Commercial Court Rules on Broker Negligence in Infinity Reliance Limited v Heath Crawford Limited Case

Citation: [2023] EWHC 3022 (Comm)
Judgment on

Introduction

In the case of Infinity Reliance Limited v Heath Crawford Limited [2023] EWHC 3022 (Comm), the Commercial Court examined various aspects of insurance brokerage negligence. The case centred around the defendant broker’s failure to provide accurate information and recommendations about business interruption (BI) insurance, leading to underinsurance for the claimant. This article analyses the case, focusing on the key legal principles applied and the resulting implications.

Key Facts

Infinity Reliance Limited, an online retailer, was unable to operate from its warehouse due to a fire. The underinsurance resulted from the broker, Heath Crawford Limited, providing erroneous guidance on BI insurance and failing to recommend declaration linked cover or appraise the need for specific cover for fit-out costs at alternative premises. Infinity claimed damages for its losses, which Heath Crawford conceded were partly caused by their breaches of duty but argued were also due to contributory negligence by Infinity.

The court analyzed legal principles pertaining to the broker’s duty of care, the causation of loss due to negligence, and contributory negligence by the insured. The judiciary outlined the expectations from brokers in terms of understanding the client’s needs, recommending sufficient and effective insurance coverage, educating the client on key insurance terms and processes, and ensuring that the client makes informed decisions.

In the case, the court relied on principles established in “JW Bollom & Co Ltd v Byas Mosley & Co Ltd” [2000] Lloyd’s Rep IR 136, highlighting the broker’s duty to use reasonable skill and care in obtaining insurance. The court also consulted “Eurokey Recycling Ltd v Giles Insurance Brokers Ltd” [2014] EWHC 2989 (Comm), which explains that brokers should not conduct a detailed investigation into the client’s business but are expected to understand the main risks and necessary cover.

Furthermore, the concept of causation was considered according to the principles of the “but for” test: but for the broker’s guidance, would the underinsurance have occurred? The Law Reform (Contributory Negligence) Act 1945 was engaged to judge the extent to which damages should be reduced due to contributory negligence.

Outcomes

The court determined that Heath Crawford breached its duty by providing a misleading document on how to calculate gross profit for BI, failing to recommend declaration linked cover, and not discussing potential fit-out costs following warehouse inactivity. The court affirmed that if Heath Crawford had acted appropriately, the underinsurance and application of average to Infinity’s claim would not have occurred.

However, the court reduced the damages by 20 percent due to contributory negligence by Infinity. The judgment assessed the responsibility for the loss, dividing it between Heath Crawford’s clearer negligence and Infinity’s errors in calculating the sum insured.

Conclusion

The judgment reaffirms the necessity for brokers to adhere to their duty of care, provide accurate and tailored guidance matching their client’s needs, and continuously review these needs at each renewal. It imparts the lesson that while brokers should encourage informed decisions from insureds, the responsibility lies partially with the insureds to prudently engage with the broker’s advice. The case stands as an important reminder of the intersection of broker negligence and contributory negligence, highlighting the delicate balance between the provision and usage of competent insurance advice.