An insurance policy is a technical document. Warranties, conditions precedent, notification triggers, and exclusion clauses can turn what looks like broad cover into a narrow one, and a client who has not had the material terms drawn to their attention may only discover the problem when a claim is refused. English law places on the broker a duty to bridge the gap between the insurer's wording and the client's understanding. This entry sets out what that duty involves and how the FCA's conduct rules overlay it.
The starting point is Sharp v Sphere Drake Insurance (The Moonacre) [1992] 2 Lloyd's Rep 501. Mr Sharp's broker placed hull cover on his yacht subject to a warranty limiting use and requiring a professional skipper for certain voyages. The broker sent the policy but did not draw the warranty to the client's attention. When a loss occurred in circumstances that breached the warranty, the insurer declined. The court held the broker liable in negligence: it is not enough to hand over the policy and rely on the client to read it. Where a term is onerous or unusual, the broker must specifically bring it to the client's attention and ensure it is understood.
Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd's Rep 541 reinforces that the duty attaches to the particular circumstances of the client and the risk. A commercial client with an in-house insurance manager may need less guidance than a first-time buyer of professional indemnity cover, but the duty does not evaporate.
The duty bites hardest on terms a reasonable insured would not expect to find, or would not expect to find in the form used. Typical examples include non-standard exclusions carved out of otherwise broad cover, warranties that impose ongoing operational requirements, notification-of-circumstance periods shorter than the market norm, aggregate limits where the client expected each-and-every-claim cover, and retroactive dates that cut off historic exposures. A term is not onerous merely because it is important; the question is whether it materially departs from what the client would reasonably anticipate.
Explanation must be in plain English and adequate to the client's level of understanding. A bare reference to "clause 4.2" in a covering email is not enough. The broker should describe what the term does, when it bites, and what the client needs to do to stay within it. Where the term interacts with other cover — for example a notification warranty that also triggers Insurance Act 2015 s.10 and s.11 consequences on breach — the interaction should be flagged. A short client acknowledgement that they have read and understood the summary is worth more than a hopeful presumption.
Jones v Environcom Ltd [2010] EWHC 759 (Comm) makes the record-keeping point sharply. The broker there could not evidence what advice had been given about a disclosure obligation, and the court drew adverse inferences. Contemporaneous file notes, sent-and-acknowledged summaries, and clear renewal letters are the difference between defending a claim and settling one. The evidential burden is on the broker.
The common law duty sits alongside ICOBS 6, which requires firms to give customers appropriate information about a policy in good time and in a comprehensible form. The Consumer Duty (PRIN 2A.5, the consumer-understanding outcome) sharpens this further: communications must equip retail customers to make informed decisions, and firms are expected to test whether their communications are actually understood. For commercial clients outside the Consumer Duty perimeter the ICOBS and common law duties remain, and the practical steps do not differ greatly.
Apex Insurance Brokers approaches this by issuing a plain-English cover summary alongside every new placement and renewal, calling out warranties, conditions precedent, notification triggers, and any exclusion that departs from the market norm. Where a term is materially unusual, the summary is followed by a specific email drawing attention to it and asking the client to confirm they have read and understood the point. Signed acknowledgements are retained on the client file.
Worked example (illustrative only, not a client matter). Apex places PI cover for a small consultancy. The policy carries an unusual 14-day notification-of-circumstance warranty, where the industry norm is 30 days. Apex sends the schedule but does not highlight the shorter period. The client, assuming the market-standard 30 days, notifies a circumstance on day 20. The insurer refuses cover for breach of warranty (subject to Insurance Act 2015 s.10-11). The client sues Apex for negligent failure to explain a material term. Applying Moonacre, the court finds the 14-day period materially onerous and unusual, and holds Apex should have drawn specific attention to it. Apex's PI cover responds. The lesson: the schedule alone was not enough; a plain-English flag and an acknowledgement would have discharged the duty.
See also the general broker's duty of care to the client and the interaction with Insurance Act 2015 warranties reform. For sector-specific application, see the Apex pillars on solicitors' PI, architects' PI, accountants' PI, IFAs' PI, and surveyors' PI.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.