In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for brokers.
Key developments in 2021
COVID related notifications against brokers are still being made.
By far the main brokers E&O case this year was ABN Amro Bank N.V. v Royal & Sun Alliance Insurance Plc and others. In a 200-page judgment delivered in January this year, Mr Justice Jacobs covered just about every insurance law issue, including duties of disclosure, construction of policy terms, avoidance, affirmation, rectification of policy terms and the duties of a broker.
The judgment reaffirmed the harsh regime that exists when assessing a broker's duties to its client. A broker is under an obligation to identify the scope of cover required and to advise its client on that cover, as well as taking reasonable steps to arrange cover and ensure it meets the client's requirements.
It is this last requirement that was under scrutiny in the case. The law places a very high bar on brokers. The case of FNCB v Barnet Devanney (Harrow) Ltd (1999) held that a broker was under a duty to procure cover that "clearly and indisputably meets the client's requirements and thereby does not expose the client to an unnecessary risk of litigation".
For a detailed review of the case, please refer to our previous article. On the facts, the brokers did procure the cover sought by the client. Indeed, on almost all issues, the Bank and the brokers succeeded. However, the judge held that the cover was not clear and indisputable; the meaning of the particular clause in the policy that was the subject of the dispute was only determined after 3 years of hard fought litigation. The brokers (represented by RPC) argued that the clause was drafted by eminent insurance lawyers and was clear. The Underwriters took a spurious point on meaning (along with a host of other spurious points in order to avoid paying the claim. The brokers should not be liable for thoroughly bad points taken by insurers. The judge agreed on the principle but held nevertheless that on the facts, taking into account the factual matrix and the consequences of the construction (i.e. affording credit risk cover under a cargo policy), although Underwriters' arguments "paid little or no regard to the actual wording of the [clause]", the arguments were not spurious.
The brokers would therefore have been liable for any loss suffered by the Bank, including any irrecoverable costs.
The case is important as it reinforces the view that brokers are subject to an especially harsh regime, in many ways harsher than that faced by other professions. In this particular case, given the clear wording of the clause, it is difficult to envisage a situation when insurers would be found to take a "spurious" point such to exonerate brokers.
What to expect in 2022
There will always be claims against brokers. The ABN case is an example of a relatively routine matter that metamorphosis into a major case reviewing current insurance law. In terms of systemic claims, we predict brokers will still be the target of disgruntled policyholders who have had Covid related claims declined.
Download our full Annual Insurance Review 2022 for more insights.