Scottish Court of Session Decisions

In this action the pursuers seek damages jointly and severally from the defenders. The second defenders have reclaimed against the interlocutor of the Lord Ordinary dated 11 June 1999 by which, after a discussion on the procedure roll, he allowed a proof before answer, leaving all pleas standing with the exception of the first plea in law for the pursuers which had not been insisted upon.

According to their averments, in November 1992 the pursuers, who own and operate a farming and sporting estate, sought to obtain quotations for comprehensive insurance of the estate, with cover to commence on 1 January 1993. They contacted a number of insurance brokers, including the first defenders, for this purpose. After discussions with the pursuers' factor, the first defenders wrote a circular dated 25 November 1992 to other insurance brokers, including the second defenders, in which they invited their "premium indication" for the business. In the circular the first defenders stated, inter alia:

On 27 November 1992 the second defenders wrote to Gauntlet Insurance Services ("Gauntlet") seeking a quotation for the pursuers. In their letter they stated inter alia:

The pursuers aver that this letter misrepresented that the second defenders had spoken to the factor. It also misrepresented the pursuers' claims history, by failing to include the qualification that the claims experience stated was not based on a detailed search of prior claims, but on the first defenders' "feeling" as to the level of such claims. Gauntlet relied on the misrepresentations made in the second defenders' letter when arranging cover with the insurers, General Accident. The pursuers go on to aver that on 11 December 1992 the first defenders sent an insurance quotation to the pursuers. On 31 December 1992 the pursuers' factor instructed the first defenders to obtain insurance cover on the basis of their quotation. By fax on the same date, the first defenders confirmed that insurance had been arranged with Lloyds. In fact the first defenders were issued with an updated cover note which provided that the insurance cover was subject to a "satisfactory signed proposal form". No mention was made of any need for the pursuers to provide any further details of their claims experience. On 13 January 1993 the first defenders wrote to the factor confirming that cover had been arranged and enclosing an invoice in respect of the insurance premium which the pursuers subsequently paid. During January 1993 gales caused serious damage to the pursuers' property. In June of that year the pursuers became aware that there was a problem with the insurance cover, when the first defenders wrote to their factor stating that the insurers were unhappy about the level of claims made by them. The proposal form, which had not yet been completed, included a question about the pursuers' claims experience over the last five years. Gauntlet sent a number of reminders to the second defenders requesting a claims mandate in order to obtain the pursuers' claims history. In turn, the second defenders sent a number of reminders to the first defenders. On or about 28 June 1993 the first defenders sent to the second defenders a copy of the claims mandate which had been signed by the factor and dated 2 December 1992. Following the disclosure of the claims history by the previous insurers on 7 July 1993 the insurers declared that they were treating the policy as void at inception. They repudiated it on the basis that the risks had been misrepresented to them. They were entitled to do so. Gauntlet obtained a quotation for insurance on the basis of information which had been materially misrepresented to them by the second defenders in their letter of 27 November 1992. The pursuers sought insurance cover on the basis of that quotation and the insurers provided a cover note on the basis of that information. Had the insurers known the true position, they would either (a) not have issued the cover note without first obtaining full and complete information about the pursuers' claim history, or (b) issued cover on the basis of the information. The pursuers relied on the cover note. They assumed that they were insured in respect of the estate. They were entitled to do so. They took no steps to obtain insurance from another source which would have been available to them. When the insurers repudiated the policy the pursuers were therefore left uninsured and consequently suffered loss and damage.

The pursuers' case against the first defenders is based on their failure to obtain details of the pursuers' past five year claims experience and to furnish that information to the insurers when seeking quotations. The pursuers also aver that the circular, which was intended to be relied upon by those from whom quotations were sought, misrepresented the position. They misled the pursuers into thinking that the claims experience was of little or no importance, when they should have indicated that it was of key significance.

The pursuers' averments against the second defenders are as follows:

Before coming to the arguments which were presented to us we should mention that during the course of the discussion Mrs. Smith, on behalf of the pursuers, sought and obtained the leave of the court to amend the pleadings so as to add a passage which was apparently designed to give further specification of the actions of the second defenders prior to 31 December 1992. The following passage was added at the end of Article 7 of the Condescendence:

In presenting his submissions on behalf of the pursuers in support of their reclaiming motion Mr. Glennie did not dispute that insurance brokers owe a duty to the insured to show the degree of skill and care to be expected of insurance brokers of ordinary competence. However, in each case it was necessary to decide for what kind of loss the person providing professional services was liable. It was clear from the pursuers' pleadings that the role of the second defenders was a restricted one. They had been requested to obtain a premium indication on the basis of information which the first defenders had given to them, and to relay such indication to them. The information given by the first defenders set out the assumptions on which the insurers would be invited to proceed. The second defenders' role, like that of the other brokers to whom the circular had been sent, was spent when they passed on the premium indication which they had obtained. It was not said that the second defenders had any duty to obtain accurate information about the pursuers' claims history or to see that the information about the pursuers' claims history which they received from the first defenders and passed on to Gauntlet was accurate. How then could it be said that the second defenders had not fulfilled their role?

