UK: Liability Of Sub-Brokers Who Place Inadequate Insurance Cover

Last Updated: 30 July 2008

The recent case of "Dunlop Hawyards (DHL) Ltd v Erinaceous Insurance Services Ltd v Lockton" [2008] EWHC 520 Comm has shed further light on the potential pitfalls that may arise where more than one broker is involved in placing insurance on behalf of an assured. This means the involvement of several parties who may not all be in contact with each other and do not necessarily have contracts with each other. This can result in details as to the type and scope of insurance required becoming "lost in translation", with the consequence that the assured finds itself with inadequate cover when it makes a claim, the underwriter refuses to indemnify the assured and a dispute ensues as to who is liable for the loss and in what proportion.

In this case, the claimants were property consultants, whose business included commercial property management, surveying and valuations. They were part of a group of companies who instructed brokers to consolidate and renew the professional indemnity insurance for all companies in the group except those carrying on insurance-related business. Brokers were instructed to obtain a primary layer of cover of £10 million on an each and every claim basis, together with an excess layer of cover for the claimants for an extra £10 million.

The producing brokers were not Lloyds brokers so they instructed sub-brokers who were Lloyds brokers to place the cover.

The sub-brokers placed both the primary and excess layers of cover. However, the excess insurance was stated to follow the primary policy so far as applicable except that the indemnity provided by the excess policy was limited to "the Insured's Commercial Property Management activities only". This wording was clearly stated on the slip for excess insurance that was drawn up by the sub-brokers and scratched by the excess insurers.

The claimants subsequently faced claims for negligent and / or fraudulent valuations which, if proven, might impact on the excess layer. They therefore notified the excess insurers who denied liability on the basis that the claims arose out of valuations not commercial property management activities.

The claimants sued the producing brokers for failing to fulfil their instructions and obtaining inadequate cover. Those brokers sought in turn to claim an indemnity or contribution from the sub-brokers on the grounds that they failed to draft a slip or policy wording that accurately reflected the agreement of excess insurers to provide cover on the same terms as the existing cover, additionally that they failed to carry out producing brokers' instructions to procure excess cover on the same terms as the existing cover.

It should be noted that no claim was made against the excess insurers, although the producing brokers sought to have them joined as defendants under CPR 19.2(2) on the basis that there might be an argument for rectification of the insurance contract and joining the excess insurers as defendants would ensure they were bound by any decision of the court regarding rectification. The court however did not agree. The judge was of the view that no sustainable case could be made for rectification because the wording on the slip limiting cover to the claimants' commercial property management activities was very clear.

The court was then faced with an application by the sub-brokers to strike out the producing brokers' claims against them for indemnity and contribution. The sub-brokers argued that according to the terms of agreement between the two brokers, the producing brokers were responsible for correcting any errors made by the sub-brokers. They further stated that their role was limited to advising on the key features of the proposed insurance cover and passing on underwriters' quotations to the producing brokers. They were not obliged to interpret or construe those quotations. Furthermore, it was the producing brokers who were solely responsible for advising the assured in relation to its insurance requirements and sub-brokers had no contact with the assured themselves.

Again, the judge did not agree. His view was that the producing brokers had a good arguable case against the sub-brokers for failing to comply with the instructions they were initially given to renew the professional indemnity cover on no worse terms than the existing cover except with the consent of the producing brokers.

The sub-brokers then argued that they owed no duty of care to the claimants. In particular, they did not assume a responsibility to the claimants, made no direct representations to them and even if they had, the claimants had not relied on those representations. The sub-brokers' case was that the terms of the sub-broking agreement precluded such an assumption of responsibility by them to the claimants.

The judge rejected these arguments and found that the sub-broking agreement was designed to prevent the sub-brokers from competing directly with the producing brokers. It was not intended to prevent a tortious relationship arising between the sub-brokers and the assured. It did not negative a duty of care owed by the sub-brokers to the claimants to exercise reasonable care in placing the renewed cover on the instructions of the producing brokers.

The substantive case in the above matter has yet to be heard so it is not presently clear what proportion of liability each of the brokers might have to bear. However, in another recent case, "Darryl Fisk v Brian Thornhill" [2007] EWCA Civ. 152, the placing broker was held by the Court of Appeal to be liable for a contribution of 25% of the damages paid by the producing broker to the claimants. In that case, both brokers were criticised by the court for relying on outdated information regarding the construction of the building in question. The answers provided in the proposal form regarding the building's construction were unclear and incomplete and when the cover was placed with different insurers the following year, the placing broker gave a warranty to the effect that the building was of standard construction, which it was not. When the building was damaged by a flood and underwriters refused cover, the assured sued the producing broker and recovered damages. He then in turn sued the placing broker and recovered a 25% contribution.

Whilst the extent of fault may be difficult to determine with regard to each broker, the courts are apparently willing to attribute and apportion liability where they deem it appropriate. Therefore, even where a sub-broker is not directly instructed by the assured, he remains exposed if he takes steps which could prejudice the assured.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.