Advising on insurance disputes & representing clients in litigation & arbitration proceedings
Will the insurer meet the claim? If not, is there any recourse against the broker?
Insurance is the system through which the exposure of individuals to potential financial liability is limited. Claimants want to know as soon as possible whether the insurer is going to meet their damage & costs.
Knowing the relative strength of the claim either as a claimant or defendant in any litigation provides a firm foundation for conducting negotiations going forward.
Examples of insurance case law
NATIONAL FARMERS UNION MUTUAL INSURANCE SOCIETY LTD v HSBC INSURANCE (UK) LTD (2010)
The claimant insurer sought to recover a contribution from the defendant insurer towards the costs it had incurred making payment out under a policy pursuant to the equitable principles of double insurance (where someone has taken out two insurance policies, they are entitled to recover from either and therefore if one pays out the other should make a contribution towards the cost of doing so).
The defendant insurance company had provided buildings cover to the owners of a property that was later put up for sale. The policy provided cover for buyers of the property up until the point of completion, subject to the condition that ‘we will not pay… if the buildings are insured under any other insurance’.
Prior to the exchange of contracts, the buyers took out a buildings insurance policy covering the property with the claimants. This policy also contained a clause addressing a double insurance situation. It stated that, ‘if, when you claim there is other insurance covering the same accident, illness, damage or liability, we will only pay our share.’
Between the point of exchange of contracts and completion of the sale, a substantial fire broke out at the property. The contract provided that risk transferred at this point to the buyers. The fire caused substantial damage leading to the buyers to make a claim for £1.85 million under their policy, which the claimants settled. They then sought a contribution from the defendants on the basis of double insurance.
The defendants rejected this, contending that the buyers were not covered by their policy as the building was insured under other insurance. Alternatively, they argued that at most they could only be considered to be an excess insurer providing cover for any damage not covered by the claimant insurers.
The Court found that this was not a case of double insurance. The only policy covering the building was the claimant’s policy. The proper construction of the defendant’s contract was that indemnity would not be provided to buyers for any physical loss or damage occurring if the buyers had themselves taken out insurance covering the same risk. Furthermore, the claimant’s clause on its proper construction did not exclude coverage in the event that the buyers were otherwise insured (it merely provided for the distribution of liability where another policy did in fact cover the same risk).
(1) LOYALTREND LTD (2) SYE RAZVI v (1) CREECHURCH DEDICATED LTD (ON BEHALF OF ITSELF & AS REPRESENTATIVE FOR ALL OTHER UNDERWRITING NAMES ON SYNDICATE 962 2002 UNDERWRITING YEAR) (2) BRIT UW LTD (3) CATLIN (FIVE) LTD (ON BEHALF OF ITSELF & AS REPRESENTATIVE FOR ALL OTHER UNDERWRITING MEMBERS OF SYNDICATE 2020) (2010)
The claimant sought to recover losses for business interruption under their insurance policy with the defendant, which the defendant resisted contending that there was a failure to give timely notice of the damage in question as required by the insurance policy.
The claimant operated a high-end fashion store. Above the store there was a flat, which used the flat roof of the store as a roof garden with decking and plant pots. From the outset of the lease on the store there were problems with water leaking through this roof into the store. Between 2003 and 2006 significant amounts of water poured through the ceiling leading to cracking around the windows and doors, which a surveyor concluded to be evidence of subsidence. By 2004, this problem was beginning to affect the day to day running of the shop.
The evidence suggested that the claimant knew of relatively serious damage by the end of 2003 and the fact that this should have been notified to the insurers. This was not done however. The claimant approached the insurer in August 2005 on the basis that the problem had developed in the spring of that year.
The insurance policy contained the clause: ‘…the insured shall give immediate notice to the Insurers… on the happening of any Injury or damage in consequence of which a claim is or may be made under this Policy…’ The defendants submitted that the claimants, by not bringing the damage to the attention of the insurers when it occurred, were in breach of this policy. The great majority of the damage had taken place before 2005 and indeed a significant amount had taken place before the current insurance policy. The latter damage should have been disclosed at or before the commencement of that policy.
The Court stated that the test for compliance with the requirement of immediate notice under the insurance contract is an objective one; that is to say the facts should support the claim that notice was given as required. In the present case it was found that serious damage had occurred before the policy and this should have been notified. Further, notice was not given in 2004 when the policy was in operation and the business had been affected. The notification given in 2005 was in August, though the damage occurred in the spring of that year. The defence of failure to give timely notice succeeded.
NICHOLAS G JONES (Claimant) v (1) ENVIRONCOM LTD (2) ENVIRONCOM ENGLAND LTD (Defendants) & MS PLC (T/A MILES SMITH INSURANCE BROKERS) (Third Party) (2010)
The claimant sought damages from the defendant insurance brokers for negligently failing to fully explain the duty to disclose information to its insurer.
The claimant recycled waste electronics, including fridges. As part of the recycling process for fridges it was necessary to cut bolts from the fridge. In order to do this, a high-powered plasma gun was used. This generated very high temperatures and created sparks, leading to a fire risk.
For a period of four years an insurer sourced through the insurance broker had provided cover to the claimant for property damage and business interruption. There were a number of fires during this period, only two of which were claimed for under the policy by the claimant. The other fires were a result of the use of the plasma guns but were not claimed for or otherwise disclosed to the insurer.
The claimants sought to renew the insurance policy and were told initially that the insurer was not willing to do so as a result of the earlier fires for which a claim was made. The insurance broker later managed to negotiate a renewal for the claimants, albeit on much more expensive terms.
A number of further minor fires occurred after this time, culminating in a very serious fire, which meant that the recycling plant had to be demolished. The claimants submitted a claim for this under the new insurance policy, which was refused on the grounds that disclosure had not been made of a number of the earlier fires or of the use of plasma guns.
The claimant alleged that the insurance broker had been in breach of its duty to fully explain the obligation of disclosure and to carry out sufficient enquiries that if carried out, would have led to the relevant disclosures being made. The defendant responded that it had discharged its duty to inform by explaining the duty to disclose in documentation sent to the claimant. It further argued that even if it had made any enquiries of the insured it would not have disclosed the relevant information.
The Court stated that a broker has a duty to satisfy itself that the client fully understands the requirements of the duty to disclose. This would usually involve a specific verbal or written exchange on the topic. There was no such disclosure in the present case, which lead to an inadequate explanation being given of disclosure. It was held that where such an inadequate explanation has been given, an insurance broker is under a higher duty of care when it comes to making enquiries of information that would be material for disclosure. This would certainly have included fires. Had the defendant asked the claimant about fires, they would probably have provided a full and frank response about the occurrence of fires and their association with the plasma guns. As such, the insurance broker was in breach of its obligations.
Despite this, when it came to causation, the Court held that the claimant could not recover the costs of the fire damage from the broker because for various reasons (such as the fact that there was no realistic chance of the insurance policy having been renewed with full and frank disclosure of the plasma guns) there was no realistic prospect of the claimant having obtained suitable cover but for the broker’s negligence.