Insurance brokers owe their clients a duty of care in contract and in tort. Where that duty is breached and loss results, the client may sue in professional negligence. In the broking market these claims are usually described as errors and omissions, or broker E&O. The categories below cover the scenarios that recur most often in reported cases and in brokers' own PI notifications.
Broker E&O is the professional indemnity cover a broker firm buys to respond to negligence claims from its own clients. The trigger is a civil liability arising from an error, omission, negligent act or breach of professional duty in the conduct of broking — advising on cover, placing risk, presenting risk to underwriters, servicing the policy, and assisting with claims. The FCA requires authorised intermediaries to hold PI cover under MIPRU 3; a mid-size professions-focused broker will commonly carry a £2 million to £10 million limit with an aggregate cap and defence costs inside the limit.
In Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001] UKHL 51 the House of Lords held that where a broker had negligently failed to obtain the reinsurance cover the client actually needed — and had not made that clear — the broker was liable not only for the shortfall but for the wider loss the client suffered by writing the underlying business on the assumption that reinsurance was in place. Aneco-type claims arise where a broker fails to place the cover requested, misrepresents the terms secured, or places cover the broker knew or ought to have known was unsuitable.
In Sharp v Sphere Drake Insurance (The Moonacre) [1992] 2 Lloyd's Rep 501 the court held that a broker owed a duty to draw the client's attention to onerous or unusual terms. It is not enough to send the schedule and wait for questions. If a warranty, condition precedent or notification clause materially departs from what the client would reasonably expect, the broker should flag it. Moonacre claims are common because they turn on a discrete, documentable failure.
In Standard Life Assurance Ltd v Oak Dedicated Ltd [2008] EWHC 222 (Comm) the court considered how an aggregation clause operated across a large book of pension mis-selling complaints. Brokers advising on layered or aggregated programmes owe a duty to explain how the aggregation wording treats multiple related claims — a single event, a series of related events, or a common cause can be aggregated to one limit or disaggregated across many. Getting aggregation advice wrong is a discrete head of broker negligence and has generated substantial claims in professional and financial services.
These are the mechanical failures — placing cover with the wrong insurer, for the wrong period, at the wrong limit, on the wrong basis (claims-made versus occurrence), or with the wrong retroactive date. They are usually the easiest to prove and the hardest to defend. The FCA's rules at ICOBS 5 (client demands and needs) and ICOBS 6 (product information) provide the regulatory backdrop; failing to meet those standards is evidence of negligence in a civil claim.
Once a claim or circumstance arises the broker's duty continues. Late notification to the insurer, failing to explain the client's disclosure duties on notification, failing to advise on the interaction with the Insurance Act 2015, or giving unsupported opinions on coverage can all found a negligence claim. Where the underlying insurer declines cover on a ground the broker should have foreseen and warned about, the client's loss flows back to the broker.
A broker places architects' PI cover for a client at inception in 2020. The policy contains a 14-day notification warranty; the industry norm across comparable markets is 30 days. The broker sends the schedule but does not draw attention to the shortened period. In year three the architect learns of a potential claim and notifies the broker on day 20. The insurer declines under the warranty. Even after the Insurance Act 2015 sections 10 and 11 modifications, coverage is materially restricted because the late notification arguably increased the risk of the loss actually suffered. The architect sues the broker under a Moonacre argument — the broker failed to draw attention to an onerous term that departed from market norms. The broker's E&O insurer accepts the notification, appoints panel solicitors, and settles the claim for £280,000 inclusive of defence costs.
A negligence claim is a civil matter between broker and client, but the same conduct may attract FCA attention. Systemic failings in ICOBS compliance, poor complaints handling under DISP, or breaches of the Consumer Duty can lead to supervisory intervention regardless of the civil outcome. A significant E&O claim will typically be visible to the FCA through the firm's own reporting obligations under SUP 15.
Related reading: the broker's duty of care to the client, the broker's duty to explain policy terms, and dual-agency conflicts in broker 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.