Brokers must define their role

Negligent advice from reinsurance brokers can leave them liable for their clients' uninsured losses following a House of Lords decision.

Johnson & Higgins, now part of Marsh, was ordered to pay £24m damages to the liquidators of Bermudan company Aneco Reinsurance Underwriting.

The House of Lords upheld the Court of Appeal's verdict that Johnson & Higgins should pay both the value of the reinsurance cover and the losses suffered under the defective contract.

Aneco had signed a high-risk contract with a number of Lloyd's underwriters after the broker advised it that any future losses could be absorbed by reinsurance.

But Johnson & Higgins failed to place the reinsurance cover satisfactorily, leaving Aneco exposed to losses from events such as Hurricane Hugo and the Exxon Valdez disaster.

Partner in the insurance and reinsurance department at Reynolds Porter Chamberlain, Tim Brown, said the decision meant brokers had to define their role with their clients carefully to limit their liability. "It requires brokers to clear with clients what their role and responsibility is going to be," he said.