Ramco Ltd & Anor v Weller Russell & Laws Insurance Brokers Ltd

A broker must investigate the client’s business and obtain insurance that clearly and indisputably meets the client’s requirements. A bailee may insure goods for their full value, but policy wording may restrict recovery to goods for which the bailee is legally liable. Where that restriction creates a material risk of non-recovery, obtaining such cover may breach the broker’s duty, particularly where wider cover was reasonably available. Damages for the lost insurance recovery should reflect the most probable sum that would have been recovered, with uncertainties caused by the defendant’s wrongdoing resolved generously in the claimant’s favour. A bailee recovering damages in substitution for insurance proceeds remains accountable to the owner for the owner’s share.

Ramco and Resource Industries Limited claimed damages from their insurance broker after stock held for third parties was destroyed by fire and underwriters rejected most of Resource Industries’ claim. The policy covered stock owned by the insured or held in trust for which the insured was responsible. The underwriters’ construction, upheld on a preliminary issue by Andrew Smith J and maintained by the Court of Appeal subject to a concession, required legal liability to the owner.

The claimants alleged that the broker should have obtained cover on goods without that liability restriction. The principal issues were whether the broker was in breach, how damages should reflect the lost insurance recovery, the claimants’ accounting obligations to the true owner, and whether an amendment concerning causation or mitigation should be allowed.

1. Duty and breach. The broker owed contractual and tortious duties to exercise reasonable care and skill, investigate the nature of the clients’ business and obtain cover that clearly and indisputably met their requirements. The policy wording restricted cover for goods held by the insured to goods for which the insured was legally responsible. That created a material risk that Resource Industries would recover nothing for goods held under an agreement imposing no liability for accidental loss. A policy covering the goods without that restriction was reasonably available. The broker therefore breached his duty by obtaining the restrictive wording.

2. Accounting and loss. The right of a bailee to recover the full value of goods, subject to accounting to the bailor, applies in substance where damages against a negligent broker replace the insurance proceeds. Resource Industries would therefore account to the true owner for the proportion referable to the owner’s interest, so recovery of the full value would not over-compensate it.

3. The court considered that Resource Industries was a buyer in possession and had an insurable interest in the goods, as did the seller. Their agreement indicated equal interests, subject to any more favourable agreed division for particular sales. This alternative issue did not require determination because full-value recovery was already available on the primary analysis.

4. Quantum. The task was to assess the most probable sum that would have been recovered from underwriters, rather than determine an abstract market value. The court assessed the likely negotiated recovery at £850,000. The uncertainty had been created by the broker’s wrongdoing, so the claimant was entitled to a generous but realistic assessment.

5. Other losses and amendment. The agreed and reasonably incurred costs of the underwriters’ proceedings, including the petition for leave to appeal, were recoverable. An amendment alleging that Resource Industries should have continued the underwriters’ proceedings was refused at the end of the six-day trial. The need for further evidence and the importance of finality outweighed the speculative benefit of reopening the case.

6. Judgment was entered for Ramco for £7,500 and for Resource Industries for £989,140.77.

The judgment describes earlier proceedings against the underwriters, including a preliminary ruling by Andrew Smith J and an appeal by Resource Industries to the Court of Appeal. Those proceedings were separate from the present claim against the broker.