global insurance management

Broker Duty of Care

Apr 25 2012

Broker Duty of Care

Relevance:                   All firms.

Action required:           Check your procedures

We need to draw your attention to a recent court case that has implications for all brokers.

Lawyers at Bedell Cristin, which represented the plaintiff in Café de Lecq v RA Rossborough, have claimed that the judgment - which held broker Rossborough to be negligent and awarded damages of £528 500 to compensate the claimant - demonstrates that insurance companies (and brokers) need to ensure that clients have fully read and understood policy conditions.

The six-day trial revealed that Axa rejected the claim by Café de Lecq for breach of warranty. Axa discovered that the deep fat fryer that overheated and caused a fire that destroyed the beach café was an old model that did not comply with the terms of the warranty in its policy.

It also emerged during the witness testimony that Axa had installed a quote engine within Rossborough’s computer system that contained default settings allowing quotes to be automatically generated that, as Bedell Cristin highlighted during this case, put the cover at risk from inception.

Package policies
Bedell Cristin said it is understood that the process for selling ‘package’ policies was driven by considerations of speed and economy, but that it may also entail “significant risks” for the client, as was found to be the case here.

Anthony Robinson, head of litigation partner at Bedell Cristin, said: “The judgment contains useful guidance as to the standard of care required of brokers when arranging insurance for their clients. They are under a positive duty to explain the meaning of onerous policy terms and conditions and the consequences of any failure to comply with them.”

He continued: “Sending the insurance documents to the client with a warning to read them carefully simply will not do.”

Graeme Trudgill, head of corporate affairs at the British Insurance Brokers’ Association, commented that similar to the Environcom case in 2010, this reinforces the fact that insurance brokers … need to explain all warranties, exclusions and conditions and make sure the client is fully aware of the consequences of non-compliance with them,” he said.

Trudgill continued: “If the client doesn’t switch on the alarm like they are supposed to, for example, then it could mean that a claim is rejected. The broker needs to have a paper trail as well to make sure that he can produce evidence that he did give out that advice to the customer.”

Neil Pointon, director at Howden Professional Risks, added: "We recommend that brokers regularly review their procedures and in light of this judgment it would be wise to reconsider how quotations are put up to clients and prospects.

"Especially written documents, and whether more details should be provided not only in respect of specific conditions/exclusions which are bespoke, but also in relation to those terms that may appear in the standard policy documentation that may prove critical in the event of a claim such as a condition precedent."

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