An insurance broker who failed to set up a professional indemnity insurance policy for his client has escaped paying damages as no loss was suffered by his client.

Rodney Channon was a chartered accountant and also a director of a property investment company.  He arranged for his insurance broker, Mr Ward, to set up a professional indemnity insurance policy to cover his work as an accountant.

While working in his capacity as a property developer, Mr Channon persuaded a number of backers, some of whom were also clients of his accountancy practice, to invest £1m in a property venture.

The development failed and in an attempt to recover their losses, the investors sued Mr Channon for damages as an accountant, hoping to benefit from his professional indemnity cover.  They alleged that Mr Channon had given them negligent investment advice about the development.  When Channon attempted to notify his professional indemnity insurers about the claim, he discovered that Mr Ward had not set up the policy in the first place.

Channon sued Ward for negligence over the non-existent insurance policy.  At the same time he defended himself against the claims of the property investors, claiming that he had been acting at all times as a director of the property development business and not as an accountant.  He argued that the investors had manufactured their claims in an attempt to cash in on his accountant’s professional indemnity cover.

Mr Channon was successful in his case against his insurance broker, but the judge set the damages at nil as no loss had been suffered. The judge concluded that as Mr Channon had not been acting as a chartered accountant in the property case, his accountant’s PI policy would not have paid out, even if it had existed.

It is hard to think of a more clear cut case of professional negligence than a broker who fails to set up an insurance policy when instructed to do so,” said James Burgoyne, Director – Claims & Technical, Brunel Professions.  “However, this case underlines the fact that a loss must be causally connected to the negligence if damages are to be paid.”

Reports on the case have been published by law firms Clyde&Co, Bond Dickinson and DWF

Brunel secures competitive professional indemnity insurance cover for insurance brokers.  To find out more call John Stagg on 0117 325 2224.