Following on from our alerts regarding the availability of business interruption insurance for losses suffered as a result of the Covid-19 pandemic, there are very clear implications and risks for insurance brokers who may not have taken appropriate steps to obtain suitable cover for their clients.
The outbreak of the Covid-19 pandemic has caused many businesses to look to their insurance policies in the hope or expectation that they may be able to recover some of their losses from their insurers. For many, the chances of a recovery are low but disappointed businesses may be able to make a recovery in negligence against their insurance broker if the policy placed on their behalf did not cover them for Covid-19 related losses. The duties of insurance brokers to meet their clients’ insurance demands and needs are likely to be brought under close scrutiny.
Establishing a claim
A broker’s core duty is to understand their client’s business and to obtain suitable cover. A broker has a duty to ascertain their client’s insurance needs by taking instructions and considering information regarding the client’s business. In certain circumstances, a broker is required to advise upon the scope and type of cover available to meet the client’s needs.
The extent of the broker’s duty will be fact specific and will depend upon the terms of the contract between the broker and the client, the nature of the client’s business and the nature of the client’s instructions. The contract will likely set out whether the broker was instructed to undertake a purely advisory role in arranging cover and/or whether the broker was instructed to provide an opinion on the appropriate scope of cover. It is implicit in any instruction that the broker will have been required to use reasonable care and skill. In each case the facts will need to be examined to explore whether the broker was instructed to obtain a level of cover which should have included cover against pandemics.
If a business is able to demonstrate that the broker owed it a duty to obtain (or at least to advise the business to obtain) cover against pandemics, then it ought to be possible to establish that there was a breach of that duty by the broker if cover is not available. However, if the broker’s duty was somewhat vaguer than that – for example a duty to advise the business on cover which it should consider obtaining – then it will be more difficult to establish breach of duty against the broker as questions will need to be addressed as to whether pandemic insurance cover fell within the scope of the broker’s duty.
A further hurdle to overcome when pursuing a claim against an insurance broker is that in addition to establishing that there has been a breach of duty, it is also necessary to demonstrate that had it not been for the broker’s breach, the business would have taken out insurance which would have included pandemic cover. This will include an examination as to whether the business would in fact have paid for cover at that level given that the premium could have been prohibitively expensive. It will also be necessary to demonstrate that the insurance was available in the market at the time that the broker advised. As has become apparent, very few business interruption policies have responded to claims arising from the Covid-19 pandemic and it will be difficult for potential claimants to establish that the broker was under a duty to obtain bespoke cover. This may not however be the case for brokers who reviewed or placed policies from January 2020 when Covid-19 became a known threat.
Claimants who can overcome these hurdles may have valuable claims against their insurance brokers. Losses will generally equate to the sums that should have been paid out if appropriate insurance cover had been in place.
Brokers will undoubtedly now be discussing the impact which Covid-19 is having upon their client’s businesses and the extent to which insurance is available to protect against future outbreaks of communicable diseases. Businesses should request that their brokers give consideration to the events which might require cover and advice upon the appropriate level of cover which they require.
If you have any queries, please contact our Dispute Resolution team on 01228 552600 or 01524 548494.