Scottish Court of Session Decisions

The pursuers in this case seek damages from the defenders in respect of uninsured losses which they sustained by way of storm and fire damage. The pursuers are estate proprietors and the defenders are both insurance brokers. In about 1992 the pursuers were seeking to obtain alternative quotations for the insurance which they had for the estate, such cover to commence on 1 January 1993. They contacted a number of insurance brokers including the first defenders. In November 1992 the first defenders sent a circular to other brokers including the second defenders concerning the pursuers' requirements. The second defenders wrote to Gauntlet Insurance Services (Gauntlet) who in turn arranged insurance cover with General Accident. A quotation was given and accepted. The premium for that policy was then paid.

In January 1993 gales caused serious damage to the pursuers' property. In May 1993 thieves broke into the pursuers' premises and set fire to them. Claims were made in respect of these matters but the insurance company repudiated liability on the basis that the risks had been misrepresented to them. The misrepresentation related to the level of claims made by the pursuers in the past. The pursuers averred that the insurers were entitled so to repudiate.

Mr Ross for the second defenders invited me to sustain their first plea-in-law and dismiss the action in so far as laid against them. He accepted that there was a clear case of negligence against the first defenders but that there was nothing to link the second defenders in the process of what occurred. He submitted that the first defenders had been acting as brokers for the pursuers but that the second defenders had acted merely as a "post box". The circular sent by the first to the second defenders was No. 17/3 of process. It asked for a "Premium Indication". It indicated that the claims experience disclosed to the first defenders extended to some £2,700 over the last two years. It continued:

No. 17/4 of process was the letter which the second defenders wrote to Gauntlet. It repeated the above information but in relation to the claims experience it used the phrase "the factor has advised us that the only claims intimated in the past six years are .". That was said to be the misrepresentation which brought some liability to the second defenders. In the event the true position was that the pursuers had made substantial claims over the previous five years.

Mr Ross submitted that in these circumstances the loss to the pursuers was caused by the non-disclosure to the insurers of the three claims history. It was not averred that the second defenders were responsible for obtaining such a history. Their task was to obtain a quotation - a price at which the parties might elect to contract. They had no role in the subsequent defective contract. It was the defective contract which caused the loss. There was therefore no direct link between the second defenders and the loss.

Further, the averments of fault against the second defenders alleged a material misrepresentation in respect that they falsely suggested that they had obtained information direct from the factor and that the history given represented the only claims in the last six years. These representations were made simply in the context of obtaining a price. They were clearly anecdotal and any subsequent contract was always subject to full disclosure in a proposal form. It was not averred that the second defenders had any responsibility for the fact that the proposal form was never completed. It was on the basis of the lack of disclosure in the proposed form that the insurers repudiated. This argument is set out in Answer 9 for the second defenders and is not answered by the pursuers.

Mr Ross' second submission was that the averments of loss were irrelevant. The losses averred arise from non-compliance with the terms of the insurance contract. The only duties averred against the second defenders arise in connection with the quotation. (South Australia Asset Corporation v York Mount 1996 3 ALL ER 361). Even if the second defenders had said they had not spoken to the factor, that would still not have revealed the true claims history which had in any event not been disclosed to them. In these circumstances, Mr Ross invited me to dismiss the case against the second defenders.

Mr Woolman for the pursuers submitted that the pleadings did disclose a relevant case against the second defenders which justified enquiry. He relied on the following propositions: (a) an agent owes to his client a duty to exercise reasonable skill and care in the performance of whatever instructions he has accepted (MacGillivary on Insurance Law 9^th Ed Para 36.22, Henderson v Morret Syndicates [1995] 2AC 145); (b) insurance brokers owe a duty to exercise reasonable skill to persons not their clients, if the proximity test is satisfied (Punjab National Bank v de Boinville [1992] 1 WLR 1138); (c) failure to transmit a material fact to insurers prima facie constitutes breach of duty on the part of brokers (Booker Ltd v Wing Heath & Co 1930 TLR 78); (d) the same holds true where a fact is misrepresented (Warren v Henry Sutton & Co 1976 2 Lloyds Reports 276) and (e) the question of whether or not the brokers have exhibited the requisite standard of care is mainly a matter for expert evidence (MacGillivray para 36.23).

The pursuers' case against the second defenders was that they were involved in the issue of the policy. In seeking a quotation they acted as agents for the pursuers and as such they had to exercise reasonable care and skill. By altering the information presented to them when seeking a quotation they had departed from that standard of care. This act caused or materially contributed to the repudiation of the pursuers' insurance cover, in consequence of which the pursuers suffered loss. The "act" referred to comprised representing that they had dealt directly with the factor and removing the earlier reference by the first defenders to a "feeling". In so doing they presented the information as a straightforward representation of the factual position. It could not therefore be said that they acted merely as a "postbox".

It followed, submitted Mr Woolman, that the parties were at issue over a number of matters: (a) the role of the second defenders in obtaining insurance cover; (b) the extent to which their letter of 27 November 1992 was or ought to have been relied on; (c) whether their conduct caused or materially contributed to the pursuers' loss; and (d) any apportionment with the first defenders. Mr Woolman submitted that the proper place to explore these issues was at proof before answer with the benefit of expert evidence. Only after proof could all questions of fault, causation and joint and several liability be decided (Selerman Lines v Clyde Navigation Trustees 1909 SC 690).

As far as the submission anent the averments of loss is concerned, Mr Woolman sought to distinguish South Australian Asset Corporation v York Mount on the basis that that case was decided after trial and related to valuation which was different from insurance broking. In this case the second defenders were aware of exactly the loss that the pursuers would suffer if not covered by insurance. Again he suggested proof before answer.

It is not in dispute that the pursuers were seeking alternative insurance cover. To that end they approached the first defenders. Representatives of the pursuers and the first defenders met and discussed inter alia the claims history. The first defenders then sent out the circular in which they repeated that information with "the feeling" that there would not be much more. The second defenders, having received that circular then wrote to Gauntlet again repeating the information but indicating that it had been given to them direct from the factor. On that basis a quotation was obtained which was accepted and the premium paid. The cover was offered subject to full disclosure in the proposal form. The proposal form was never completed. The actual claims history was far worse leading to repudiation. In my opinion it matters not that the pursuers had no direct contact with the second defenders in the circumstances of this case. They took information from the first defenders and circulated it to other brokers which action resulted eventually in cover being obtained. In these circumstances, it is arguable that they owed a duty of care to the pursuers not to misrepresent the information they so passed on (Punjab National Bank v de Boinville, Coolee Ltd v Wing Heath & Co. Further, it is arguable that that duty of care was breached when the second defenders falsely misrepresented that they had obtained the claims history directly from the estate factor. For all I know, that could be said to lend some degree of authenticity to the information passed on and may have influenced a prospective insurer to grant cover. On the other hand, it may be correct to say that such a representation had no such effect or related only to the level of the quotation. It may also be correct to say that in the end of the day it will be established that the real cause of loss lay in the failure of the first defenders to obtain a completed and accurate proposal form. However, it seems to me that all these questions are properly matters to be determined at a proof and by expert evidence as to the practice of insurance brokers and insurers. (South Australia Asset Corporation v York Mount; Ellerman Lines Ltd v Clyde Navigation Trustees, MacGillivray para 36.23). In my opinion, the averments of the pursuers against the second defenders both on the merits and as to loss are sufficiently relevant to merit an enquiry. I therefore order a proof before answer leaving all pleas standing with the exception of the first plea-in-law for the pursuers which, not having been insisted in. I repel.