Brokers may be found liable for an assured’s losses if they fail to pass on concerns raised by the insurer to their clients, according to a recent Commercial Court case.

In Ground Gilbey Ltd v Jardine Lloyd Thompson UK Ltd [2011] EWHC 124 (Comm), it was held that the imposition of a risk improvement measure by the insurer should have been brought to the attention of the assured as it could have affected the scope of insurance cover.

The case involved a serious fire at Camden market in north London in February 2008, which was caused by a portable gas heater setting light to some clothes on a market stall. The assured owners of the market, GGL, had been sent several “risk improvements” since 2006 requesting that the heaters were removed, but they continued to be used. In April 2007 the insurer added a new survey condition endorsement which made cover conditional upon completion of all risk improvements. In October 2007, the insurer imposed a risk improvement measure requiring immediate removal of the heaters. Neither the survey condition endorsement nor the risk improvement measure were passed on to GGL by the defendant broker, JLT.

After the fire, GGL sought £5.6 million from the insurer but reached an early settlement of £3.825 million because of its uncertain position regarding non-compliance with the risk improvement measure. GGL claimed the balance from JLT.

Mr Justice Blair held that JLT, knowing that the heaters continued to be in use, should have appreciated that after the risk improvement measure had been imposed, the policy no longer met GGL’s requirements. The survey condition should have been drawn to GGL’s attention and the risk improvement measure had a “material and potentially deleterious effect on the insurance cover” such that JLT had a duty to draw it to GGL’s attention. Blair J accepted that GGL was, on the facts, unlikely to have removed the heaters immediately even if it had known about the risk improvement measure, but he said that some steps would have been taken or discussions would have been started with the insurer such that subsequent liability would not have been in doubt. JLT was held liable to pay GGL’s loss of £1.775 million, being the shortfall on the claim to the insurer after the early settlement.