Eurokey Recycling Ltd v Giles Insurance Brokers Ltd

An insurance broker arranging business interruption cover need not calculate the sum insured or select the maximum indemnity period for a commercial client. The broker must, however, take reasonable steps to understand the client’s business and insurance needs and explain the relevant concepts sufficiently to enable the client to make informed decisions. The extent of that duty depends on the circumstances, including the client’s sophistication and the parties’ previous dealings. A broker may generally rely on information supplied by a well-informed client unless there is reason to doubt its accuracy. Where the client gives express instructions, the broker must exercise reasonable care to follow them. The claim failed because adequate advice had been given, the disputed figures came from the client, and alternative insurance could have been obtained in any event.

Eurokey Recycling Ltd claimed damages from its former insurance brokers, Giles Insurance Brokers Ltd, after a fire at its premises. Eurokey alleged that Giles negligently arranged inadequate business interruption, machinery and stock cover and failed to advise on the appropriate sums insured and indemnity period. Giles disputed breach and causation, relying on instructions and information supplied by Eurokey.

The trial concerned liability only. The central issues were whether Giles had adequately explained business interruption cover, whether it was entitled to rely on the figures provided by Eurokey, whether the alleged breaches caused loss, and whether Eurokey would have obtained the cover it claimed.

1. Business interruption duties. A broker is not expected to calculate the business interruption sum insured or choose the maximum indemnity period. The broker must give sufficient explanation to enable the client to do so, including explaining estimated gross profits, the maximum indemnity period and the relevant considerations in selecting it.
2. The broker must take reasonable steps to ascertain the nature of the client’s business and its insurance needs. The scope of that obligation depends on the circumstances, including the client’s sophistication and the number of previous meetings. The availability of an enhanced service for an additional fee does not diminish the ordinary duties of a broker undertaking this work. An SME’s commercial status does not justify assuming that it understands business interruption insurance.
3. The duty is to take reasonable steps to ensure that the client understands the insurance definition of gross profit. The broker need not conduct a detailed investigation. Where a client appears well informed and supplies information, verification is unnecessary unless there is reason to doubt its accuracy. Once the broker has complied with these obligations, express instructions as to cover must be followed with reasonable care.
4. On the facts, Mr Evans had adequately explained the business interruption cover in 2009 and 2010. The £2.5m business interruption figure and the £11m turnover figure came from Mr Bisland, and Giles had no reason to go behind them. The 12-month indemnity period reflected Eurokey’s instructions and its belief that it could resume trading quickly.
5. Sending the draft accounts after inception did not impose a duty on Giles to read them. Giles was acting as a conduit to the premium finance provider and had no reason to believe that the accounts contained information materially affecting the cover. HIH Casualty & General Insurance Ltd v JLT Risk Solutions Ltd was distinguishable on its facts.
6. The causation arguments failed. The stock and machinery discrepancies would not alone have produced the insurers’ settlement position, and suitable alternative business interruption cover could and would have been obtained. The claim was dismissed. The proposed contributory negligence reduction was therefore unnecessary, although the judge stated that it would have been assessed at 50% had liability been established.