Uninsurable risk means fire claim was defendable

Jones v Environcom and others

(Queen's Bench Division — 15 April 2010)

The defendants operated an electrical goods waste recycling facility. The process involved the use of plasma guns at high temperatures as well as recurrent ignitions of insulation.

They claimed on their property insurance following a fire. Insurers sought to avoid the policy on grounds of material non-disclosure of the process and previous fires. They commenced proceedings for declaratory relief.

The defendants joined their broker, MS PLC, trading as Miles Smith Insurance Brokers, as a third party. They alleged that, had there been proper disclosure, there was a realistic prospect of obtaining cover and they were entitled to recover for this loss of chance. Only the claim against the broker proceeded to trial.

The court held that the broker failed to ensure that the defendants understood the need for disclosure of information to insurers which required a specific oral or written exchange, both when the original policy was provided and at renewal.

However the defendants failed to prove that, had full disclosure been made, they would have obtained renewal terms from their existing or alternative insurers.

Furthermore, the defendants would not have proposed the fire risk improvements they asserted they would have offered. Even if offered, no insurer would have advanced terms. Even if they had, the prospect of the defendants accepting such terms was too remote. In any event, the cover would have been impeachable as they were operating in breach of their waste management licence.

It was not the broker's responsibility to advise about fire prevention. The fire was attributable to the defendant's failure to identify and enforce appropriate fire precautions by changing their process, without which the process was effectively uninsurable.

COMMENT

While a broker must ensure its client understands the importance of disclosure, this decision reaffirms the limitations on the scope of their duty of care. They will not be liable for failing to prevent the very peril that a policy is designed to insure against. The decision also confirms it is possible to defend a claim on the basis that the risk upon which the action is based was effectively uninsurable. Sarah Elderton, BLM Manchester

The following law report contributed by specialist insurance practice Berrymans Lace Mawer (www.blm-law.com) first appeared in Post Magazine on24 June 2010.

Disclaimer: The law report contains information of general interest about current legal issues, it does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. Specialist legal advice should always be sought in any particular case.