On renewal, the excess layer of professional indemnity cover for a property services group was placed with an endorsement limiting the indemnity to the group's commercial property management activities. The previous excess layer had covered the business and all of its activities, including commercial valuation. When a claim followed arising from fraudulent valuations, the primary layer paid but the excess insurers declined on the basis of the endorsement. Hamblen J considered the resulting claims against the brokers at [2009] EWHC 2900 (Comm), reported at [2010] Lloyd's Rep IR 149.
The judgment contains one of the clearer modern statements of what a broker must do at renewal. In summary, the broker must ascertain the client's current requirements rather than assume they are unchanged, review the description of the business and the activities covered against what the client actually does, identify and explain any changes in terms, and ensure that the cover placed matches the instructions given.
The failure in Dunlop Haywards was a description failure. A restriction on insured activities was introduced at renewal and its significance was not identified. Where an activities description excludes a service the firm actually performs, the affected layer may not respond at all to a claim arising from that service, and the client discovers the position only once the loss has happened.
The case also examines the duties owed between brokers in a chain. Where a retail or producing broker instructs a wholesale or placing broker, each owes duties, but they are not the same duties and they are not owed to the same person. The producing broker owes the client the duty to ascertain requirements and to instruct accurately. The placing broker owes the producing broker the duty to place in accordance with instructions and to report accurately on what has been achieved. On the facts, the producing broker was held liable to the client, and its contribution claim against the Lloyd's placing broker succeeded but was substantially reduced to reflect its own share of responsibility.
Involnert Management Inc v Aprilgrange Ltd [2015] EWHC 2225 (Comm) makes the same structural point from the assured's side, holding that the London placing broker owed no direct duty to the assured on those facts.
Professional indemnity wordings for property firms are particularly sensitive to the activities description because the sector spans functions with very different risk profiles: agency, lettings, block management, valuation, survey work and sometimes financial services introductions. A firm that has added a service line since the last renewal, or acquired a book that includes one, may be operating outside the description without realising it. The point is developed in the guidance on estate and letting agents' professional indemnity insurance.
The cover responding to failures of this kind is addressed in the guidance on insurance brokers' professional indemnity insurance.
Most placing errors produce a shortfall. A description error can leave a claim wholly or partly uninsured, because it arises from work that the affected layer never contemplated insuring. That places description failures in a different category of severity from limit or excess errors, and it is why the activities question deserves separate treatment at renewal rather than inclusion in a general confirmation that nothing has changed. Where a firm's service lines have grown organically, the description on the schedule is often the last thing to catch up.
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.