Ocean Finance & Mortgages Ltd & Anor v Oval Insurance Broking Ltd

An insurance broker must assess the information available in the context of the insured’s business and policy wording. Where there is a real possibility, rather than merely a remote risk, of numerous claims arising from a common systemic problem, the broker must consider and recommend notification of those circumstances to the current policy year, subject to appropriate legal advice. Practical difficulties, possible insurer resistance and the risk of non-renewal do not remove that duty. A placing broker may be liable even where the producing broker supplied incomplete or understated information, if the placing broker should have recognised the wider risk from the information available. Liability is apportioned according to comparative responsibility.

Ocean Finance & Mortgages Limited and Ocean Money Limited sold payment protection insurance and were insured under primary and excess professional indemnity policies. They alleged that Oval, their producing broker, should have advised a block notification of all relevant PPI sales during the 2008/09 policy year. Oval settled the claim and pursued a contribution claim against Senior Wright Indemnity Limited, the placing broker.

The issue was whether SWIL had sufficient actual or constructive knowledge to require it to recommend a wider notification before expiry of the policy year, and whether the practical difficulties surrounding such notification excused its failure to do so.

1. Duty of the placing broker. SWIL owed Oval contractual and tortious duties arising from its role and from taking responsibility for making a limited notification. A placing broker must review information supplied by the producing broker in the context of renewal and consider whether notification of circumstances is required to preserve effective cover.
2. Threshold for notification. The relevant policy wording created a low threshold. Notification was required where there was a real possibility of a claim, as distinct from a remote risk. The repeated adverse complaints, the use of common sales scripts, the recognised common cause and the regulatory proposals together indicated a real risk of systemic defects and numerous future claims.
3. Constructive knowledge. Although Oval had been given more detailed information than SWIL, SWIL knew or should have known enough. Its personnel knew of the 37 adverse FOS decisions, the scripted sales process, the number of PPI sales, the regulatory consultation and the possibility of an endemic or single-cause problem. A competent broker should have familiarised itself with the consultation paper or sought guidance and should have recommended consideration of a block notification.
4. Practical objections. The risk that notification might be rejected, affect renewal or require legal and parent-company involvement did not justify failing to recommend it. There was sufficient time to obtain an extension, take legal advice, conduct a short script-mapping exercise and make the notification.
5. Causation and apportionment. Both brokers were at fault. Oval had greater knowledge of the extent of the systemic defects, but SWIL’s failure to identify and advise on the wider notification materially contributed to the loss. SWIL was responsible for 30 per cent and Oval for 70 per cent.
6. The settlement was reasonable when assessed globally. SWIL was liable for 30 per cent of the £2.55 million settlement, 30 per cent of Oval’s costs of defending the main claim, assessed on the indemnity basis if not agreed, and the corresponding proportion of the indemnity provided to OFML.