Mr. Glennie went on to point out that the pursuers' averments did not set out why the second defenders should have known that the premium indication which they obtained and passed on to the first defenders would provide the basis on which cover was arranged with the insurers It was not averred that the second defenders were involved in the pursuers' decision as to what arrangement for insurance should be made. The reference to a "premium indication" did not suggest a hard and fast offer but rather a quotation which was under reservation of the need for further information e.g. in regard to past claims experience. It was to be expected that insurers would require disclosure before providing cover. In support of his general approach Mr. Glennie referred to Caparo Industries plc v. Dickman [1990] 2 AC 605 in which Lord Bridge of Harwich said at page 627:

He also referred to the speech of Lord Hoffman in South Australia Asset Management Corpn. v. York Montague Limited [1997] AC 191 at pages 212-213.

Mr. Glennie submitted that in any event he disputed whether the second defenders' letter dated 27 November 1992 contained any material misrepresentation, let alone one which was critical or effective in regard to the granting of insurance cover. Thus what difference did it make that the second defenders referred to the factor? Did it matter whether the information which the second defenders passed on to Gauntlet was taken directly from the factor or not? What had been said against the second defenders could equally well be said against the first defenders, and it would be strange if there was information from the second defenders, as opposed to the first defenders, which led the insurers to repudiate. If there was any inaccuracy in the information which the second defenders had given to Gauntlet it might have founded a claim based on wasted expenditure. The present claim was entirely different.

For the pursuers Mrs. Smith emphasised that she was concerned with the oral contract of insurance which had been entered into at the time when the insurers agreed on 31 December 1992 to provide cover. The proposal form and the policy of insurance were irrelevant at that time. Insurance was effected at the peril of the pursuers as the insured. It was not disputed by the second defenders that insurers had repudiated that contract of insurance or that they had been entitled to do so. The pursuers' case was that that insurance cover was obtained in consequence of material misrepresentations by the second defenders. The pursuers had been satisfied with the quotation which the second defenders had obtained from Gauntlet and instructed cover to be taken out accordingly. While the pursuers claimed that the first defenders should have ensured that the accurate claims history for the previous five years was provided in advance to the insurers, the case against the second defenders was that, while acting as agents or sub-agents of the pursuers, they had misrepresented the information which they had been given. The second defenders were aware that the quotation was to be obtained for the pursuers, and that if there was a material misrepresentation made to the insurers, the latter would be able to repudiate, with resulting loss to the pursuers. Mrs. Smith also founded upon averments that the second defenders had repeatedly asked for the proposal form to be returned after cover had been granted on 31 December 1992. In her submission the duty owed by the second defenders matched the type of loss to which the present action related. She pointed out past examples of cases in which an insurance broker had been held responsible for a misrepresentation of fact to insurers (Warren v. Henry Sutton & Co. [1976] 2 Lloyd's Rep. 276) or for failing to transmit material information to the insurers (Coolee Limited v. Wing, Heath & Company (1930) 47 T.L.R. 78).

As was pointed out in the course of the discussion, it is not in dispute that the insurers were entitled to repudiate the contract of insurance on the ground that the risks had been misrepresented to them. The case against the second defenders is plainly framed on a different basis from that relating to the first defenders. It is that they misrepresented what was known to them about the pursuers' previous claims history. The second defenders argued, as we have already stated, that on the pursuers' averments they had no reason to suppose that the quotation which they obtained would form the basis on which the insurers who gave that quotation provided cover to the pursuers, and hence that no question arose of their being under any duty to avoid introducing any misrepresentation which could provide the insurers with a right to treat the contract of insurance as invalid. We are not impressed with the argument that a "premium indication" was anything other than a quotation. Whether the competent insurance broker in the position of the second defenders would not have anticipated that such a quotation would form the basis of a contract of insurance, and in particular without further disclosure of the pursuers' claims history, seems to us to be a matter which can be satisfactorily determined only in the light of evidence. Further, the involvement of the second defenders in the use of the quotation which they had obtained - which was the subject of the minute of amendment for the pursuers - might very well throw a light on the nature and extent of the second defenders' involvement. In the result we consider that the full scope of the purpose for which the second defenders communicated with Gauntlet and the first defenders in the interests of the pursuers cannot be satisfactorily determined without ascertainment of the facts. We have considered the second defenders' submission that in any event they did not introduce any material misrepresentation when their statements to Gauntlet were compared with those contained in the first defenders' circular. However, the materiality of any differences between the two letters does not seem to us to be a matter which can be resolved in the abstract, without reference to the position of the parties and the meaning which the second defenders' letter would convey to persons in the position of Gauntlet and in turn the insurers.

In these circumstances the second defenders have not demonstrated to our satisfaction that the pursuers are bound to fail even if their averments are proved, and hence that their action so far as directed against the second defenders should be dismissed. Accordingly we refuse the reclaiming motion and adhere to the interlocutor pronounced by the Lord Ordinary.