Duty calls for broker

HIH Casualty and General Insurance v JLT Risk Solutions (formerly Lloyd Thompson) (Court of Appeal - 12 July 2007)

In 1997, JLT Risk Solutions placed three film finance insurance policies with insurers HIH Casualty and General Insurance, and arranged back-to-back reinsurance cover with various reinsurers. The purpose of the original policies was to meet any shortfall in projected revenue from the making of a specified number of films covered by the policies.

After placement, JLT learnt from a series of management reports from film producers that less than the projected number of films were being produced. It was an express term of the insurance and reinsurance that a minimum number of films were to be made. JLT passed copies of the reports to HIH but did not draw HIH's attention to the potential coverage implications of the reduction in the number of films.

When fewer films were produced and the returns fell considerably below the projected revenues, HIH failed in its reinsurance claim as it was held that the reduction in the number of films was a breach of warranty.

HIH then brought proceedings against JLT for failing to alert it to coverage issues arising from the making of fewer films.

The Court of Appeal found that JLT owed a post-placement duty to HIH beyond acting as a "postbox" and that JLT ought to have ensured that HIH was sufficiently aware of the potential coverage concern. Although the court went to hold that JLT's breach of duty did not cause the loss (as HIH had not shown that the reinsurers would have agreed to cover the risk had they known of the reduction in the number of films) this did not detract from the existence of a duty of care in such circumstances.

COMMENT

It should be noted the court's finding that a broker may owe a duty to an insured to monitor and consider the information they receive post-placement. Alexander Traill, BLM London.

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