes when setting up contracts and it may also be prudent to consider any contracts that have been automatically generated. There may be a time bomb ticking in your filing waiting to go off.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.