Brokers negligence

Brokers’ negligence cases very often focus on counterfactuals- the “what ifs” in terms of whether effective insurance cover might have been obtained had a broker not (allegedly) been negligent. But how courts should determine the outcome of asserted counterfactuals? Is it necessary to determine whether insurance cover or a claim payment would definitely have happened on a balance of probabilities? Or is it sufficient to simply show that the broker’s conduct had prejudiced the client’s position so there was a loss of chance on the client’s part of getting effective cover. If the latter then the negligent broker is liable to pay damages at least on a percentage discount basis applied, even if the claimant cannot prove on the balance of probabilities that effective cover would have been in place.

In Dalamd Ltd v Butterworth Spengler Commercial Ltd [2018] EWHC 2558 (Comm), Butcher J answered the above question by ruling that the claimant suing the negligent broker did have to prove on the balance of probabilities that it would have had such effective cover in place. However, in Norman Hay plc v Marsh Ltd [2024] EWHC 1039, Picken J revisited these issues and concluded differently.

The claimant, Norman Hay, was a holding company of a group of companies that were world leaders in specialist chemicals. Their employees frequently travelled overseas for business purposes. Norman Hay sued Marsh, its group insurance broker, for failing to arrange worldwide insurance cover for employees who drove abroad, following a serious road traffic claim in the US when a group company employee drove a hire car without taking out insurance. That third party claim was settled for US$5.5m. The settlement sum was paid out of escrow monies held by Norman Hay following the sale of certain subsidiaries. This reduced Norman Hay’s sale monies otherwise receiveable.

Norman Hay alleged Marsh was negligent because, as the group’s broker it failed to ascertain the business need for, and then to arrange, such insurance to cover.

Marsh applied to strike out the claim/be awarded summary judgment including relying on Dalamd. Marsh argued that Norman Hay was required to prove on the balance of probabilities that it would have obtained effective cover, but for various reasons it could not do so.

Dismissing the strike out, the Judge stated that Dalamd should not be treated as authority that the only way in which a claim against an insurance broker can succeed is if the Court is persuaded, on a balance of probabilities that the claimant would have recovered under the putative policy of insurance which, but for the broker’s negligence, the claimant would have had.

The Judge in Dalamd had himself noted that the position might be different where it was claimed that the broker has, in effect, deprived an insured of the opportunity of having its claim under an insurance policy determined by a court. This was indeed the position in Norman Hay since Norman Hay’s claim involved consideration of a counterfactual which entails asking what would have been the position had there been a policy of insurance in place (which there was not).

As such this necessarily involved looking at loss of chance-type aspects: what type of policy would have been obtained; what conditions would that policy have contained; and what was the likely attitude of the putative insurer to being notified by Norman Hay of the auto claim. This further involved a weighing of contingencies which Dalamd did not require because in Dalamd there was an actual insurer and an actual policy of insurance, yet the claim was not pursued against that insurer or policy but instead against the broker. If Norman Hay were successful then it would be entitled to damages, to be arrived at on a loss of chance (and so percentage) basis.

Subject to any further future relevant judicial comment, the decision in Norman Hay provides more available argument in certain brokers negligence cases that a Court is required only to assess the likely value of the claim against the broker on a loss of chance basis that takes into account the prospect of effective cover being procured, Where, as in Dalamd, a claimant chooses not to sue an insurer but to sue the broker instead, or where to make findings in a counterfactual involves consideration of known, past facts, the approach in Dalamd may still need to be followed. But where the counterfactual involves crystal ball gazing as to what a hypothetical insurer in the future might conclude, on future found facts that might be necessary to consider, Norman Hay articulates a strong legal reasoning that a loss of chance approach is the correct approach, not least because it offers an ability for the Courts to sidestep having a “trial within a trial” of hypotheticals, which they do not like doing.

To conclude, this is an important and potentially helpful decision for those who seek to pursue negligence claims against brokers, conversely not so for the brokers and their professional indemnity insurers.