In the last few years the judicial spotlight has shone regularly on insurance brokers. In particular, both the nature and extent of a broker’s duty to advise its client on the requirement to make a fair presentation of the risk to underwriters have been under scrutiny. In those cases, the courts have recognised that a broker has a duty to use reasonable care and skill to make its client aware of, and to understand, its duty to disclose material information to the insurer. In the 2010 case of Jones v Environcom, Mr Justice Steel confirmed the existence of such a duty and was not persuaded that relying on standard wording annexed to the proposal form or policy was sufficient to discharge that duty. He concluded that “The broker must satisfy himself that the position is in fact understood by his client and this will usually require a specific oral or written exchange on the topic.” As noted a few months later by Mr Justice Flaux in Synergy Health (UK) Ltd v CGU Insurance plc, however, this general principle has to be viewed in the context of the facts of each individual case.
In the recent case of Avondale Exhibitions Limited v Arthur J Gallagher Insurance Brokers Limited, the claimant company, Avondale, made a claim under its Commercial Combined policy in respect of damage caused by a fire at its premises. The insurer declined cover on the grounds that Avondale had failed to disclose that Avondale’s owner had two criminal convictions for which he had served time in prison. It was common ground between the parties that the insurer was entitled to avoid the policy on this basis.
In this case, Avondale sought damages from its broker in tort for professional negligence and for breach of contract. Avondale’s primary case was that it had informed the broker of the convictions and that the broker was in breach of its duty of care in failing to pass that the information to the insurer. The broker disputed that it been told about the convictions but accepted that, if it had been, it would have been in breach of duty.
Avondale’s alternative case was that the broker had failed to take proper steps to bring to Avondale’s attention its obligation to disclose all material information to the insurers at placement, to explain to Avondale what constituted material information in this context and to elicit that information from Avondale.
The question of whether the broker had actual knowledge of the convictions was one of fact. The judge accepted that the evidence given by Avondale’s owner and his wife that they had communicated the information to the broker was plausible. He noted, however, that the broker had not taken any action after the time of the alleged disclosure even though any broker would have immediately recognised the significance of any criminal convictions. That led the judge to conclude that the broker had not in fact been told about the convictions and so did not have actual knowledge of them.
In relation to the issue of whether or not the broker was in breach of duty by failing to advise Avondale properly on its duty of disclosure, Avondale argued that the broker was not entitled to rely only on explanations of the duty contained in the standard-form documentation supplied to Avondale because (i) the documentation was complex and bulky, (ii) the owner was not a sophisticated businessman, (iii) the enquiry regarding convictions was a simple one to make and (iv) there were occasions on which the question ought to have been asked. Avondale did accept (rightly in the judge’s view) that there was no general rule that specific oral advice as to material disclosure must be given or that a specific enquiry regarding a piece of material information must be made.
The judge noted that no expert evidence had been adduced by Avondale to support its case on breach of duty. That significantly limited, without excluding, the possibility of a finding that the broker’s conduct constituted a breach of the common law duty of care or the contractual obligation to exercise reasonable skill and care. Avondale’s decision to ask the court to find that the broker had fallen below the requisite standard without adducing any expert evidence as to the standards in that profession was, said the judge, “striking and significant”.
It was held that the broker was not in breach of duty. The judge dismissed Avondale’s argument that the amount of documentation provided by the broker made it unreasonable to expect Avondale to read and appreciate the relevant documents. The material paperwork was limited in amount and clearly highlighted the need for full disclosure – indeed there was a specific question about any criminal convictions that the insured may have. As to the alleged lack of sophistication on the part of the company owner, there was, the judge held, nothing to suggest that he “was not as savvy as an ordinary businessman”. Finally, Avondale had argued that during the broking process there were particular occasions when specific oral enquiries or advice were required. The judge dismissed this, finding that there was no reason why oral advice and enquiries were requisite in this case as distinct from any other.
This decision is a helpful addition to the body of law on the circumstances in which it may be necessary for insurance brokers to give oral advice to its client about the duty of disclosure and when and how written advice might suffice. It also acts as a reminder of the importance of obtaining expert evidence to support claims for breach of a professional duty.