Insurance Brokers PI: Duties Owed On Placement

A recent case concerned the renewal of PI cover for a group of property services companies, and whether an excess layer policy responded to third party claims relating to property valuations carried out by a company that had been recently acquired by the group.

The group's instructions to its broker were to renew the existing insurance cover for the group. For the previous year the company had had excess layer cover for its property valuation business but when claims were presented to the excess layer insurers for the year in question they were declined. The claimants sued their broker, and the broker later joined both the excess insurers and the placing broker it instructed as parties to the proceedings.

The judge found that on the true construction of the excess layer policy the terms of the renewal did not provide cover for property valuations. The focus then turned to the liability, if any, of the claimants' broker and then, in turn, that of the placing broker to the producing broker.

The judge recognised that when considering what duty there was upon a broker to exercise reasonable skill and care, there were clearly differences between a client and his insurance broker and between a producing broker and the sub-broker he employs to place cover. He accepted (which was not disputed by the parties before him) that in most cases the duties that generally arise in a client/broker relationship will also arise in a producing broker/placing broker relationship, with the difference that the client in such a case will ordinarily be the producing broker. Those duties were:

To exercise reasonable skill and care to fulfil his instructions and perform his professional obligations. Carefully to review the terms of any quotations and indications received. To explain to the client the terms of the proposed insurance. To use reasonable skill and care to draw up a policy, or to ensure that a policy was drawn up (depending on whether the focus is on the producing or placing broker), that accurately reflected the agreement with the insurer and which is clear and unambiguous so that the client's rights are not open to doubt. However, in relation to a broker's duty carefully to ascertain his client's insurance needs and to use reasonable skill and care to obtain insurance cover that meets those needs, the judge recognised that the ascertainment of such needs was the function of the producing broker rather than the placing broker. He noted though that it was...