Infinity Reliance Limited v Heath Crawford Limited

A broker must use reasonable skill and care to understand the client’s business and insurance needs, recommend cover that reasonably matches identified risks, and explain material differences between available policies. The broker must enable an informed choice, including on renewal where circumstances have changed. A client’s stated preference for particular cover does not excuse the broker from ensuring that the preference is informed. A broker must also pursue obvious questions needed to identify material coverage gaps. Where both broker negligence and claimant carelessness cause loss, damages may be reduced under the Law Reform (Contributory Negligence) Act 1945 according to what is just and equitable.

The claimant, an online retailer, claimed damages from its insurance broker after a fire at a logistics warehouse caused business interruption and substantial expenditure on alternative premises. The claimant’s policy was underinsured, and the insurer applied average to reduce the settlement.

The broker admitted that it had supplied misleading guidance on calculating the business interruption sum insured. The issues included whether it should also have recommended declaration linked cover, whether it should have investigated insurance for alternative-premises fit-out costs, whether those breaches caused loss, and whether the claimant was contributorily negligent in calculating the sum insured.

1. Claim succeeded in part. Judgment was entered for the claimant in the sum of £2,336,842.
2. The broker breached its duty by supplying generic guidance which misstated the policy’s definition of insured profit and by failing to recommend declaration linked cover. The claimant would probably have been fully insured if either breach had been avoided.
3. The broker also breached its duty by failing to ask how the claimant would cope if the critical warehouse became unavailable. A reasonable broker needed to pursue that obvious risk through an informed dialogue. The inquiry would probably have led to suitable additional increased costs of working cover. However, the claimant failed to prove measurable additional loss from that breach beyond the loss already compensated.
4. The broker’s duty is fact-sensitive. It must take reasonable steps to understand the client’s business and explain the key terms, advantages and disadvantages of available cover. It need not conduct a detailed investigation or act as a detective, but it must follow up obvious gaps or uncertainties.
5. The claimant was contributorily negligent. It used an arbitrary example growth rate rather than making a reasonable forecast, despite being warned that an insufficient sum insured could cause average to apply. Under section 1 of the Law Reform (Contributory Negligence) Act 1945, responsibility was apportioned by reference to fault, causation and the parties’ relative responsibility. Damages were reduced by 20 per cent.
6. The claimant’s alternative property-insurance case was too speculative because the evidence did not establish what such bespoke cover would have covered or how indemnity would have been calculated.