In 2006 brokers won some important decisions on duty of care, but some went against them. Ross Risby and William Allison report
Looking back on last year, 2006 started none too well for Lloyd's brokers, with the February decision of the Court of Appeal in Goshawk Dedicated Ltd v Tyser & Co. Goshawk claimed that the defendant Lloyd's broker was obliged to allow the syndicate to inspect and copy certain categories of documents which it had been shown during the placement of certain risks. Tyser declined to disclose the information requested without the consent of the insureds.
Goshawk successfully argued that Lloyd's underwriters are entitled to see again the relevant documentation under a term implied in their contract of insurance with their insured and, as a corollary to that, it has a right to inspect those documents in the broker's hands.
Brokers will have to advise clients of the duties which they are now under, and how that impacts on the client relationship. Whether this ruling could be applied to non-Lloyd's brokers, which have different customs and practices, remains to be seen.
In mid-March 2006 came BP plc v Aon Ltd and HIH Casualty & General Insurance v JLT Risk Solutions. The facts of BP v Aon were that BP was insured under an all risks open cover, in respect of global offshore projects placed by Aon Texas. The policy was on a declaration basis so that each risk had to be individually declared before it was covered.
Although Aon Texas entered into a service agreement with BP setting out its role, it was Aon London that made declarations to the open cover for BP.
Declarations not made
Aon London incorrectly believed that declarations needed only be made to the lead underwriter on the open cover and not to each of the following underwriters.
When the following market refused to pay claims relating to various declarations, BP sued Aon London.
Justice Colman found that Aon London had not only undertaken responsibilities such that BP could rely on its advice and services, but also that the assumption of responsibility was not displaced by BP's contractual relationship with Aon Texas.
Previous English authorities have tended to deny that a placing broker with no contractual relationship with the insured owes any duty of care in the placement of a risk.
This decision shows that where an assumption of liability can be shown, then such a duty may exist.
The key principle, therefore, is that a chain of contracts between the sub-broker and insured will not automatically exclude the existence of a tortious duty.
From the (sub-) broker's perspective, if there is no intention to expose itself to liability to the insured, then positive steps should be taken to negate any suggestion of assumption of responsibility.
HIH v JLT formed part of the long-running film finance litigation and was a spin-off of the HIH v New Hampshire litigation.
HIH insured various film production companies. New Hampshire reinsured the risks on a back-to-back basis. There was a warranty in the original and reinsurance policies as to the number of films to be made. When the insured failed to make the requisite number of films, New Hampshire claimed that the warranty had been breached. The court agreed and held that reinsurers were relieved of any liability.
HIH had, however, already paid the claims to the insured. HIH therefore commenced an action against its reinsurance broker (JLT), which had also placed the original cover, arguing that JLT was under a duty to protect HIH's interests by ensuring that reinsurers were advised of the reduced number of films and seeking a variation of the warranty.
The judge decided that JLT could not simply act as a postbox. It was under a duty post-placement to alert HIH to matters of potential concern on cover, whether or not HIH had asked it to provide such information. On the facts, however, the judge held that the breach of duty had caused no loss; the loss was caused by HIH paying losses it was not obliged to pay in circumstances, where it knew reinsurers would not pay.
The judge expressly restricted his comments regarding brokers' obligations to the specific facts of this case. However, the decision suggests for the first time that a broker is under a post-placement duty to seek to ensure that cover remains appropriate. HIH has appealed the decision. JLT has cross-appealed the finding on brokers' duties.
May 2006 saw Great North Eastern Railway v JLT Risk Solutions. Here, in circumstances where, post-placement, GNER's broker (JLT) was still negotiating the terms of GNER's insurance, the judge refused to strike out GNER's claim against JLT on the basis that limitation had expired, since there was the possibility of a post-placement continuing duty of care.
If there was a continuing duty, then the limitation period did not start to run until the duty finished, in which case the claim would have been in time.
Whether, in fact, there was a continuing duty of care and, if so, the extent of that duty, were matters on which the judge believed the court would be assisted by expert evidence in full trial.
This case shows that in appropriate circumstances, the courts are prepared to look beyond the date of the inception of the policy as being the commencement date for limitation purposes, insofar as a claim against the brokers is concerned.
But the cloudy skies of 2006 did have a silver lining in June 2006 with the decision in Heath Lambert v Sociedad de Corretaje de Seguros and Banesco Seguros. In this case the court confirmed that a broker placing marine insurance has a lien for premium and commission whether or not there is an intermediary in the chain.
Although there are no decisions applying the same principle to a non-marine insurance contract, the case reinforces the common law principle from which the lien derives and therefore supports the applicability of the lien in non-marine business.
The wider implications of this case may however emanate from the court's expression of doubt as to the traditional view of brokers as the agent of the insured, noting that it would be preferable to regard the broker as a "common agent", acting in some circumstances as wholly independent of both parties and in others for one or other of the parties.
This analysis creates the potential for lack of clarity and confusion over the broker's role and will provoke the cynic to mutter that every silver lining has a cloud. IT
Ross Risby and William Allison are partners of Davies Arnold Cooper