Frost v James Finlay Bank Ltd

A bank does not assume an advisory duty merely because it requires insurance as a condition of lending. A requirement imposed for the bank’s own security does not, without more, require the bank to assess whether changing insurers is prudent for the borrower.

A duty may arise where the bank voluntarily assumes the role and responsibilities of an insurance broker. That requires conduct amounting to the provision of brokerage services or an assumption of responsibility, not merely administrative steps to secure insurance arranged through a separate broker. A late amendment introducing a materially new case should be clear, particularised and fair to the opposing party.

The claimant obtained a loan secured on her property and later changed the property insurer from Eagle Star to Ecclesiastical Insurance Group plc. She alleged that the Bank had advised or required the change while holding a surveyors’ report referring to structural cracking. She claimed that the change delayed settlement of her subsidence claim and caused economic loss.

Hart J found that the Bank had not advised her to change insurers, but that its conduct led her reasonably to believe that the change was required. He held that the Bank had assumed the responsibility of an insurance broker through its insurance services arrangements, breached the resulting duty of care, and caused loss. The Bank appealed against the duty finding and the late amendment, while seeking permission on further grounds; the claimant sought permission to cross-appeal on damages.

1. Appeal allowed. Jonathan Parker LJ gave the principal judgment. Longmore LJ agreed, and the Vice-Chancellor independently reached the same result. The Bank owed no duty of care to the claimant in relation to the change of insurers, so the findings on breach and loss did not arise.
2. The judge found that the Bank had neither advised nor required the claimant to change insurers at the June 1989 meeting. His later finding that the Bank’s conduct led her reasonably to believe that a change was required did not amount to a finding that the Bank had imposed such a requirement. A borrower’s mistaken belief cannot itself create a duty of care.
3. A lender’s requirement that insurance be changed, imposed for its own protection, is not equivalent to tendering advice or skilled services to the borrower. It does not make the lender responsible for considering whether the change is prudent from the borrower’s perspective.
4. A duty could arise if the Bank agreed or insisted on acting as the claimant’s insurance broker. In that event it would owe the ordinary duties of an insurance broker and could not separate relevant information held in its lending capacity from information relevant to its broking role. The evidence did not establish that assumption of responsibility. JFFS was the broker, and the Bank’s administrative instructions to arrange temporary cover did not transfer JFFS’s functions or duties to the Bank.
5. Longmore LJ observed that a properly pleaded case based on Mr McInroy arranging the insurance might have been more promising, but the court could not speculate on an unpleaded and unargued case.
6. The court considered the late amendment unclear and liable to raise a new case without adequate notice and with prejudice to the Bank. If it had supported the proposed alternative case, allowing it would have been unfair. The amendment nevertheless provided no independent basis for the result because the judge’s findings did not support it.
7. The judgment under appeal and specified parts of the order of 3 October 2001 were set aside. Judgment was entered for the Bank on the claimant’s action. The Bank’s counterclaim and the order for an account remained in force, with the account referred back to the Master for directions. Permission to cross-appeal was dismissed, and costs orders were made in favour of the Bank subject to the stated assessment provisions.

• Court of Appeal (Civil Division): allowed the Bank’s appeal from Hart J’s order of 3 October 2001, set aside the judgment and specified parts of the order, entered judgment for the Bank on the claimant’s action, and referred the account back to the Master for directions.
• Earlier interlocutory appeal: the Court of Appeal allowed the claimant’s appeal on 8 July 1999 against the striking-out decision, permitting the negligence claim to proceed on the basis that a duty and breach concerning the change of insurers were arguable. The citation is not stated in the judgment.
• High Court, Chancery Division: Hart J found for the claimant after trial and directed an inquiry as to damages and an account of the sum due to the Bank. The citation is not stated in the judgment.