Ignorance is not bliss: playing dumb will not win professional negligence cases against brokers

In Avondale Exhibitions Limited v Arthur J Gallagher Insurance Brokers Limited [2018] EWHC 1311 (QB) the Court dismissed a professional negligence claim against an insurance broker.

The Claimant, Avondale, manufactured and erected exhibition stands. Following a fire at its premises Avondale’s insurers, QBE, avoided the insurance policies between 2010 and 2013 for the failure to disclose the Claimant’s criminal convictions.

Avondale brought a professional negligence claim against its insurance broker in respect of the broker’s alleged failure to disclose to the insurer Avondale’s two criminal convictions and, in the alternative, to make oral inquiries about Avondale’s criminal convictions or to advise orally about its duty of disclosure.

It was common ground between the parties that QBE was entitled to avoid the policies on the grounds of material non-disclosure.

The broker’s duty to advise

Avondale’s primary case failed because the Judge found, as a matter of fact, that its director had not told the broker about his convictions. This was evidenced by the fact that there were numerous proposal forms and statements of fact which stated that the directors had no convictions and which the director had signed.

Avondale’s secondary case fell for greater consideration and in respect of which the relevant questions were whether the broker was under any obligation to make oral inquiries in respect of convictions, or to give oral advice about disclosure requirements. In considering this point the Court applied key authorities, including the decisions of Jones v Environcom Limited [2010] EWHC 759 (Comm) and Synergy Health v CGU Insurance Plc [2010] EWHC 2583 (Comm), adopting the obiter statements of David Steel J and Flaux J respectively as to the scope of an insurance broker’s duties.

The Judge found in respect of both that there is no general obligation or rule to give oral advice in every case and that the answer depended on the specific facts of the case.

Avondale argued that specific oral communications regarding disclosure were required. The first argument was that Avondale was not a sophisticated user of insurance and thus greater explanation and more diligent inquiries were required; an argument often levied against brokers in negligence claims. The Judge did not agree with this, and found instead that while the director in question “did not give the impression of peculiar intelligence or education…that there was nothing to suggest that he was not as savvy as an ordinary business man”. The Judge found Avondale’s argument particularly hard to accept given that the documents provided to it repeatedly mentioned convictions which made it “entirely obvious that they were properly to be disclosed”.

The second argument Avondale raised was that the sheer volume and complexity of the documentation provided by the broker meant that the salient details regarding Avondale’s disclosure obligations were not clear. The Judge did not agree with this either. Instead he found that in this case “the material paperwork was both limited in amount and clearly highlighted”.

Expert Evidence

The Judge also noted that Avondale had failed to adduce any expert insurance broking evidence to support its case on breach of duty. The Judge confirmed that the extent of a professional’s legal duty and the standard of skill and care required is a question to be determined by the court by reference to the profession concerned. While noting that members of a given profession are uniquely placed to advise the court on what the proper standard is, he acknowledged that there was no precedent requiring expert evidence in every case. However, he stated that it would be a rare for a court to find that a professional has fallen short of the required standard in the absence of such evidence. Such cases are likely to be limited to those in which the practice or conduct complained of has no rational basis, or is so obviously unsupportable as to require no such evidence for it to be found negligent. Avondale had failed to adduce any expert evidence to support its case on breach of duty which the Judge found to be “striking and significant”.

Commentary

This case highlights that, contrary to suggestions in earlier case law, standard form written documents may well be sufficient to discharge a broker’s duty to advise in respect of disclosure. Consequently any insured bringing a claim for professional negligence should be wary of using stock arguments, such as those outlined above, in support of their claims. In all cases such arguments will be scrutinised by the courts against the specific factual circumstances.

It also demonstrates the importance of adducing expert evidence in appropriate professional negligence cases. In this case the court made it clear that without such evidence it was unlikely to make findings that a professional has fallen below the required standard, other than in circumstances where the alleged negligence is irrefutable.

However, this contrasts with Leggatt J’s observations in Involnert Management Inc v Aprilgrange Ltd & Ors [2015] EWHC 2225 (Comm) who questioned the usefulness of expert evidence in broker’s negligence actions tried in the Commercial Court. My own experience with similar cases in the Commercial Court is that certain Judges are willing, at the Case Management Conference, to suggest and order, that there be no expert broking evidence, the judges being perfectly capable of deciding, on the facts, whether or not a broker’s actions amount to negligence. It is unlikely, however, that this potentially cost saving approach will be adopted in future cases.

At Edwin Coe we deal with numerous professional negligence claims against brokers and are uniquely placed to provide specialist advice in all such claims. For further information regarding this topic or any other insurance matters please contact Nicola Maher, Partner or any member of the Edwin Coe Insurance Litigation team.

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