The Commercial Court has dismissed a multi-million negligence claim against an insurance broker. The judge decided that a broker has no duty to challenge a client’s instructions if it has no reason to doubt the accuracy of the information provided.
The case underlines the importance of brokers keeping accurate records to be able to show that they have given good advice if they are accused of negligence by a client.Eurokey Recycling sued Giles Insurance Brokers after it suffered a fire at its premises and only recovered a fraction of its losses from its insurance policy.
Turnover and profit at Eurokey had grown massively in recent years. In 2010, when the fire occurred, its directors were predicting a turnover of £25m and gross profits of up to £8m.
After the fire, Eurokey’s insurers threatened to avoid the policy due to underinsurance. Turnover had been declared at just £11m and the value of stock and machinery in the burnt-out premises had also been under-stated. Eurokey accepted a once-only offer of £1.5m to settle the claim.
Eurokey sued Giles for £17m, alleging that Giles had given the insurer wrong information when it renewed its commercial combined policy. It also said that Giles had failed to adequately explain the policy and the level of cover.
The judge, Mr Justice Blair, dismissed the claim in its entirety. He said that Giles had acted upon the instructions given by Eurokey, had provided proper explanation of the insurance policy and had no reason to doubt the figures which Eurokey had provided. The judge also said he was satisfied that the turnover and business interruption figures had been provided to Giles by Eurokey’s commercial director.
“Giles was able to defend itself as it had good records of the advice it had provided to Eurokey,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “It was able to prove that it had no reason to doubt the accuracy of the financial information provided by Eurokey’s Commercial Director. Without this documentation, the outcome could have been very different and demonstrates the importance of all insurance brokers keeping accurate records of their advice to clients.”