Broker's duty to explain underlined terms

Arbory Group instructed West Craven Insurance Services to arrange insurance against business interruption for their subsidiary companies. In the proposal form, AGL calculated its gross profit in accordance with normal accounting methods. WCIS failed to advise AGL of the appropriate method to calculate gross profit and, consequently, AGL was underinsured when a fire disrupted one of its subsidiary companies.

WCIS conceded breach of duty but argued that AGL could not bring a claim, as the damage was suffered by a subsidiary company; a claim for loss of profits should fail as it was a claim for late payment of damages; and AGL was contributory negligent for not reading the notes accompanying the form.

It was held that AGL, as the parent company, could bring the claim as it was clear to the broker that it was arranging insurance for all its companies. AGL was awarded loss of profits, as it was reasonably foreseeable that BI would affect profitability and it was not a claim for late payment of damages. Further, there should be no deduction for contributory negligence. Even though a representative of AGL had read the explanatory note detailing the correct gross profit calculation, it should have been explained fully by the broker.