BI case underlines broker obligations

A recent High Court of England finding relating to business interruption cover has offered a significant warning for brokers when servicing commercial clients.

In  Eurokey Recycling Ltd v Giles Insurance Brokers Ltd [2014] EWHC 2989 (Comm), the insured sought damages of £2.9 million against its broker for failing to provide adequate advice regarding business interruption insurance following a fire at its business premises.

The insured claimed that they were underinsured due to the broker’s failure to explain and clarify the implications of the company’s changed gross profit margins on a potential business interruption insurance claim.

The High Court of England found that the insured was not able to claim against the broker due to the adequate level of care the broker had taken in offering its client detailed advice regarding its business interruption cover.

Colin Biggers & Paisley Senior Associate Damian Clancy says although the court found in favour of the broker, the case serves as a warning to brokers who may risk exposing themselves to client claims.

“Our firm has seen a lot more business interruption claims recently,” Clancy says.

“We see brokers who have absolutely zero paperwork to back up their position and it’s their word against the insurer’s.

“There are also instances where they’ve actually got pretty good paperwork, but no face-to-face interaction with their client and that causes some problems. The standard expected is quite high,” Clancy adds.  

Clancy says that Australian courts require the broker to have a relatively detailed knowledge of their client, with evidence of detailed advice, for the court to find in favour of the broker in such claims.

“One of the key things that falls from the Eurokey decision is that the courts seem to require brokers to have a relatively detailed knowledge of their individual clients,” Clancy says.

“Some of the more pro-consumer and conservative judges are likely to require that there has been some kind of face-to-face contact, but, at the very least, a detailed letter that informs the insured of the importance of business interruption cover, a careful explanation of the information required by the broker, and the operation of any underinsurance clauses.”

Clancy notes the level of care taken by the broker in the Eurokey case was of an unusually high standard, showing a higher level of care than many other cases.

“In Eurokey, the broker actually went out and met the insured on a number of occasions, had a good measure for the responsible employee’s level of sophistication, gave detailed presentations and gave advice accordingly,” Clancy says.  

“In a lot of the cases that we come across, that level of contact is actually quite rare – particularly with small to medium-sized businesses.”

“We see the highest volume of claims from people who own small businesses, and who say they didn’t really understand what information was required of them or why business interruption cover is so important,” he adds.

“When you’ve got someone who runs a business that does not have the sort of resources that Eurokey had, then courts have a bit more sympathy for them.”

For more information regarding the finding, you can read Damian Clancy and Rory Butler’s case summary here.