Brokers arranging insurance of property – Property charged to bank as security for loan – Property damaged by fire – Insurer repudiating liability – Bank claiming loss caused by negligence of brokers – Whether brokers negligent in failing to require mortgagee protection clause – Causation – Judge finding brokers not liable – Appeal allowed
In 1989 the defendant insurance brokers arranged on behalf of the claimant bank for the insurance of Totworth Court, Wootten-Under-Edge, Gloucestershire (the property). The property was charged to the bank as security for a loan to the owner of £2m and the policy was effected in the names of the owner and the bank. In January 1991 the property was damaged by fire. In June 1991 the insurers repudiated liability both to the owner and the bank on a number of grounds involving non-disclosure, misrepresentation and breach of conditions by the owner but not the bank. Proceedings instituted in February 1992 by the bank against the insurers were settled in June 1995. The bank subsequently commenced proceedings against the brokers for negligence and breach of contract for failing to arrange proper insurance cover. The bank’s claim was dismissed. It appealed, contending that the judge was wrong to conclude: first, that the brokers had not negligently and in breach of contract failed to arrange for appropriate insurance of the property, and, second, that the loss sustained by the bank had not been caused such negligence or breach of contract.
Held The appeal was allowed.
In failing to require the inclusion of a mortgagee protection clause the brokers had failed to observe the standards of a reasonable broker and breached the contractual and tortious duties or care they owed to the bank. The judge had considered that the reasonable insurance broker in 1989 would have known that, as a matter of law, no breach of condition, misrepresentation or non-disclosure would adversely affect a morgagee’s claim under a composite policy of insurance. Although that was currently the law (see New Hampshire Insurance Co Ltd v MGN Ltd [1997] CRLR 24), that was by no means clear in 1989 and it was not a function of an an insurance company to take a view on undetermined points of law. Mortgagee protection clauses were available on request and at no cost to the insured and there was no evidence of a responsible market practice not to ask for a mortgagee protection clause. Samuel v Dumas [1924] AC 431 and Woolcott v Sun Alliance [1978] 1 WLR 493, considered.
Peter Gross QC and Geraldine Clark (instructed by Stewarts) appeared for the claimant; Roger ter Haar QC and Andrew Phillips (instructed by Hextall Erskine & Co) appeared for the defendants.
Thomas Elliott, barrister
