“simply telling a client, here is the insurance policy documentation; be sure to read it and check it meets your requirements is not good enough” according to the Royal Court in Jersey, which awarded £528,500 to a café owner against its insurance broker which failed to properly explain a warranty in the insurance policy.
The case also highlighted the dangers of brokers using automated quote engines to generate insurance quotes for clients.
The case followed a fire at Café de Lecq in Jersey, caused by an overheating deep fat fryer. Insurer Axa rejected the insurance claim as the café was in breach of a warranty stipulating that the fryer be fitted with a thermostat with an automatic cut out in the event of overheating.
The café successfully sued its insurance broker, RA Rossborough, for loss of cover by failing to make it aware of the requirements of the warranty and the consequences of non-compliance. Rossborough’s defence, that the person they dealt with was an experienced insurance buyer and that it had made it clear in its correspondence that he had to read the policy document, was rejected by the court. The case highlights the importance of brokers fully explaining the extent of cover and any warranties to their clients if they are to avoid the risk of being sued for negligence if the policy fails to respond to a claim.
The Royal Court also highlighted the risk to brokers of relying on automated quote engines. AXA had installed software on Rossborough’s computer system which enabled it to generate a quote without referring back to the insurer. The broker simply had to populate the quote engine with details obtained from the client about the level of cover required in order to generate a quote and to print off the insurance documents. The system contained default settings which meant the information generated by the system could be completely wrong if the client failed to spot the mistakes, putting cover at risk. The system transferred “responsibility for getting things right to the client, thereby draining the broker’s role of much of its raison d’être,” argued the judge.
“Many brokers are using automated systems to speed the insurance buying process for themselves and their clients and under pressure from insurers to utilise these transactional channels.” said James Burgoyne, Director, Brunel Professional Risks. “This case may call into question the viability of such systems if unacceptable exposures remain with the broker, due to the Court’s reluctance to acknowledge a more limited scope of duty of the broker to its clients in such situations. Brokers need to make absolutely sure that they have effective procedures in place to ensure to ensure that the right cover is in place and warranties have been properly explained.”