The legal framework
Since 15 January 2005 insurance brokerage has been a regulated activity. Insurance intermediaries are also subject to the Insurance Conduct of Business Sourcebook which sets out minimum standards for advice and selling.
The content of the duties upon the broker have been altered substantially in the consumer context by the Consumer Insurance (Disclosure and Regulations) Act 2012 which came into force on 6th May 2013.
The majority of claims against brokers are where it is alleged that the claimant ended up with cover which was either not adequate or of the wrong type or where they cannot make a claim under the policy. Typical claims often involve:
The extent of the broker’s duty will depend on the nature of the instructions provided. The more specific the instructions, the narrower the duty; e.g. if the broker is instructed to obtain cover of a specific description, then the duty will be confined to the exercise of reasonable care to obtain that cover and inform the client as to whether such cover has been obtained. Where a client gives clear instructions regarding the insurance to be procured, the broker will not be under a duty to advise the client to obtain more extensive cover unless he has agreed to provide such advice.
However, in every case the broker will be expected to elicit relevant information that might not be volunteered. A broker is not expected to value the property or interest himself, although he is expected to advise the client as to what that sum should represent. The broker should also advise as to the consequences of under insurance particularly where averaging applies.
If a broker fails to make a material disclosure, even one of which the insured is unaware, the insurer will have the right to avoid the policy. Subject to questions of causation, if the insurer avoids the policy and the broker knew of the facts in question, the broker will be liable in damages to the insured for the consequential losses.
The broker should advise his client of the duty to disclosure all circumstances material to the insurance and the consequences of failing to do so. The broker is under a duty to take reasonable care to elicit material information which the client did not think to mention. Save in respect of matters, about which the broker may be expected to have greater knowledge, e.g. claims history, the broker’s duty is confined to accurately setting out the answers given by the client to questions put to him by the broker.
The broker’s responsibilities do not end once cover is obtained. Often the insured will notify his broker in the event of an insured loss arising. In such cases the broker will be under a duty to take care to notify the correct insurer within an applicable time limit and comply with or advise the insured to comply with any conditions as to the provision of information in respect of the claim. This will involve obtaining sufficient information from the insured in order to provide the insurer with the requisite information and/or the client with the requisite advice.
If you feel that you have been let down by an insurance broker and want to discuss the possibility of a claim then we would be happy to advise you. Call a member of the team on 01274 306 000.