Brokers should watch out when they take over the business of other brokers, says Tony Howe. Clients' ideas about what their cover includes may well be at odds with those of their new broker.
In this competitive world it is certainly not unknown for brokers to acquire other brokers' business. If the new broker simply replaces the old cover at a more advantageous rate, probably with a different insurer, then is he responsible for any problems on the scope of cover provided under the old policies?
Can he say in response to any claim that he merely replaced policies that the client was perfectly happy with and, he is therefore not in a position to complain?
In a recent case, a client complained that he should have been provided with subsidence cover on a commercial property, on the basis that he had always required a comprehensive policy and believed that this had included subsidence. This requirement had been known by the predecessor in the business, but not been specifically relayed to the new business owner.
Clearly there was a misunderstanding on the part of the client in what was meant by “comprehensive”. Technically, comprehensive policies are to be contrasted with specified risks, but they are of course a misnomer in that they do not cover every eventuality.
However, as stated in last month's article, exclusions should be brought to the specific attention of the client. If the excluded cover was available at a price and the client can satisfy a court that he would have bought it if he had been aware of the exclusion, then his claim may well be successful.
The case further raises the question as to whether the broker could have protected himself. Where a full-scale review of the cover was not appropriate, or sufficient time unavailable, could he merely write to the client confirming that there had been no time to review the scope of the cover and that this function had not been performed?
Could the intermediary go further and restrict the scope of his appointment by confirming that cover was being placed on the basis that the client had already had the policy in force for a number of years and was therefore deemed to be satisfied with its terms and conditions. Historically there was nothing whatsoever preventing a broker entering into Terms of Appointment with his client which narrowly defined the scope of his duties to his client and to incorporate into those terms exclusions or reasonable limitations on liability.
Whether this will be possible under the General Insurance Standards Council's code of conduct remains to be seen. Neither in the code for private clients, nor for commercial clients, is there any suggestion that the code will only operate in the absence of specific written agreement between a broker and his client.
For instance, under the commercial code it says: “A failure on the part of a member, to observe the standards set out in these practice notes, shall not of itself constitute a breach of the rules, but any such failure may in disciplinary proceedings be relied upon by GISC or any party to the proceedings, as tending to establish or to negate any liability which is in question in those proceedings.”
It will be interesting to see whether even in a commercial environment, it will be permissible for written terms of engagement entered into between the parties to modify the scope or extent of duties and obligations that those codes of conduct seek to impose.