Insurance Intermediaries: Duties & Rights

Duties, Rights & Responsibilities of Insurance Intermediaries Presented by: Julian Burling, Centre for Commercial Law Studies Date: 9 November 2020 Reading 1. Henley and Kemp, The Law of Insurance Broking 3rd ed (2016) 2. Bird's Modern Insurance Law 11th ed. Ch 12 (2019) 3. Clarke, The Law of Insurance Contracts CHS 7, 8, 9, 11-3A (LL) 4. Colin Vaux’s Law of Insurance 12th ed. Ch 16 (Nov. 2019) 5. Lowry, Rawlings and Merkin, Insurance Law: Doctrines and Principles 3rd ed. Ch 3 (2011) 6. MacGillivray on Insurance Law 14th ed. Ch 38 7. CMS Cameron McKenna, (2018) 8. Insurance Broking Practice & the Law (LL) Pre-Contractual Disclosure/Representation By Intermediaries - Marine Insurance Act 1906 ss18-20 governed position before 2.8.16 (IA 2015), inc. also non-marine; but not consumer after 5.4.13: CI(DR)A 2012 (infra) - S.18 • Duty of assured to disclose... "every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him" • Knowledge of agent who has a duty to know and report such facts to the assured will be imputed to the assured Blackburn Low v Vigors (1887) 12 App Cas 531 • But a person effecting insurance as an individual is not to have any deemed or constructive knowledge imputed to him - Economides v. CU [1998] QB 587 (CA) - Duties of insureds' agent (not consumer contracts) - MIA s. 19: where an insurance is effected for the assured by an agent, the agent must disclose to the insurer • Every material circumstance which is known to himself, and an agent to insure is deemed to know every circumstance which in the ordinary course of business ought to be known by, or to have been communicated to, him; and • Every material circumstance which the assured is bound to disclose, unless it come to his knowledge too late to communicate it to the agent. - Agent's knowledge of agent's own fraud is not to be imputed to assured or entitle insurer to avoid contract - PCW Syndicates v. PCW Reinsurers [1996] Lloyd's Rep 241 (CA) - NB repeal by Insurance Act 2015 WEF 12 August 2016 - Knowledge of insurer's agent • Will be imputed to insurer only (assemble) where it is within agent's authority to receive the information: distinguish authority to effect contracts of insurance (and to receive information for that purpose) and authority to receive completed proposal forms - Consumer Insurance (Disclosure and Representations) Act 2012 • S.2 Duty of consumer to take reasonable care not to make misrepresentation • S.12(5) nothing in Act affects the circs in which a person is bound by the acts or omissions of that person's agent • Sch. 2 rules for determining whether agent through whom insurance contract is made is agent of insured or insurer • Agent treated as insurer's agent where: appointed rep; authorized to collect info; authorized to enter contract as insurer's agent. • In other cases, presumption that consumer insured's agent unless circs appear otherwise • Examples of factors: u/t to give impartial advice, customer pays fee; CF use of insurer's name, insurance sold under agent's name - Insurance Act 2015 WEF 12.8.16 • S.3 Duty on insured to make fair presentation of risk  Disclosure of every material circumstance which insured knows or ought to know  Or, failing that, disclosure which gives sufficient info to put prudent insurer on inquiry  No duty to disclose matters that insurer knows or ought to know  Refs to things done by or in relation to INSD/INSR include refs to their agents - s.22(4)  Disclosure in reasonably clear and accessible manner  Every material representation as to fact substantially correct and, as to expectation or belief, in good faith • Insurance Act 2015  S. 4: rules for determining what an insured knows or ought to know o Individual insured deemed to know only what is known to self or individual(s) responsible for insured's insect o Non-individual deemed to know only what is known to individual(s) who are part of senior management or responsible for insured's insurance o Insured not to be taken to know confide info known by individual who has acquired it through business rein with amor not connected with the insurance contract o Ins must make reasonable search of info