Broker Duty - Time to do your duty.

(From Post Magazine)

It has long been established in English law that, prior to the placing of an insurance policy, a broker has a duty to ascertain his client's needs, use reasonable skill and care to obtain the cover requested and, if the cover required cannot be obtained, inform the client and obtain alternative instructions. These issues were dealt with in Youell v Bland Welch - the Superhulls case No.2 (1990). The English courts are quick to impose legal liability upon a broker who fails to advise their client that cover originally desired cannot be obtained. Similarly, English law demands that a broker must draw his client's attention to unusual or limiting terms, conditions or exclusions in cover being obtained - for example, Harvest Trucking v Davies and Tudor Jones and Marsh McLennan v Crowley Colloso.

In fact there is considerable case law focused on the position of the broker before cover is placed. This impresses a need upon the broker to be fully engaged with their client and keep them fully informed of relevant information about what they have been able to do and the status of the client's insurance coverage. However, the English courts have increasingly been focusing upon imposing similar duties upon brokers towards their clients after coverage has been procured.

A proactive duty to inform

Clarity on the fact that a broker has a general duty to assist a client in presenting claims was established some time ago - Johnson v Leslie and Goodwin (1995) - but last year the High Court further commented upon a broker's post-placement client obligations in HIH Casualty and General Insurance v JLT Risks Solutions (2006). HIH participated on the insurance of 'slates' of films and the broker responsible for broking this business to HIH also arranged for reinsurance on HIH's behalf. The reinsurance contained warranties as to the number of films to be declared and HIH's reinsurers subsequently argued there had been breaches of these warranties and they had no liability. Consequently, HIH argued against the broker that it was under a duty to HIH to protect its interests under the reinsurance that had been placed by ensuring that its reinsurers were apprised of the relevant number of films - further to reports the broker received, in the usual course of business, relating to the film business concerned and, if necessary, to seek a variation of any applicable warranty that had been agreed with reinsurers.

Although the judge held that the broker was not ultimately liable to HIH, he determined that because it had a role in disseminating information set to be received after the cover was placed, as well as presenting claims - and because the broker was aware ...