An insurance broker sits between client and insurer, and the broker's own conduct is subject to a duty of care in tort, in contract, and — for FCA-authorised intermediaries — under a statutory rulebook. This entry sets out what that duty covers and the leading cases that shape it.
The subject matters to any broker because a failure of duty is not a client-side PI issue — it is a broker-side one. Brokers are themselves a profession, and like the solicitors, architects, accountants and independent financial advisers they serve, brokers need their own professional indemnity cover to respond when things go wrong.
At common law a broker owes the client the reasonable skill and care of a competent broker in the relevant market. The standard is not perfection — it is what a reasonably competent broker in that class of business would do. A broker placing solicitors' PI is measured against professional-lines brokers who understand the SRA Minimum Terms.
In Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001] UKHL 51 the House of Lords held that a broker's duty extends to using reasonable skill and care to procure cover meeting the client's requirements. Where the broker fails to obtain that cover, and cover of the required type was available in the market, the broker can be liable for the loss the client sustains as a consequence. Aneco is the modern high-water mark on scope of loss: the broker was held liable for the whole of the underlying loss the reinsurance would have met, not merely the premium wasted.
In Sharp v Sphere Drake Insurance (The Moonacre) [1992] 2 Lloyd's Rep 501 the court held that a broker's duty includes explaining to the client the meaning and effect of warranties, conditions and exclusions in the policy placed. It is not enough to hand the client a wording. Where a term is material — because breach would defeat the claim, or because the exclusion carves out a risk the client thought was covered — the broker must draw it to the client's attention in terms the client can understand.
In Standard Life Assurance Ltd v Oak Dedicated Ltd [2008] EWHC 222 (Comm) the court examined aggregation language in a PI policy and, in the broader analysis, the broker's role in the placement. Where a policy contains sophisticated aggregation, retention or claims-series wording, the broker cannot assume the client understands the mechanic. The scope of the client's protection turns on it, and the duty to explain runs with the technical detail.
The duty is not discharged by binding cover with the first insurer that quotes. The broker must place with an insurer whose security and product are appropriate to the risk — reasonable inquiry into solvency, and consideration of whether the wording matches the client's stated demands and needs. A cheap policy that will not respond when tested is not the outcome the duty is meant to deliver.
ICOBS 5 governs the identification of the client's demands and needs and, where the sale is advised, the personal recommendation. ICOBS 5.2 sets the product information obligations, including the IPID for consumer general insurance. For retail customers the Consumer Duty in FCA PRIN 2A sits on top: acting in good faith, avoiding foreseeable harm, and enabling the customer to pursue their financial objectives. The four outcomes — products and services, price and value, consumer understanding, consumer support — bite on every stage of the broker journey.
Contemporaneous record-keeping is the single most important discipline. The file should show what the client said their needs were, what was placed, what was explained, and what the client acknowledged. Where a wording changes at renewal, the change should be flagged in writing. A broker relying on memory two years later, against a client who has suffered an uninsured loss, will struggle.
Worked example. A broker places PI cover for a mid-sized IT consultancy in 2021. At renewal the incoming insurer's wording introduces a new cyber-incident exclusion. The broker rebrokes on price and does not draw the exclusion to the client's attention. In 2023 the consultancy suffers a data-breach-related PI claim, which the insurer declines under the exclusion. The consultancy sues the broker for negligent placement and failure to explain. Applying Moonacre, the court finds the broker liable for failing to explain a material change in the wording. Judgment of £600,000 is entered against the broker. The broker's own professional indemnity policy responds and meets the judgment. Illustrative only, not based on any Apex client matter.
Brokers advise on risk transfer for a living. They face negligent-placement claims in the same way surveyors face negligent-valuation claims. That exposure is why brokers themselves carry professional indemnity cover, and why the file discipline described above is not administrative housekeeping but the foundation of a defensible position when a claim arrives.
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.