Dalamd Ltd v Butterworth Spengler Commercial Ltd

An insurance broker must take reasonable care to identify the cover a client needs, arrange suitable insurance, explain the cover obtained, and advise on the duty of disclosure. The broker must identify matters which are, or may be, material and make reasonable enquiries to elicit them.

In a negligence claim seeking the value of an insurance indemnity, the court ordinarily determines whether the policy was voidable, or whether another defence would defeat cover, on the law and the balance of probabilities. The loss-of-chance approach applies to questions about what insurers would have done commercially, such as whether they would have altered terms or compromised a defence.

Dalamd brought an assigned claim against its insurance broker after a fire destroyed a waste-recycling facility. It alleged that the broker had failed to disclose the insolvency of the former operating company to Aviva, failed to advise adequately about business-interruption, loss-of-rent and an external-storage condition, and failed to elicit or disclose material matters to XL on renewal of plant and machinery insurance.

The court also considered whether the assignments were effective, whether the policies would have responded, and the appropriate approach to causation and loss of chance.

1. Assignments. The late payment of the initial consideration did not invalidate the assignments. The proviso in the deeds identified the consideration for the assignments rather than creating a condition precedent. Alternatively, it had suspensive effect only until payment, or the assignors had waived strict compliance (paras [70]-[78]).
2. Broker’s duties. The broker owed duties to identify suitable cover, arrange it with reasonable skill and care, explain the cover obtained, and advise and assist the insured regarding material disclosure. The principles stated in Jones v Environcom [2010] Lloyd’s Rep IR 676 were applied (paras [79]-[82]).
3. Butterworth Spengler breached its duty by failing properly to disclose Doumac’s insolvency to Aviva (paras [84]-[90]). It also breached its duty by failing to raise loss-of-rent insurance with Widnes (paras [106]-[108]). On the XL renewal, it should have elicited information about regulatory problems, waste accumulation and previous fires, and disclosed what it knew about the waste accumulation (paras [109]-[123], [166]-[172]).
4. There was no breach concerning the explanation of standalone increased-cost-of-working cover, the external-storage condition, or renewed advice on business-interruption cover after JLS replaced Doumac. In any event, those allegations failed on causation (paras [91]-[105], [155]-[162]).
5. In an action against a broker for loss of an insurance indemnity, whether the policy was voidable, or whether an independent condition or exclusion defeated cover, was ordinarily determined on the balance of probabilities. The loss-of-chance approach applied to insurers’ subsequent commercial decisions, including whether to alter terms, pursue a defence or compromise it. The approach in Fraser v Furman [1967] 1 WLR 898 was accepted; O & R Jewellers v Terry [1999] Lloyd’s Rep IR 436 was not persuasive on the contrary approach (paras [125]-[140]).
6. The Aviva policy would not have provided recoverable cover because of the external-storage breach, for which the broker was not responsible. The loss-of-rent claim also failed because it was unlikely that cover would have been purchased and no indemnifiable loss was shown. XL’s avoidance grounds for which the broker was not responsible did not independently defeat cover. JLS, as bailee, had an insurable interest in the plant and machinery and could recover its full insured value, subject to accounting for the bailor’s interest (paras [141]-[179]).
7. Disposition. The claim succeeded only in relation to the XL policy. Dalamd was awarded £1,600,000 for the plant and machinery; the remainder of the claim failed (paras [180]-[181]).

Not stated in the judgment.