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Sophisticated Businesses Share Burden of Arranging Adequate Business Interruption Insurance with Brokers

Wednesday, 5 November 2014

The recent case of Eurokey Recycling Ltd v Giles Insurance Brokers Ltd [2014] considered the weight of a broker’s duties when arranging business interruption insurance for sophisticated clients.

Brokers are under a duty to understand their client’s business and provide an explanation of how business interruption insurance is calculated but the scope of this duty may vary according to a number of factors including the sophistication of the client and the history of dealing between them.

In broad terms, this case has made it clear that sophisticated clients have a significant role to play in assessing the level of business interruption insurance cover they require.

Facts of Eurokey Recycling Ltd v Giles Insurance Brokers Ltd [2014]

The defendant, Giles Insurance Brokers, was acting on behalf of Eurokey in placing the waste recycling firm’s commercial insurance policies, including its business interruption cover. Following a blaze at Eurokey’s plant in Enderby, Leicestershire, significant damage was done to the company’s main premises with subsequent interruptions to its business.

The undisputed point was the view taken by Eurokey’s insurers: Eurokey were significantly underinsured (turnover being declared at £11m where it should have been £17m). The value of the stock and machinery were also, notably, hugely understated. As such, the insurers threatened to avoid the policy thereby forcing a deal whereby Eurokey accepted a £1.5m settlement on the entirety of the claim.

Eurokey consequently brought claims in negligence and breach of contract against its insurance broker, Giles, for £17m; the difference between the settlement sum and the amount Eurokey alleged it would have received had it been properly advised. The claim also took into account consequential losses of profits.

Findings in Eurokey Recycling Ltd v Giles Insurance Brokers Ltd [2014]

Mr Justice Blair expounded the relevant legal principles which included, importantly, that it is not expected of a broker to conduct detailed investigations into a client’s business when arranging the relevant cover for the client. A broker must take reasonable steps (only) in order to ascertain the nature of the client’s insurance needs. In a similar vein, a broker is not expected to verify information provided to him unless he has reason to doubt its accuracy.

When Eurokey, through its commercial director, passed (grossly) incorrect figures to both broker and various prospective insurers, it committed a gross error. Blair J made clear that “Eurokey must take responsibility for the fact that wrong turnover figures were given to Giles”. As such, the initial burden of providing accurate parameters for a given business interruption insurance policy shifts further toward the client.


In this case the court found in favour of the broker and made the client bear greater responsibility in its disclosure obligations. However, Blair J also made clear that the nature and scope of a broker’s obligations in assessing a client’s insurance requirements depend on the circumstances of that particular case. Factors to be considered, for example, will include the client’s sophistication, often a function of its size, and the frequency with which the broker has dealt with the client before.

For specialist advice regarding making or defending insurance litigation claims contact Peter Gourri today by email or telephone 0207 611 4848.

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