Jones v Environcom Ltd & Anor

An insurance broker must take reasonable steps to ensure that the policy obtained is suitable for the client’s needs. This includes explaining the duty to disclose material circumstances, its consequences, and the kinds of matters requiring disclosure. The broker must also make reasonable enquiries to elicit arguably material information, particularly where the client has received inadequate guidance. Standard written warnings will not usually suffice without checking that the client understands the obligation. Breach does not establish recoverable loss unless the client proves a realistic prospect of obtaining effective insurance and that the loss was caused by the breach. A claim remains speculative where proper disclosure would probably have made cover unavailable or would have required risk changes which would have prevented the insured loss.

Environcom operated a refrigerator and electrical-waste recycling business. Its insurer avoided cover after a serious fire, alleging non-disclosure of the use of plasma cutters, recurrent small fires and a further fire in March 2007. Environcom settled its dispute with the insurer and pursued Miles Smith, its insurance broker, for negligence, claiming approximately £6 million.

The issues were whether Miles Smith had adequately explained Environcom’s disclosure obligations and made appropriate enquiries, and whether, absent the breach, Environcom had a realistic prospect of obtaining effective insurance and recovering for the September 2007 fire.

1. Miles Smith failed to give adequate advice about the duty to disclose material circumstances and the consequences of non-disclosure. Its written documents were incomplete and confusing, and did not explain what might be material or when disclosure was required. A broker should ordinarily confirm that the client understands the obligation, usually through a specific oral or written exchange at placement and renewal.

2. The broker also had a duty to take reasonable steps to elicit arguably material information. However, the evidence did not establish a duty to ask specifically about plasma cutters. The broker lacked specialist technical knowledge, had undertaken site visits, and could reasonably expect the client to identify detailed processes. Questions about heat or hazardous processes would probably not have revealed the intermittent use of plasma cutters.

3. Proper advice and enquiries would probably have revealed the recurrent small fires, their association with plasma cutters, and the March 2007 fire. Those matters were material to the risk. The use of plasma cutters alone would probably have remained undisclosed because Environcom regarded it as an incidental and non-hazardous detail.

4. Applying the loss-of-chance approach in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, Environcom failed to show a realistic prospect of obtaining cover. Woodbrook had already refused renewal because of the claims history, and further disclosure would have made renewal still less likely. There was no realistic prospect that Environcom would have proposed, implemented and timely presented the suggested risk improvements, or that another insurer would have offered acceptable cover.

5. Even if cover had been available, Environcom’s operations breached its Waste Management Licence because pentane refrigerators were being recycled although the licence restricted recycling to refrigerators containing CFCs, HCFC or HFC. That breach was itself probably material and rendered any policy vulnerable to avoidance.

6. Further, on the assumed risk-improvement case, cessation of plasma cutting and pentane processing would probably have prevented the September fire. The claimed fire loss therefore was not caused by the broker’s breach and was not, in any event, recoverable as a loss within the scope of the retainer, applying The Achilleas [2009] 1 AC 61 and traditional remoteness principles. The claim was dismissed.

First-instance decision in the High Court (Commercial Court). The judgment does not state any subsequent appellate history.