In Nicholas G Jones v (1) Environcom Limited; (2) Environcom England Limited and MS Plc [2010] EWHC 759 (Comm), the High Court ruled that an insurance broker must satisfy himself that the duty of disclosure is fully understood by the client. It was insufficient for an insurance broker to rely on written standard form explanations which had been provided to the insured.

The insured, Environcom, had claimed under its insurance policy following a fire at the insured’s recycling plant in 2007. This was not the first fire to have taken place at the insured’s premises and previous fires had not been disclosed to the insurer. The claim was declined by the insurer, due to material non-disclosure.

The insured had signed and reviewed several standard form warnings and explanations which made reference to the duty of disclosure. Notwithstanding this, the Court held that the broker who had arranged the policy should have gone further to explain the duty of disclosure which the insured was bound by. The Court ruled that the broker’s obligation to explain could be satisfied where there had been a specific oral or written exchange on the topic, both at the time of the original placement and any subsequent renewals.

The insurance broker must provide an explanation of the type of facts which are material in nature and therefore ought to be disclosed by the insured. On the facts, this was deemed to include potential fire risks or past fires which had occurred at the premises. The broker must also take reasonable care to elicit material facts which ought to be disclosed. Here, the broker had asked no questions relating to fire risks or past fires, which, had they been posed, would have led to adequate disclosure.

The Court noted that those seeking insurance were under an unusual obligation for a contracting party, as non-disclosure of material facts could potentially lead to harsh consequences. For this reason, it is particularly important that they are given full information on the nature of the duty to disclose.