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Brokers
were under a duty to make appropriate notification of claims accurately
and promptly, rather than acting as a mere postbox.
In 1994
SBJ arranged E&O cover for the Nelson Hurst Group, including a separate
stand alone policy for Nelson Hurst Financial Consultants Limited (NHFC).
In December 1994, the insured wrote to SBJ with details of a claim by
a Mrs Patterson for transmission to underwriters under what should have
been the NHFC policy. The insured enclosed a memo relating to the SIB
review, mentioning that this may have been the reason why Mrs Patterson
complained, and stating that it was something of which E&O underwriters
should be made aware.
SBJ notified
the underwriters of the group policy, rather than the NHFC policy and
did not realise the mistake until after the end of the policy period
(15 February 1995). The insured maintained that SBJ were at fault not
only in notifying the wrong underwriters in respect of Mrs Patterson's
individual claim, but in failing to notify "circumstances"
arising out of the SIB review referred to in the memo attached to the
notification.
Numerous
pension mis-selling claims were subsequently made and the underwriters
of the NHFC policy refused cover on the grounds that there had been
no notification. The insured argued that had proper notification been
given, these claims would have been covered under the 1994/5 policy.
The judge
held that SBJ had failed to show reasonable care. SBJ was well aware
of the existence of the two separate policies and had indeed recently
negotiated both of them. Brokers owe duties going beyond those of a
mere postbox. It was for the brokers to get a grip on the proposed notification,
to appraise it and to ensure that information was relayed to the right
place and in the correct form. They should not have assumed, because
the insured were themselves well known brokers in the E&O field,
that there was no need to review material submitted by them.
The judge
took the view that the notification to the brokers was in fact a notification
of circumstances and even if it were not, the brokers should have had
a strategy in place so as to ensure that when such information was received
from the clients, they were alive to making the required notifications
to underwriters accurately and promptly.
The fact
that underwriters mistakenly rejected the block notification in 1994/5
was beside the point. If the notification had been made to the correct
underwriters in time but rejected, the insured's right to rely on this,
perhaps after Rothschild v Collyear, would have been preserved.
SBJ had
contended that the insured could have recovered under the 1995/6 policy.
The judge took the view that having opted to rely on 1994/5, the insured
was not obliged to claim under another policy for the same liability
and questions of mitigation or contributory negligence should not arise
on the issue. It seemed more likely than not that, but for SBJ's errors,
the insurers would have agreed to pay the claim. There were therefore
no grounds for reducing SBJ's liability to pay damages.
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