Mr Russell, of the Defendant Company, obtained insurance cover for RIL in relation to the relevant period. After discussing RIL’s requirements with its director, Mr Russell obtained an All Risks policy which covered “…the property of the Insured or held by the Insured in trust for which the Insured is responsible.”
On 16 May 2001 a fire broke out at RIL’s premises and the Stock was destroyed. RIL made a claim on its insurance which was rejected by the insurer. That rejection was ultimately upheld by the Court of Appeal on the basis that the words “which the Insured is responsible” meant that, in order to recover under the insurance, the insured must be “legally liable” for the Stock.
David Donaldson QC held that Mr Russell was under a duty to obtain insurance cover which clearly and indisputably met RIL’s requirements and should, if reasonably possible, protect his client from having to enter into a legal dispute regarding its insurance cover. Donaldson QC found that at the time Mr Russell procured the relevant insurance he was aware of the basis on which RIL held the Stock. Mr Donaldson QC also stated that had he sought to do so, Mr Russell could have obtained suitable cover on behalf of RIL probably without even requiring a higher premium. Mr Donaldson QC therefore held that Mr Russell was in breach of his duty to RIL. As a result, the Defendant was ordered to pay to RIL the cost of its actions against the Insurer (i.e. RIL’s legal fees) and the value of the Stock.
This decision follows the established decisions in Talbot Underwriting v Nausch Hogan [2006] 2 Lloyd’s Rep 195 regarding a broker’s duty and North British and Mercantile Insurance Company v Moffatt (1871) LR7 CP25 regarding the meaning of “responsible” in this context. As a result of these authorities, brokers must be vigilant in ensuring that the cover they obtain for their clients meets each client’s requirements.