UK: PI Insurance: Brokers Duties At Renewal

In a judgment handed down last week the Court of Appeal considered the duties owed by brokers in a brokers chain. The recent case of Fisk -v- Brian Thornhill & Sons will be of interest to brokers and their insurers.

The judgment considers the nature and scope of the duties owed by a placing broker to the producing broker by whom he is instructed and, also, to the ultimate insured. A number of interesting issues arise:

• Both the Court of Appeal and the parties themselves readily appeared to accept that the placing broker owed a duty to the ultimate insured. No analysis was given as to whether, in light of recent cases such as BP-v-Aon, the requisite legal requirements for such a duty were in fact established.

• The court reiterated principles of which many brokers are now long aware - that when placing cover, clients should be made aware of all material terms, even if the broker is at that stage unable to provide a full copy of the policy terms and conditions.

• The decision also emphasises the importance of ensuring that fundamental documents, such as proposal forms, are completed before the inception of a risk.

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The "Sun Inn" in Feering is a picture perfect pub, worthy of any opening sequence on Midsomer Murders or Inspector Morse. Indeed, had he been an Essex man, Inspector Morse would probably have resolved many a case in its wonderful courtyard gardens over a pint of real ale.

However, the rural crime-busters would have had to find alternative venues for their creative thinking in 2001, as the Sun was overrun with flood waters and its traditional wattle and daub construction was almost irreparably damaged.

The subsequent legal battle to obtain an insurance payout and apportionment of damages awarded has resulted in a ruling which has just (six years on) been handed down in the Court of Appeal.

The case of Daryl Fisk v Brian Thornhill & Sons provides a useful insight into the attitude of the court towards a broker’s duties at renewal. In particular, the judgment reminds all brokers that it is inappropriate to rely on out of date information and, also, that he should query ambiguities in information provided by either the insured or by another broker at renewal. It is very clear from the judgment that a placing broker is unwise to take at face value any information provided by the insured if he is – or is said to be – put on enquiry as to its accuracy. It reminds that, to minimise his own exposure to an eventual damages claim, a broker must clarify any information that appears not to be correct and/or complete.

The producing broker, Mr Fisk, was instructed by Mr and Mrs Scicluna to arrange property insurance for their public house, "The Sun", a building constructed in the seventeenth century with traditional wattle daub walls. In October 2000 the placing broker, Mr Thornhill, provided Mr Fisk with a quotation for insurance for the property. The quotation was expressly stated to be on the basis that the construction of the premises was "BSST", meaning that the premises were of standard construction, built of brick or stone and roofed with slates or tiles. In the proposal form they subsequently completed, question 10 asked, "are [the premises] constructed throughout of either brick, stone or concrete?" The Sciclunas answered "Yes. Some lath and plaster. Timber to internal." They failed to answer question 11, which asked whether the property was "roofed throughout with slates, tiles or concrete". The cover for one year then commenced on 17 October 2000.

In October 2001, shortly prior to renewal, Mr Thornhill sent Mr Fisk a document purporting to be a "Renewal Notice". This title was misleading because the quotation was in fact for cover with a new insurer and not a quotation for renewal by the Sciclunas existing insurers. On 19 October 2001 Mr Fisk accepted the Sciclunas’ instructions to renew and instructed Mr Thornhill to proceed to arrange the insurance on the quoted terms. Mr Thornhill then sent his own computer generated quotation request to the new insurers, requesting cover with effect from 19 October 2001. A copy of that quotation was not supplied to Mr Thornhill or to the Sciclunas. Importantly, under a heading "Warranties, Terms and Conditions" the quotation stated:

"…policy terms and conditions apply. It is assumed that all/any buildings are BSST..."

Acceptance of cover was also conditional upon a satisfactory proposal form being submitted within 30 days of inception of cover.

On 21 October 2001 "The Sun" public house was damaged by floods. On 23 October 2001, Mr Thornhill sent Mr Fisk a proposal form for completion, which was signed by Mr Scicluna and returned to Mr Thornhill on 26 October 2001. Question 14 of the proposal form asked whether the premises were "built of brick, stone or concrete and roofed with slate, tile …..". Mr Scicluna answered "Yes", but also added "Also internal [lath] plaster to internal walls and exposed timber". The question "How old are the buildings?" was answered "1500 original Grade II".

On 5 December 2001, insurers confirmed that they would be avoiding the policy, on the basis that "The Sun" public house was not of standard construction as had been represented/warrantied but was, rather, of traditional sixteenth century wattle and daub construction.

Mr and Mrs Scicluna pursued a claim against Mr Fisk, which was ultimately settled. The issue with which the Court of Appeal was concerned was the extent to which (if at all) Mr Fisk was entitled to receive a contribution from Mr Thornhill towards the damages paid to Mr and Mrs Scicluna. The trial judge concluded that Mr Thornhill was in breach of the duty he owed to Mr and Mrs Scicluna (the ultimate insured), in that he did not make it clear that a new policy with a different insurer was being suggested for the 2001 policy year, and that it would have different terms and conditions from the preceding year’s policy. He concluded, however, that this breach of duty was not causative of any loss: had the Sciclunas completed a proposal form on 19 October 2001 (having been fully advised of the warranty terms) and had insurers refused to write the risk, Mr Thornhill would not have been able to arrange alternative insurance for the property prior to the flood.

In the Court of Appeal it was not disputed that Mr Thornhill owed both Mr Fisk and Mr and Mrs Scicluna a duty of care. It was held that he was in breach of that duty in that:-

1. He should not have relied on information provided/the proposal form completed in the preceding policy year and should not have made warranties on Mr and Mrs Sciclunas’ behalf.
2. He should have enquired further about the structure of the property given the vague and incomplete answers provided in the 2000 proposal form.
3. He should have obtained a completed proposal form before placing cover in October 2001.
4. He should have made clear that the new policy was with different insurers on different terms and conditions.

The Court of Appeal therefore concluded that Mr Thornhill was liable for a contribution of 25% towards the damages paid by Mr Fisk.

A number of interesting issues arise as a result of this judgment:-

1. The courts’ approach to the issue of whether or not a placing broker owes a direct duty to the ultimate insured in tort has, to date, been extremely inconsistent. It seems that this is an issue that will turn on the facts of each individual case. Interestingly, in this case, both the Court of Appeal and the parties themselves readily appeared to accept that Mr Thornhill did owe such a duty to Mr and Mrs Scicluna. No analysis was given as to whether, in light of recent cases such as BP -v- Aon, the requisite legal requirements for the existence of such a duty were in fact established.
2. Having determined that Mr Thornhill did owe a duty of care, what the Court of Appeal said about breach is perhaps not too surprising. It has long been clear – and many brokers are now long aware – that when placing cover, clients should be made aware of all material terms (such as warranties), even if the broker is at that stage unable to provide a copy of the full insurance policy terms and conditions. The Court of Appeal’s decision also emphasises how important it is for a broker to ensure that fundamental documents (such as proposal forms) are completed before the inception of a risk.

Further reading: Daryl Fisk v Brian Thornhill & Son [2007] EWCA Civ 152

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 09/03/2007.