UK: Damages In Insurance Brokers’ Negligence Claims: The Disappearing Props To Ramwade

Last Updated: 4 December 2008
Article by Edward Coulson

The facts of Ramwade are simple: the defendant insurance brokers were retained to effect comprehensive insurance cover of skip lorries owned by the claimant. They failed to do so and when one of their lorries was written off in an accident they sued to recover not only the value of the vehicle but also the cost of hiring a replacement vehicle. Parker LJ in the Court of Appeal held that the hire charges were irrecoverable for two reasons (which I refer to below as 'props'):

First, the hire charges were incurred only because of the impecuniosity of the claimant and were irrecoverable, being too remote under the principle set out in The Liesbosch [1933] AC 449.

Secondly, the award of hire charges would amount to an award of damages for late payment of damages (if the defendant brokers had discharged their liability to the claimant promptly, the claimant could have purchased a new lorry) and they were irrecoverable as a matter of principle.

Ramwade is thus often cited as authority for the proposition that the damages recoverable from a broker who fails to secure insurance cover for his client can be no greater than the cover which ought to have been obtained in the first place.

However, the two props on which Ramwade rests have been undermined completely (in the case of the first) and questioned (in the case of the second).

First, in Lagden -v- O'Connor [2004] 1 Lloyd's LR 315, the House of Lords stopped short of finding that The Liesbosch was wrongly decided but observed that: '...the law has moved on, and the correct test of remoteness today is whether the loss was reasonably foreseeable.' (Lord Hope at paragraph 61)

It is odd that the House of Lords stopped short of overruling The Liesbosch but its lingering existence as an often argued but seldom followed decision now seems at an end.

That leaves the second prop. In the recent first instance decision of HHJ Grenfell in Arbory Group -v- West Craven Insurance Services (13 March 2007), the learned judge managed to distinguish Ramwade. In Arbory Group, the broker admitted negligence in failing to secure business interruption cover for the claimant at the appropriate level – in fact, he obtained cover but at a lower level than was appropriate. Following a fire at the claimant's business premises, the claimant sought to recover not only the cover he should have secured but also the lost profits which the claimant's business would have obtained if the defendant had secured the correct cover and it had been promptly paid by the BI insurer.

It is easy to understand the rejection of the first Ramwade prop in the light of Lagden. The failure to apply the second is less easy to follow. When he came to address it, the learned judge simply observed that: '...the insurer paid promptly under the Business Interruption policy. I am satisfied, that had there been no underinsurance that a full payment would have been made at around the same time as payment was in fact received. I can see no good reason in this case to restrict the claim against the broker to the amount which would have been the liability of the insurer to pay had that been so.' (paragraph 53, emphasis added)

With respect, this does not address the point of principle in Ramwade that an award of damages for late payment of damages is simply irrecoverable as a matter of principle. Ramwade is a decision of the Court of Appeal and has not therefore been overruled by Arbory Group and it is submitted that it remains good law.

However, the reasoning that seems to have led the judge in Arbory Group to his conclusion was based on Lord Hoffman's judgment in South Australia Asset Management Corporation -v- York Montague [1997] AC 191 ('Saamco') on the basis that the scope of the broker's duty was to prevent exactly this type of loss. Saamco has always had the potential to cause difficulties in the area of brokers' cases – see in particular Aneco Reinsurance -v- Johnson & Higgins [2002] 1 Lloyd's LR 565, a decision of the House of Lords.

In Aneco the defendant brokers approached the claimant to place reinsurance cover for the Bullen syndicate. The claimant agreed to write the cover provided the broker could obtain retrocessionary cover of $11m. The broker obtained the cover but negligently failed to disclose the true nature of the underlying reinsurance so that the retrocessionaires were entitled to (and did) avoid the retrocessionary cover. The claimant reinsurers suffered total losses of $35m which they sought to recover from the brokers. The House of Lords rejected the broker's argument that the damages should be limited to $11m basing their decision (despite a powerful dissenting judgment from Lord Millett) upon the proposition that the brokers owed a Saamco duty to warn that the $11m cover would not be placeable anywhere in the insurance market and, had the claimants realised that, they would not have reinsured the Bullen treaties at all.

Aneco is probably explicable on the basis of its own facts but it does open the way to a means by which claimants can avoid the effect of Ramwade. Whether it should do so remains to be explored although cases such as Arbory Group suggest that venture may not be far 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.

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