In Dunlop Haywards (DHL) Ltd and Others v Barbon Insurance Group Ltd and Others [2009] EWHC 2900 (Comm), the claimant companies brought an action against the defendant insurance broker, in contract and in tort, for failing to exercise reasonable skill and care in obtaining the required excess insurance cover. The insured was a firm of property consultants that required professional indemnity insurance to cover its activities, which included significant property valuation work. It argued that the defendant broker failed to obtain the required excess insurance cover as it “did not include cover for liabilities arising from valuations“, and instead only included coverage for liabilities arising from property management activities.

The defendant broker joined into the proceedings as a third party defendant the broker which placed the excess insurance cover, alleging that it had failed to obtain the required insurance in accordance with its instructions. In addition, the defendant broker took the unusual step of suing the excess insurers claiming the excess of loss insurance should be rectified so as to provide cover for such activities. Normally a claim for rectification is brought by one of the parties to the negotiations not by a third party. This claim was subsequently adopted by the claimant companies.

The claim for rectification was rejected by the court on the basis that it had been the common intention of the parties, namely the excess insurers and the placing broker, on the signing of the slip and on the execution of the policy that the coverage only included liabilities for property management activities. As such, the court found that the claimants were not entitled to the £10 million indemnity under the excess policy.

With respect to the brokers, the court found the defendant broker negligent for failing to obtain valuation cover and the placing broker negligent in placing the cover in the terms obtained. The claimants were awarded £10 million in damages against the brokers, the liability of which was apportioned 80% to the defendant broker and 20% to the placing broker.

This case is a useful reminder of the duties of brokers to their principals, namely to exercise skill, care and diligence in giving effect to clients’ instructions.