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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.
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