Aneco Reinsurance Underwriting Limited v. Johnson & Higgins

A professional adviser’s liability for economic loss depends on the scope of the duty undertaken. A person engaged only to supply specified information is generally responsible for the foreseeable consequences of that information being wrong, rather than every consequence of the recipient’s transaction. An adviser who undertakes to advise whether a course of action should be taken may be liable for all foreseeable loss resulting from that course.

The distinction turns on the substance and scope of the undertaking, assessed from the parties’ relationship and dealings. A reinsurance broker who undertakes to advise on the availability of cover and thereby on the market’s assessment of the proposed risk may be liable for the whole foreseeable loss caused by entering the underlying transaction when the required cover was unavailable.

Aneco Reinsurance Underwriting Limited agreed to participate in the Bullen marine reinsurance treaty only if Johnson & Higgins Limited could obtain satisfactory outward reinsurance. The brokers reported that cover had been placed, but had failed to present the risk fairly. Reinsurers consequently avoided much of the cover. Aneco lost more than US$35 million on the treaty, of which approximately US$11 million would have been recovered under effective reinsurance.

Cresswell J awarded approximately US$11 million: [1998] 1 Lloyd's Rep 565. The Court of Appeal unanimously held that properly presented replacement cover had not been available. By a majority, it awarded the whole US$35 million loss because the brokers had undertaken to advise on the availability of reinsurance and the market’s assessment of the risk: [2000] 1 All ER (Comm) 129.

The issue before the House was whether the brokers’ duty extended to advice about the course Aneco should take, making the entire treaty loss recoverable, or was confined to obtaining and reporting on reinsurance, limiting damages to the lost cover.

1. Appeal dismissed by a majority of four to one. Lord Steyn and Lord Lloyd of Berwick delivered the principal majority speeches. Lord Slynn of Hadley and Lord Browne-Wilkinson agreed with them. Lord Millett dissented.

2. Per Lord Steyn and Lord Lloyd, the governing principle was that a defendant is liable only for loss falling within the scope of the duty undertaken. Under SAAMCO, a person whose duty is confined to supplying specified information is generally responsible for the foreseeable consequences of that information being wrong. An adviser who undertakes to advise whether a course of action should be taken may, however, be responsible for all foreseeable loss caused by taking that course. This is a distinction of substance, determined by the actual scope of the undertaking, rather than by the labels “information” and “advice”.

3. Per Lord Lloyd, the SAAMCO restriction applicable to valuers and other providers of specific information was not a general exclusionary rule governing every contractual adviser. The ordinary rule permits recovery of foreseeable transactional loss where that loss fairly falls within the adviser’s duty. Youell v Bland Welch & Co Ltd (No 2) was correctly decided and was indistinguishable.

4. Per Lord Steyn, the brokers had undertaken to advise Aneco about the availability of reinsurance and the state of the market. Availability and the market’s assessment of the proposed risk were inextricably intertwined. Proper performance would have revealed that the required cover was unavailable, and Aneco would not have entered the Bullen treaty. The case therefore fell on the advisory side of the line drawn in SAAMCO.

5. The brokers’ failure to investigate and report the market position was within the assumed duty and caused Aneco to enter the treaty. The recoverable damages were consequently the whole foreseeable treaty loss of approximately US$35 million, rather than only the approximately US$11 million value of the ineffective cover.

6. Per Lord Steyn, the brokers’ preliminary pleading objection failed. The allegation of negligent advice about the availability of reinsurance had been expressly pleaded, explored in evidence and maintained throughout the proceedings.

7. Lord Millett dissented. He considered that the brokers had undertaken duties concerning the outward reinsurance alone, not the underwriting decision or the market’s assessment of the Bullen treaty. On that view, SAAMCO limited damages to the value of the lost cover, and the first-instance award should have been restored.

1. House of Lords: The brokers’ appeal was dismissed by a majority of four to one. The Court of Appeal’s award of the whole loss was affirmed: [2001] UKHL 51.
2. Court of Appeal: The court unanimously held that replacement reinsurance was unavailable. By a majority, it held that the brokers’ assumed advisory duty made the whole US$35 million treaty loss recoverable: [2000] 1 All ER (Comm) 129.
3. Commercial Court: Cresswell J found negligent presentation of the risk but held that comparable replacement reinsurance would have been available. He awarded approximately US$11 million, representing the value of the avoided cover: [1998] 1 Lloyd's Rep 565.