available  S. 5: rules for determining what an insurer knows or ought to know o Deemed knowledge only of individuals who participate in decision whether, or on what terms to take risk o Insurer ought to know what employee or agent knows and ought reasonably to have passed on o Info held by insurer and readily available to individuals who participate etc. Who is principal? - "Transferred agency": News Holme v. Road Transport & General Insurance [1929] 2 KB 356 (CA). Agent's express authority was "to procure persons to take out insurance policies with the insurance company and to obtain from them duly filled in and signed proposal forms". CA held: agent completed proposal form (incorrectly) as amanuensis of assured; assured signed form personally accepting responsibility for statements, which "basis of contract" clause converted into warranties - CF where agent has wider actual authority from insurer than in News Holme, or assured is blind or illiterate Bawden v London, Edinburgh and Glasgow Ass Co. [1892] 2 QB 534 (CA). - News Holme reversed by Consumer Insurance (Disclosure and Representations Act 2012, as regards pre-contractual disclosure and representations in consumer insurance contracts. Section 9, Sch 2: rules for determining who is principal of agent. Also abrogation of MIA duty of disclosure (s.2). Prohibition of "basis of contract" clauses (s.6). - See also Stockton v. Mason [1978] 2 Lloyd's Rep 430 (CA): implied authority of broker to issue interim motor insurance and issue cover notes. - Should be in TOBA. See new ICOBS 4.1.2(2)(d) R requirement to identify principal Agent Of The Insured: Rights & Duties Inter Se - Intermediaries may be concurrently liable in contract and tort, in many - cases with much the same result Equites v Walsham [2013] EWHC 2364 - (Comm), following Henderson v Merrett [1985] 2 AC 145 - Different limitation periods for contract and tort: accrual dates and (for tort) Latent Damage Act 1986 - 3 years after discovery - Contract of agency may delimit scope of duty of care actionable in tort and of scope of fiduciary duties. (For scope see 36ff infra) - Common law duties may be informed (Dunlop Haywards v Barbon [2009] EWHC 2900 (Comm) at [162]), or limited (Harrison v Black Horse) [2011] EWCA Civ 1128), by analogy with COBS and ICOBS, CF Plevin v Paragon Finance [2014] UKSC 61 - Breach of any rule in COBS or ICOBS gives rise to action for damages for breach of statutory duties, at suit of "private person", under FSMA s.138D(2) (unless otherwise provided) - Tort liability where: • Intermediary owed duty of care - assumption of responsibility - C&E Commrs v. Barclays [2006] UKHL 28, [2007] 1 AC 181 • Intermediary broke duty • Breach caused claimant loss - Damages in tort for purely economic loss only where negligent misstatement or performance of services by a "qualified person". - May be liability to third parties where their reliance foreseeable e.g. Punjab National Bank v. de Boonville [1992] 1 WLR 1138; BP v. Aon [2006] 424 (Comm), [2006] 1 Lloyd's Rep 549; Dunlop Haywards v Erinaceous [2008] EWHC 520 (Comm), [2008] Lloyd's Rep IR 676; - CF Pan good v Barclay Brown [1999] 1 Lloyd's Rep IR 405; Involver v April grange [2015] EWHC 2225 (Comm), [2015] 2 Lloyd's Rep. 289 - Liability of intermediary to insured in contract • Is there a contract at all? What is the consideration? Opportunity to earn commission? Client not obliged to take up policy proposed.. • Engagement letters or trading terms (TOBAs) are normal in London market, but there is no legal requirement (cp ICOBS: duty to explain status, services and fees) • Implied term that in placement broker has a duty to ascertain client's needs, use reasonable skill and care to obtain cover requested and, if he cannot get cover required, to inform client and obtain alternative instructions: Youell v. Bland Welch ("The Super hulls Cover Case") (No 2) [1990] 2 Lloyd's Rep 431. See ICOBS 5.2; 6 • Post placement a Lloyd's broker has a duty to assist client in presenting claims if so requested, and to maintain records: Grace v Leslie & Godwin Financial Services [1995] LRLR 472. CF. non-Lloyd's brokers. • Supply of Goods and Services Act 1982, s.13: