Brokers PI: Disclosure Of Commission And Competing In Tenders

CC
CMS Cameron McKenna Nabarro Olswang

Contributor

CMS is a Future Facing firm with 79 offices in over 40 countries and more than 5,000 lawyers globally. Combining local market insight with a global perspective, CMS provides business-focused advice to help clients navigate change confidently. The firm's expertise and innovative approach anticipate challenges and develop solutions. CMS is committed to diversity, inclusivity, and corporate social responsibility, fostering a supportive culture. The firm addresses key client concerns like efficiency and regulatory challenges through services like Law-Now, offering real-time eAlerts, mobile access, an extensive legal archive, specialist zones, and global events.

The Commercial Court recently considered the disclosure of brokers’ commission and the fiduciary duties owed by brokers to clients when asked to quote for the renewal of cover.
United Kingdom Insurance

The Commercial Court recently considered the disclosure of brokers’ commission and the fiduciary duties owed by brokers to clients when asked to quote for the renewal of cover.

The Court confirmed:

  • Where a broker has given full and frank disclosure of his earnings, and those earnings were reasonable, there can be no question of the broker being required to account to the client for any of those sums.
  • Where a broker is invited to participate in a tender usual contractual principles will apply and the broker is not obliged to participate if he chooses not to. Where exclusivity in this process is offered there is unlikely to be any retainer, and hence any necessity to quote, until the broker and the prospective client have reached agreement on the essential terms of that retainer which will almost certainly include the parties’ remuneration.

The facts

Aon placed reinsurance cover for UIC in respect of its insurance of the Libyan state owned oil corporation. When invited to obtain a quotation for the renewal of the cover the broker declined, instead providing a successful quotation to another Libyan insurer.

UIC alleged that Aon had misrepresented and concealed its earnings in relation to the first year of cover and that the broker was in breach of its fiduciary duties when the relevant policy came up for renewal and Aon decided to submit a quote to a competitor of UIC.

The Court found:

  • Full disclosure at an early stage had been made by Aon and there had been no misrepresentation of the broker’s earnings.
  • There was no relevant contract between the broker and UIC to present a quote for the renewal and nor did the broker owe any fiduciary duty to UIC.
  • UIC’s witnesses’ oral evidence (raising new and unrecorded oral discussions in an attempt to "overcome" the difficulties that they faced with the contemporaneous documents) was both contrived and untruthful. This was sufficient to result in an award of indemnity costs against UIC.

Comment

The case turned on its own facts but reinforces that whilst full disclosure of earnings will be a defence to any claim that a broker has obtained a secret profit, it is also important that a broker does not misrepresent his earnings. If he is going to tell a story he must tell the whole story. The current practice of commission disclosure in the London market is not consistent. Some of the larger brokers prefer complete transparency but this is not an approach that is prevalent throughout the market. This has resulted in what some have described as an "uneven playing field", which is something that the FSA is currently reviewing.

CMS Cameron McKenna LLP acted for the broker in successfully defended the claims.

Further reading: United Insurance Company of Libya –v- Aon Limited [2007] EWHC 1583 (Comm)

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

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 27/07/2007.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More