When two broker firms fail in their duty of care to a client, how should damages be apportioned. Ling Ong & Michael Walkington explain

The case of Daryl Fisk v Brian Thornhill & Son concerned a dispute between two brokers as to the appropriate division of responsibility for losses caused to an insured by their respective breaches of duty.

The facts of the case are that the owners of a pub, dating mainly from the 16th Century but with modern extensions, sought property cover for the year 2000 through their normal retail broker, Daryl Fisk.

Fisk obtained a quotation through the Intercounty scheme run by BrianThornhill, a wholesale broker unfamiliar with the property. That quotation was expressly on the basis that the insured property was made of "brick, stone, slates, tiles" (BSST), as opposed to timber, wattle and daub, which it in fact was largely made of.

Nevertheless, Fisk recommended acceptance of the quote to the insured and they accepted. Fisk also completed the

relevant proposal form. This included answering that the property was constructed throughout of brick, stone or concrete, but with some lath and plaster and internal timber; not answering the question whether the property was roofed throughout with slates, tiles or concrete; and saying that there were no additional material facts likely to affect the proposed insurance. The completed proposal form was sent to Thornhill and the insurer.

New insurer
By October 2001, Thornhill no longer ran the Intercounty scheme and instead placed business with CNA through Mill House. On 9 October 2001, Thornhill sent Fisk a renewal notice, without explaining that a new insurer and new terms were potentially involved, but stating that a new proposal form would be required.

Fisk recommended acceptance of the quotation of "the present insure, assuming it was again Intercounty. The insured agreed and Fisk asked Thornhill to renew on 19 October 2001. Thornhill sent Mill House his own computer-generated quotation, which he did not send to Fisk or the insured and which included an assumption that the insured property was BSST and a condition that a satisfactory proposal would be received within 30 days of inception.

In addition, insurers included the term that they would not be liable for any differences between the proposal form and quotation request unless written agreement was given for any variation.

On 21 October 2001, the pub was seriously damaged by a flood. The insured notified Fisk and he notified Thornhill. On 23 October 2001, Thornhill sent Fisk the Mill House proposal form referring to a "change of underwriter". Fisk completed and returned the form using information provided by the insured.

On 5 December 2001, CNA avoided the policy on the grounds that the property was not of standard construction and the broker would not have been able to obtain a quote if he had revealed the true nature of the property. They also relied on a material misrepresentation in the proposal form in that the pub was made of timber, wattle and daub, not brick, stone or concrete.

The insured sued Fisk, Thornhill and CNA. They subsequently dropped the actions against Thornhill and CNA and accepted a settlement of £62,000 from Fisk in respect of damages plus their costs. Fisk brought a Part 20 (third party) claim against Thornhill for breach of contract and negligence, and for a contribution under the Civil Liability (Contribution) Act (1978). Thornhill denied liability.

The Court of Appeal found that Thornhill was not entitled (without the authority of the insured) to warrant to the underwriters that the property was of BSST construction based on the information he had received in 2000 from Fisk.

When faced, for example, with a failure to answer a question in the proposal form, he should have sought further information. In addition, he was in breach of duty in failing to obtain a completed proposal form before placing cover, particularly where insurers would not be liable (without express written agreement) if a statement in the quotation request was corrected in the subsequent proposal form.

Regarding cause of loss, the original judge had found that Thornhill's breach did not cause any loss because, even if he had not given the warranties he did to CNA/Mill House, the insured would not have been able to obtain insurance elsewhere and so would have been without cover anyway.

The Court of Appeal, however, looked at the different roles and experience of the retail and wholesale brokers. As a retail broker, Fisk placed cover for many non-standard buildings similar to the pub in question; Thornhill, as wholesale broker, generally placed cover for standard-build properties through specific schemes.

Alternative cover
The Court of Appeal found that, if Fisk had been told that cover could not be obtained through CNA/Mill House because required warranties could not be honestly given, he could have sought and perhaps obtained alternative cover.

Consequently, it was decided that Thornhill should contribute 25% of what Fisk had paid out to the insured.

There are often several intermediaries in a chain between insured and insurer. If something goes wrong, it is sometimes difficult to tell where the fault lies as between different intermediaries. As in this case, more than one intermediary may be at fault and the court will be prepared to apportion liability as it sees fit.

The case also emphasises that, even where a broker is one step removed from the original insured, he is still under a duty of care and should not, for example, give warranties to the insurer where he is not authorised to do so by the insured.

Similarly, where the wholesale broker has a closer relationship with insurers than the retail broker has, he should make the retail broker fully aware of the identity of the insurer, its particular terms and conditions, and any particular requirements in relation to providing cover. This reflects the normal duty a broker owes to an insured where he is the sole intermediary between insured and insurer. IT

Ling Ong is a partner, and Michael Walkington a professional support lawyer in DLA Piper's insurance & reinsurance team in London

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