implied term that broker will exercise reasonable skill and care in performing the services provided - Equites v Walsham - Fiduciary duties of insured's agent • Common law/equity: To act bona fide in what intermediary believes to be in best interests of client • IDD Art 17(1) (ICOBS 2.5. -1R) "the customer's best interests rule"; A firm must act honestly, fairly and professionally in accordance with the best interests of its customer". • BRI applies to each intermediary in chain - ICOBS 1 Annex 1 Part 2 4.2G • Statutory right of private person to damages under FSMA s. 138D for breach of ICOBS rule. • CF FCA PRIN 1 "A firm must conduct its business with integrity" • PRIN 6 "A firm must pay due regard to the interests of its customers and treat them fairly" • - PRIN 8 "A firm must manage conflicts of interest fairly" No conflict of duty and interest • PRIN 8 "A firm must manage conflicts of interest fairly" • SYSC 10 obligations to identify, record, manage and disclose conflicts of interest (but no right to damages for breach of statutory duty under FSMA s. 138D) • IDD general principle Art 17(3) (SYSC 19F.2.1): Insurance distributors must not (a) be remunerated or (b) remunerate or assess the performance of their employees in a way that conflicts with their duty to comply with the customer's best interest rule. (but no FMSA s. 138D statutory damages • FCA considers that excessive remuneration is breach of customer's best interests rule TR/9/2, FG 19/5 • ICOBS 2.3.1G (firm must consider whether soliciting or accepting inducements or offering them would conflict with customer's best interests rule) • Contingent commissions, price rigging, false quotes • No conflict: acting for insured and insurer concurrently: • Cover holders: underwriting; claims • Loss surveys and reports  Anglo-African Merchants v Bayley [1970] I QB 311  North & South Trust v Berkeley [1971] 1WLR 470 • TOBAS for Lloyd's brokers • Placing documentation: Goshawk v Tyser [2006] EWCA Civ 54, [2006] 1 Lloyd's Rep 66 • IDD/ICOBS 4.1.2(2)(d) R - req to inform customer whether representing customer or acting for and on behalf of insurer • LMA model binding authority requires Lloyd's cover holder to notify prospective insured of any capacity in which it acts for underwriters - No secret profits • Intermediaries are usually remunerated by commission paid by insurers • Increased use of fee agreements for commercial clients • Normal commissions allowable by usage or implied agreement - Baring v. Stanton (1876) 3 Ch D 502; Green & Son v. Toughen (1913) 30 TLR 64; Great Western v. Cunliffe (1874) 9 Ch. App 525 • Retention of "reasonable commission", "normal amount", but not what is excessive, unless amount disclosed - McWilliam v Norton Finance [2015] EWCA Civ 186 (PPI) • CF Plevin v Paragon Personal Finance [2014] UKSC 61 • "Contingent commissions", "work transfer": FSA DP08/2, FS 08/7; • FSA Confirmed Industry Guidance [BIBA]: "Transparency, disclosure and conflicts of interest in the commercial insurance market", 2009-23.3.15 • ICOBS 4.4.1R already requires disclosure of "commission" to commercial customers on request • IDD Art 19 (ICOBS 4.3 -7R: distributors to disclose nature of remuneration in relation to the contract, whether fee payable by customer, commission included in premium, any other type, including economic benefit [but not amount - CF. initial draft IDD Art 17] • Firm must ensure that disclosure is clear, fair and not misleading: IDD general principle art 17(2), ICOBS 2.2.2R. Applies to all in chain. FSMA s.138D statutory damages subject to reasonable steps defense. • IDD art 29: enhanced disclosure rules for investment products (IBIPS) • Confusion caused by developing "integrated business models" in SME insurance market see FCA TR14/9. • Bribery Act 2010 • Lloyd's Guidance Feb 2012 Bulletin Y4567, Sept 2014 bulletin Y4821: all payments need to be justified • Secret commissions etc. will be treated as the property of the • principal and held on constructive trust – FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45 (overruling Lister v Stubbs) - Scope and nature of duty of care • "To identify and advise its client about the type of cover