Paper trail can be the right path
Can an insurance broker's duty to elicit information and advise be discharged by standard written documents? Cases such as Environcom had suggested not, but Avondale Exhibitions Limited v Arthur J. Gallagher Insurance Brokers Limited  EWHC 1311 (QB) provides a welcome example of standard written documents being sufficient.
Before the Insurance Act 2015 came into force, the Broker obtained a commercial combined policy for the Claimant's business, which manufactured and erected exhibition stands. Following a fire at the Claimant's premises, its Insurers avoided the policy for a non-disclosure of two previous criminal convictions against the Claimant's owner. The Claimant brought a professional negligence claim against the Broker alleging that:
i) The Broker failed to pass on information (alleging that the Broker was made aware of the convictions prior to inception) to the Insurers.
ii) The Broker failed to bring to the Claimant's attention the importance of disclosing the prior convictions.
iii) The Broker did not take appropriate steps to elicit the information from the Claimant.
In terms of the second and third allegation, the Claimant asserted that the Broker could not rely on the explanations of the duty to disclose which were included in its standard-form documentation because the documentation was complex and bulky, and the clients were not sophisticated enough to understand it.
The alleged failure to pass on information was a dispute of fact. The judge found that the Broker was never given the relevant information about the client's criminal convictions.
In relation to the alleged failure to elicit information or highlight the importance of disclosure, the judge found that there was no "general rule" obliging a broker to give oral advice as to the importance of material disclosure or to make a specific enquiry into a piece of material information. The judge agreed with the Broker that its stand-form documentation clearly set out the explanations of the duty of full disclosure, and was adequate to discharge its duties. The factual bases of the proposal form were clear, concise and easy to understand. There was no need for the Broker to specifically highlight the need to disclose previous convictions as a material fact. The judge commented that it would not be wise for a broker to give examples of material facts in the documentation as it could lead to confusion about the importance of some material facts over others.
The need for expert evidence
In this case the Claimant did not adduce expert broking evidence. In reaching his decision the judge (Judge Kayser QC) commented that unless a claimant has adduced expert evidence to substantiate the allegations of breach of a broker's duty, it significantly limits its chances of proving that breach.
By contrast, Leggatt J made observations in Involnert Management Inc v Aprilgrange Ltd & Ors  EWHC 2225 (Comm) at [293-298] questioning the utility of expert evidence in broker's negligence actions tried in the Commercial Court.
The potential tension between the observations of these respective judges highlights the difficulties that the parties may face in knowing whether the Court will be assisted by expert evidence on insurance broking. Unless the case turns on an unusual or technical point, the question may come down to a personal preference of the judge hearing the case. The parties are unlikely to be certain of the identity of the judge until a fairly late stage, such that the parties will either have to accept the cost and practical difficulty of obtaining expert evidence in every case, or else take a risk that they progress towards trial without key evidence needed to make their case.
Written advice discharging duties
While this is a case that turned on its own facts, it is a welcome example of a broker's standard form documentation being found to have discharged the broker's duty to advise on certain topics. The Jones v Environcom Limited  EWHC 759 (Comm) case (quoted in this judgment) had raised concerns that standard form documentation might not suffice to discharge the duty to advise. However, this case demonstrates that as long as the standard documentation sets out a clear and concise explanation of the duty to disclose, and the questions on the proposal form are easy for the client to understand, then it is not obligatory to advise orally as well.
The finding that there is no "general duty" to ask oral questions of the insured client is comforting, as a contrary finding could have had onerous implications for broker's day to day practice. However, it should be emphasised that it remains necessary for the broker to consider in each case whether it is necessary to speak to the client and/or ask any key questions orally as well as in writing.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.