BP Plc v AON Ltd & Anor

A sub-broker may owe a direct duty of care in tort to the principal or insured where its conduct objectively amounts to an undertaking to provide professional services with proper skill and care. A contractual chain does not by itself exclude that duty. The court must consider whether the contractual structure makes such an undertaking inconsistent with the parties’ objective intentions. In a commercial agency or sub-agency relationship, the assumption-of-responsibility analysis is the appropriate primary method. A fiduciary characterisation adds nothing unless the relationship itself involves the relevant assumption of responsibility.

Where an insurance broker negligently fails to obtain cover, the normal measure of damages is the loss which the intended insurance would have covered. Departure from that measure requires proof that the claimant’s later conduct so completely departed from what could reasonably be expected that it caused, or materially contributed to, the loss.

BP claimed damages in tort from Aon London for failing to declare projects to all subscribing underwriters under a global construction all-risks open cover. The cover ran from 31 December 1998 to 30 June 2000. Aon mistakenly believed that declarations to the leading underwriters bound the following market.

Following earlier proceedings, Cresswell J held that a declaration had to be made to each participating insurer within the cover period. BP then settled claims against the following-market insurers. It sought from Aon the shortfall in recoveries and the costs of the earlier litigation.

The issues were whether Aon London owed BP and the other insured parties a duty of care; whether BP’s settlement conduct concerning Upton caused or increased its loss; whether BP was contributorily negligent regarding the Na Kika project; and whether BP should have obtained replacement insurance.

1. Duty of care. Aon London owed BP a duty of care in tort. Its conduct objectively represented that its London office would provide professional broking services, including effective declarations to the London and European following market. The close and repeated direct dealings between BP and Aon London supported an independent undertaking of responsibility.
2. The Service Agreement between BP and Aon Texas did not displace that duty. It was not a contract binding Aon London and did not establish a carefully constructed chain of contracts comparable to the building-contract cases. Its limitation clause did not protect Aon London. Aon London was therefore liable for its own negligent failure to make the necessary declarations.
3. The same duty extended, through BP, to affiliates, co-venturers and contractors for whom cover was requested. Reliance could be conveyed indirectly where Aon London knew that confirmation of cover would be passed to those insured parties.
4. The breach occurred when Aon London failed to declare a notified project to each relevant following-market insurer. The earlier misunderstanding of the Leading Underwriter Endorsement was not itself the breach.
5. Upton. The meeting between Aon and Upton’s underwriter on 29 June 2000 effectively communicated declarations 8, 9, 13 to 18 and 21 to 25, although declarations 5, 12, 14 and 26 were not binding on Upton. BP’s failure to raise the estoppel-by-convention argument did not amount to loss-causing negligence. The argument was uncertain and weak. The later endorsement signed by Upton was vulnerable to challenge for misrepresentation and possibly mistake. The settlement was reasonable and would probably not have been more favourable had those points been raised.
6. Na Kika. BP was not contributorily negligent. Aon had received the instruction in sufficient time, and a further telephone call would probably have produced the same result because Aon still believed that only the leaders needed to be notified.
7. Replacement insurance and damages. The normal measure was the amount recoverable under the cover that Aon should have obtained. Replacement insurance could matter in principle, but only where the claimant’s refusal to obtain it was a complete departure from conduct reasonably expected of a similarly situated insured. BP’s decision to self-insure was commercially reasonable in the circumstances and neither broke causation nor failed to mitigate loss. Damages were therefore based on the sums that would have been recovered from the Frankona Defendants.