which the client needs and, in doing so, to match as precisely as possible the risk exposures which have been identified within the client's business with the coverage available and, having identified the client's needs arrange insurance cover which clearly meets those requirements" • Standard Life v Oak Dedicated [2008] EWHC 222 (Comm), [2008] Lloyd's Rep IR 552 • IDD enhanced Demands and Needs requirements - ICOBS 5.2.2 R - 5.2.2D R: (actively) to obtain information from customer, specify insurance demands and needs of customer, communicate it to the customer and ensure that the insurance contract proposed is consistent with those demands and needs. Sale of insurance contract must always be accompanied by a demands and needs test on the basis of information obtained from the customer. • Broker may need to explore nature of client's business Ramco v Weller [2009] Lloyd's Rep IR 27 • Client should not be exposed to risk of legal disputes with insurer Ground Gilbey v JLT [2011] EWHC 124 (Comm), [2012] Lloyd's Rep IR 12; Dunlop Haywards v Barbon [2009] EWHC 2900 (Comm, [2010] Lloyd's Rep IR 149 • ICOBS 6.1.5R: A firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible form so that the customer can make an informed decision about the arrangements proposed • Dunlop Haywards v Barbon [2009] EWHC 2900 (Comm), citing ICOB • Where broker is unable to obtain precisely the cover sought, does he have discretion to obtain alternative? WATERKEYN v Eagle Star (1920) 5 LI L Rep 42 • Need to explain to customer where less favorable terms obtained GNER v. JLT [2006] EWHC 1478 (QB) (narrower faulty workmanship exclusion) • Not to give warranties or make representations on behalf of customer based on ambiguous information: Fisk v. Brian Thornhill [2007] EWCA Civ 152 • Solvency of insurer - must be "no reason for supposing" that insurer is not a responsible and solvent person - Dixon v. Hovill (1828) Bing 665, 668 • Licensed insurer - Bates v. Barrow [1995] 1 Lloyd's Rep 680 • Policy interpretation COBS 13.3.1R (KFD), ICOBS 6.1.5R  Explanation of unusual exclusions: or conditions Harvester Trucking v. Davis [1991] 2 Lloyd's Rep 638; Ground Gilbey v JLT [2012] Lloyd's Rep IR 12  Intermediary to check policy: Dickson v. Devitt (1916) 86 LJKB 315 • Disclosure to insurer  McNealy v. Pennine Insurance [1978] 2 Lloyd's Rep 18 and to explain duty of disclosure to client Warren v. Sutton [1976] 2 Lloyd's Rep 276, Involnert v Aprilgrange (sup), Jones v Environcom [2010] EWCA Civ 1152.  May need to investigate client's business record to ascertain what matters need to be disclosed Pakeezah Meat Supplies v Total Insurance Solutions [2018] EWHC 1141 (Comm) • Post-placement duties?  e.g. where broker becomes aware of information detrimental to cover HIH v JLT [2006] EWHC 485 (Comm), [2007] EWCA Civ 710; GNER v JLT [2006] EWHC 1478 (QB); Ground Gilbey v JLT [2011] EWHC 124 (Comm) - Accounts • To keep sufficient records and provide sufficient information and documents to inform a client about what moneys have been received on the client's behalf, even where those records are inextricable from records relating to other clients - Equitas v. Horace Holman [2007] EWHC 903 (Comm) • Net accounting • Duty to account for (and pay reasonably promptly) moneys received - Equitas v Walsham Bros [2013] EWHC 2364 (Comm) • FCA client money rules CASS: 5 statutory trust; may receive premiums from client on behalf of insurer ("risk transfer") • Retention of records for claims Johnstone v Leslie and Godwin [1995] LRLR 472 Rights Of Intermediary Against Insured - Remuneration: • Agreed (TOBA), or reasonable sum, except where implied that broker will receive commission from insurer instead • May be right to damages for loss of opportunity to earn commission • Is the broker able to sue the reinsurer where the reinsured has not paid the gross premium to the broker? Carvill America v Camperdown [2005] EWCA Civ 645 inconclusive - held arguable • Reimbursement and indemnity where broker liable e.g. to insurer for premium – MIA s.53 or has paid it on behalf of assured • Lien on policy and on losses or return premiums collected - Heath Lambert v. Banesco [2006] EWHC 1345 (Comm)