One of the great joys of the insurance market in this country is that it is possible to obtain better or wider coverage from one insurer than another. However, clients sometimes do not realise they are comparing the price of apples with the price of pears and in going for the cheapest option, they often end up buying something that offers them less protection.
Explaining exclusion clauses to the client is arguably not the duty of the intermediary but there are occasions when doing so can get the intermediary out of difficulty. One example is a case where cover was arranged for a client who occupied tenanted premises where he manufactured garments. One weekend, the sprinkler system on the premises underwent repairs but the contractor forgot to turn the water off, with the result that goods were substantially damaged. The intermediary had arranged a Lloyd's policy, which excluded damage 'caused by burst or leaking sprinkler installation'. Had the underwriter included cover, there would have been an exclusion in respect of leakage 'caused by repairs or alteration to the premises'.
The original proposal form (to another insurer) included, at the intermediary's suggestion, a request for cover for damage caused by leakage from the sprinkler installation. This brought into play an entirely different legal principle. Where a client defines a risk against which he wishes to be insured, the intermediary is expected to carry out those instructions precisely. The intermediary may have a good defence if he can show that insurance on the particular terms specified was not available, and instead was provided on the best terms possible. In this case, it appears that cover could have been obtained but the cost was considered prohibitive.
The fact that the policy itself had not been issued at the time of the incident would not have helped the intermediary's case. His story that the client had not, in fact, requested cover was not consistent with the documentary evidence, so the argument that cover would have been unobtainable would have been hard to sustain.
However, as the negligent contractor was forced to pay for the damages, a claim under the policy never materialised. Nevertheless, this case illustrates the danger of making helpful suggestions to the client. They may be interpreted as an instruction to provide specific insurance – particularly if the intermediary then fails to advise the client that their requirements have not been met, so as to afford that client the opportunity to find the required cover elsewhere.
While there is no general requirement to advise clients of anything other than unusual exclusions, that may not be the case where the effect of the exclusions is to negate the cover that the client has specifically requested to be obtained.
Human nature being what it is, it would be quite easy for a client – with the benefit of hindsight – to say that they would of course have paid extra for the cover, although in the instant case, the client's refusal to spend extra the following year would have helped the intermediary's case.
Ultimately, in any insurance contract, it is far better if the client understands the risks he is insuring and those he has agreed to keep to himself because he is not prepared to pay the price. The intermediary's duty is not legal, therefore, but handy for avoiding trouble.