UK: Brokers PI: Post-Placement Duties

Brokers JLT have successfully resisted an appeal by HIH against a judgment of Langley J last year with the result that they are not liable to insurers for losses suffered. In doing so, the Court of Appeal also upheld the trial judge's finding that, further to the facts of this case, brokers potentially had a continuing duty to advise their clients of relevant matters in respect of the contracts they had placed.

Whilst this finding is case/fact specific, brokers should continue to be aware that there is the potential for the law to impose upon them obligations in respect of post-placement issues above and beyond the well-established situations - such as presenting claims and dealing with endorsements to cover - where brokers have been held to owe duties to their clients post placement of a risk. Brokers should be aware that they may be criticised for acting as a mere post box between insured and insurers where information is, or ought to be thought to be, a matter of potential concern on (at least) coverage issues. This case also indicates that the Courts will consider issues of contributory negligence on the part of underwriters.

Further reading: HIH Casualty & General Insurance Limited v. JLT Risk Solutions Limited [2007] EWCA Civ 0710.

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Brokers JLT have successfully resisted an appeal by HIH against a judgment of Langley J last year with the result that they are not liable to insurers for losses suffered. In doing so, the Court of Appeal also upheld the trial judge's finding that, further to the facts of this case, brokers potentially had a continuing duty to advise their clients of relevant matters in respect of the contracts they had placed.

Whilst this finding is case/fact specific, brokers should continue to be aware that there is the potential for the law to impose upon them obligations in respect of post-placement issues above and beyond the well-established situations - such as presenting claims and dealing with endorsements to cover - where brokers have been held to owe duties to their clients post placement of a risk. Brokers should be aware that they may be criticised for acting as a mere post box between insured and insurers where information is, or ought to be thought to be, a matter of potential concern on (at least) coverage issues. This case also indicates that the Courts will consider issues of contributory negligence on the part of underwriters.

The case was an appeal, following a long line of film finance insurance disputes. It concerned a company, Flashpoint, who devised a scheme for the financing of slates of films backed by pecuniary loss insurance cover arranged by the brokers. The policies were underwritten 100 per cent by HIH, for whom the same brokers (JLT) arranged reinsurance cover. The brokers received risk management reports prepared by Flashpoint, which they sent to HIH and its reinsurers. The reports showed that the number of films in the three slates had been reduced. The brokers did not raise this as a concern with HIH.

The claim against the brokers failed on causation grounds at first instance, and HIH's appeal on that issue was dismissed by the Court of Appeal. Langley J had however held that the brokers owed HIH a duty to alert them to any potential coverage issues arising out of the factual information contained in the reports. The judge noted, among other factors, that the brokers played a continuing role in the dissemination of information about the status and performance of the films and that the brokers either were or ought to have been aware that the reduction in the number of films might give rise to a coverage issue. In the circumstances, he also opined, it was not enough for the brokers merely to act as a post box in relaying information. They should have read the risk management reports and drawn HIH's (and their reinsurers') attention to the reduction as being a matter that "was or ought to have been thought to be a matter of at least potential concern on coverage issues."

The Court of Appeal was also asked to address Langley J's comments and findings on post-placement duties and the Court considered the duty of an insurance broker, on learning of a potential coverage risk to an insurer with which it has placed insurance and on whose behalf it has placed "back-to-back" reinsurance cover (i.e. on the same terms). The main issues considered at the appeal were the extent to which the insurers should each have appreciated at the time that the changes (i.e. the reduction in the number of films) in placement amounted to a potential risk to the insurance coverage and hence also to the reinsurance coverage; whether the brokers had a duty to alert HIH to that risk; and, if so, whether the brokers were in breach of that duty.
The Court of Appeal upheld Langley J's finding that the brokers had a post-placement duty to HIH, which was to do more than act as a post box, and that the brokers had a duty of care specific to this case to have sought instructions or at least ensured that HIH were sufficiently aware of the potential concern to assess what, if any, instructions to give about the change in placement. Auld LJ made two more general comments about this post-placement duty. First, where a broker has been at the centre of devising and structuring a scheme, as they were here, acting together with the insurer and reinsurers, the brokers were plainly strong candidates for post-placement monitoring obligations of the sort being alleged. Second, the fact that brokers might find themselves in a conflict of interest between the insured's concern to maintain the insurance cover and the insurer's possible concern to reduce or shred it does not necessarily exclude such a duty by the brokers to the insurers.

In the event, these findings did not assist HIH as the Court of Appeal also upheld Langley J's decision that any breach of duty was not causative of HIH's loss. HIH claimed that the brokers' failure to alert HIH to potential risk to its reinsurance from the film reductions had caused it damage because it lost the opportunity to seek early agreement with the reinsurers to adopt a common stance to any potential claims by the insured. This, they claimed, led to HIH's inability to recover an indemnity from the reinsurers in respect of its payment of the insured's claims when made. The Court held that HIH did not appreciate that the film reductions raised potential issues as to coverage on the insurance and reinsurance, and that HIH would have sought reinsurers' views when the potential risk first surfaced, had the brokers alerted it to the potential coverage issues. However, no action taken by HIH would have enabled it to avoid the loss resulting from its inability to recover indemnity from the reinsurers in respect of its payments to the insured. Therefore, HIH's claim failed.

Finally, the Court of Appeal also commented upon the issue of contributory negligence. Although not strictly an issue before the Court on appeal, two of the judges expressed the view that, had this been an issue before them, the appropriate reduction in damages for contributory negligence on the part of HIH would have been 100 per cent.

Further reading: HIH Casualty & General Insurance Limited v. JLT Risk Solutions Limited [2007] EWCA Civ 0710.

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 17/07/2007.