Multi-million damages claim win proves that brokers have no duty to challenge instructions provided by clients

A Commercial Court judgment has dismissed a multi-million damages claim against Giles Insurance Brokers, showing that a broker is not under duty to test or challenge instructions provided by a client.

Eurokey Recycling took legal action against Giles Insurance Brokers after the company suffered a major fire at its premises and did not receive, in its view, a sufficient payout from its insurer to cover the damages that it had suffered. The company claimed £4m for stock, plant and machinery and turnover/business interruption, but was only given £820,000.

The lower than expected cover that Eurokey was paid appears to have stemmed from a discrepancy between the company’s projected and actual turnover in 2009. Eurokey initially told Giles that it expected to make £11m for the year, when in fact the figure exceeded £17m.

Eurokey argued that the fault lay with Giles as the revised turnover figure was handed to them when it forwarded Eurokey’s accounts to a credit finance company, as they were provided to them for the purposes of obtaining credit.

Eurokey issued proceedings in the Commercial Court against Giles and sought damages of over £3 million, as well as a claim for lost profits arising from the under-payment of insurance monies, said to have been over £13 million at the date of the trial, plus interest and costs.

In a judgment handed down on 12 September, all claims were dismissed in their entirety. The Court decided that there had been no breach of duty by Giles which had provided adequate advice to Eurokey as to its insurance requirements.

The Judge also said that the broker was not under a duty to review the draft accounts provided after the inception of the policy because Eurokey had not asked him to do so and there was nothing to put the broker on notice that the information was material to the obtained cover.

Plexus Law, whose partners, Simon Beckwith and Mark Ratcliff, defended Giles against Eurokey, said that the decision proved that it is sufficient for a broker to act as a “postbox” when receiving information for transmission to third parties after the inception of an insurance policy.

Mark Dugdale