With the debate about future regulation of insurance brokers still raging, Christopher Henley FCII of solicitors Ashurst Morris Crisp considers whether an insurance broker can be considered to be a professional in the true sense of the word.
Ignoring for a moment the oldest profession, there were originally three professions – the Church, Medicine, and Law – with roots in three key disciplines: the avoidance of conflicts of interest, the concept of service before self and the principle of utmost confidentiality. As other skilled groups came into prominence, such as accountants, engineers, architects, and so on, they also sought to enhance their status by adopting the apparent attributes of a profession (including such paraphernalia as examinations, panelled Council chambers and badges of office), since to be considered "a professional" is a source of pride. It signifies that someone is dedicated and is skilled through intellectual and practical training. He is also independent.
Although the lines of demarcation of a profession have continued to move, certain criteria must be fulfiled before anyone can be considered to be a professional, including the use of purely intellectual skill, or manual skill which is derived from either pure talent or from training and/or experience.
Obviously the work carried out must be primarily of a mental rather than manual nature, although a surgeon may predominantly use his hands, he is also exercising his skill and training and is clearly a professional. A person who is entirely manually occupied does not have a vocation, he has a job.
A profession involves some learning or education above that attributed to the man on the Clapham Omnibus, which is distinguishable from the mere technical competence of other occupations. In the case of the insurance broker, advanced theoretical training is required before an agent could call himself a broker, which is a technical term. Anyone styling himself a "broker", who has not satisfied the criteria is liable, upon conviction, to pay a fine. The broker could, until recently, be absented from obtaining theoretical qualifications under Section 3 (1) of the Insurance Brokers (Registration) Act 1977, provided he has acquired suitable experience. Passing four of the ACII examinations (the three core subjects and "Insurance Broking") or obtain equivalent qualifications is now sufficient.
Another criteria is a professional association with a coherent organisation and administration, which controls admission to the profession and then regulates its conduct. Professionals invariably regulate themselves in place of the State. For brokers, the Insurance Brokers Registration Counsel currently fulfils this role, as does the Council of Lloyd's for Lloyd's Brokers. In particular, both use Codes of Conduct embodying the spirit of regulation, which for professions is often difficult to encapsulate in statutory form. It will be interesting to see how this aspect of control develops with the new regulatory bodies.
Professionals also need a recognition by the public that an occupation has professional status. Whatever other merits an occupation may have, it must include the attributes of integrity, a high standard of intellectual and practical skill, and independence. It must also be thought by the public to be something special, for which training is involved, and which is distinguishable from the mere technical competence of other occupations. As W S Gilbert said: "If everybody is somebody, then nobody is anybody".
The traditional view of the broker is that as an agent, he simply effects the instructions of his principal on the basis that his principal understands his own needs and instructs the broker to fulfil them. Thus, where the broker failed to enquire as to whether additional insurance would be required to cover goods at the packers prior to transit (which was insured), he was not at fault or liable, because he was entitled to assume that the insured conducted his business prudently and had obtained the appropriate insurance (United Mills Agencies v Bray 1951). However, the broker is theoretically more proficient than a mere agent, since he has to fulfil certain requirements as to skill, ability and competence before using the appellation. And today he must satisfy a higher standard of care than in the past in ensuring that the insurance obtained meets the insured's requirements as precisely as possible.
A fifth criteria is an inability to guarantee absolute success. A garage mechanic who is (or should be) blessed with technical competence should be able to mend your car, even if they must replace the entire engine. Whatever is wrong can be mended or replaced. If he, therefore, agrees to fix it, he is obliged to do so and will be liable if he fails. However, a professional can do no more than exercise reasonable skill and care in carrying out the job he has agreed to do.
A claim against a professional is usually framed in terms that he has failed to exercise reasonable skill and care in carrying out the work, rather than any failure to supply what was contracted for. No litigation lawyer will ever state that his client will win his case, and no surgeon ever guarantees a cure. Thus a broker does not contract that the insurance will be placed, merely that he will exercise reasonable skill and care in placing it. He will not be liable if he fails to obtain insurance, provided he has exercised reasonable skill and care in his attempt to do so, and notifies the client promptly of the absence of insurance. Nor does he guarantee the security of any insurer with whom his client contracts. They have a duty to the profession or to the public that may transcend the duty to any particular client. For example, accountants must ensure that any accounts prepared show a "true and fair view" of the Company. Architects must consider safety and environmental aspects, together with aesthetic and social factors. Barristers or solicitors cannot defend a guilty party if that party admits his guilt, or cast aspersions on a witness without any foundation, and are obliged to inform the Court of any relevant legal authorities, even if they are adverse to their client's case.
The circumstances in which a broker may be affected by this duty are limited but there is one obvious one. This is where the client is making a fraudulent claim. What should the broker do in such circumstances? The initial problem is that English Insurance Law prefers not to recognise the concept of the pure intermediary, that is, someone who is acting for two parties concurrently to the satisfaction of all concerned. At any given point the courts like to find that the broker is acting as the agent of one party or the other, and therefore information supplied by one part to the broker (while he is acting for that party) is and should remain confidential to that party. Nevertheless, the IBRC Code of Conduct also provides that brokers "shall place the interests of their clients before all other considerations" and that "information acquired by insurance brokers from their client shall not be used or disclosed in the normal course of negotiating ... or unless the consent of the client has been obtained ..."
However, the problem is that Fundamental Principle A of the Code states that "insurance brokers shall at all times conduct their business with utmost good faith and integrity". Principle B also requires brokers to "have proper regard for others".
This conflict is effectively overridden by a common law exception to the duty of confidentiality, that of the public interest. The exposure of actual or contemplated fraud operates to override any individual's rights and constitutes a good defence to any claim for breach of confidence. Thus a broker may disclose to insurers that he believes his client's claim to be fraudulent, without any fear of liability. The broker should be certain of the facts because to speak improperly or without sufficient foundation may not only render the broker liable for breach of duty, but also for defamation or malicious falsehood. However, the broker's statement will probably attract "qualified privilege" from liability for defamation, provided he made it honestly and without malice.
There is little doubt that the broker falls clearly within the definition of a professional. What does this mean? In terms of legal obligations and responsibilities it may mean little, because the unregistered intermediary is subject to the same duties of care and skill as the broker. But, in reality the broker will fare better because it is his reputation for professionalism that will attract the business, and it is his professionalism that will keep it. The broker should be better trained and fully regulated, and so better suited to providing a full and competent service to his clients. The trend towards a more professional approach in all aspects of insurance is clearly beneficial to the consumer, but the broker – who in many cases represents the "face" of insurance to the consumer – can already be considered to be a professional.