News

Fri, 23 Apr 2010

"Duty to disclose" – brokers beware

A recent case, Jones v Environcom, is a salutary reminder to all brokers of the fairly high duty to fully advise clients of the need to disclose all material facts.

The client operated in a high risk environment, recycling waste electrical goods, which involved the use of plasma guns at high temperature. Suprise suprise, there was a history of fires at the client premises.

The relevant insurer had not wanted to renew for the final year but did so, albeit on different terms.

Further fires, including one final serious one, occurred at the client premises.

After the final fire, the client claimed under the policy.

The insurer successfully avoided the policy on the grounds that the none of the facts that plasma guns were in use, that these had caused reoccurring ignition of insulation and that there had been a fire a few months before the final renewal had been disclosed at that renewal.

The client then turned their fire (excuse the pun) on the brokers, alleging breach of professional duty.

Now whilst the court was of the view that the client was wrong in alleging that the broker had a duty to ask about specifics such as the use of the plasma guns and hazardous processes, the court was satisfied that the broker could and should have asked if there had been any outbreaks of fire as these were material matters. Had they asked, the hazardous processes would have become clear.

This isn’t groundbreaking stuff. But the important principle to be derived from the case is that the broker had to satisfy itself that the client understood the need for disclosure of material facts. In the ordinary course of events this should be the subject of oral or better still written exchanges. This is so at inception and renewal.

Furthermore, if the broker has given an inadequate explanation of the duty to the client, then a higher standard of care would be imposed on the broker in gathering material information from the client for the disclosure process .

Disclosure is a key process or stage in insurance reflected in the level of the duty placed upon the professional broker.