Case Studies

Expert Witness Cases 

Case Study 1

PI (D&C) insurance  UK Jurisdiction – Materiality.

Case Study 2

Commercial Combined Leisure  insurance package – Broker negligence – Demands & Needs – insurable interests. 

Case Study 3

Public  Liability – Costs- Primary layer obligation for defence costs and Excess Layer responsibility for same after exhaustion of Primary limit.

Case Study 4

Commercial Combined Policy – Broker negligence – Advice on Sum Insured – Business interruption.

Case Study 5

Commercial Combined Policy – Broker negligence – Advice on Sum Insured – Business interruption.

CASE STUDY 1


PI (D&C) insurance  UK Jurisdiction – Materiality. 

Insurance contract: 2017/18

Expert to the Insured

Was information concerning past property and public liability claims of the Insured relevant to the underwriting of the present PI (D&C) risk?


Facts:

The Insured, a major international energy entity, had a generally good overall claims record over many years but had nevertheless suffered a variety of property and  liability attritional losses that caused various insurers to make payments from time to time.

Insurers competing for the PI (D&C) business and anxious to acquire it to support its new ‘energy insurances’ portfolio, underwrote the risk at a considerable discount against the previous years policies. 

At the time of underwriting the Insured disclosed the existence of three outstanding PI claims all of which were known in the energy sector, in any case.

A further PI claim arose, entirely unconnected with the known three claims but of a similar originating cause. The ‘new’ insurer sought to avoid the  newly underwritten policy for breach of the obligation to disclose material facts. The facts relied upon were unconnected with the new claim or three known claims but rather concerned historical property and public liability claims that were not in any way similar to or connected with the present PI claim. Neither had they been of any  concern to or influence upon the previous PI (D&C) insurers because of their irrelevant subject matter and being in the distant past.

Opinion sought:

Expert opinion was sought on the nature and extent of materiality in the ordinary conduct of presentation of a risk of its kind to the ordinary insurance market.

Opinion given:

Expert opinion was given that the claims history relied upon by insurers for denying liability was not of a nature that would influence a prudent PI underwriter in the ordinary course of underwriting, or, as a matter of fact, in the immediate history of insurance with the previous PI (D&C) insurers.  

The knowledge of the insurer in the matter was that of an experienced underwriter in a highly specialist class of insurance where a knowledge of the limited number of policyholders in the  business sector is part of what  a prudent underwriter of the sector will ordinarily know as a  matter of general knowledge.

The opinion resulted in a satisfactory outcome to the policyholder 

 

Case Study 2


Commercial Combined Leisure  insurance package – Broker negligence – Demands & Needs – insurable interests. 

Insurance contract 2020/21

Expert to the Insured

Did the broker owe a duty of care to their Customer to ensure that the personal interests  and the business interests of the Client were independently covered by insurance?


Facts:

The Broker’s client was the owner of a leisure entity in the southwest of England.

The owners had incorporated the leisure business several years after first setting it up in order to take advantage of the tax and other legal benefits of limited liability. The Combined insurance package  insured the Buildings, Contents, Fixtures and Fittings and  liabilities as  occupier, together with other miscellaneous coverages ordinarily offered in a package of its kind.

As a result of a serious downturn in the leisure sector the business was put into solvent Administration. Shortly afterwards a fire starting from a neighbouring building destroyed the  Insured’s property Buildings and Contents.

Meanwhile, the  Administrators had cancelled the Combined policy, as is commonly the Administrator/ Insolvency practitioner procedure. 

In fact, the Buildings were personally owned by the business’ owner and spouse, rather than the incorporated entity itself, but the policy made no reference to their personal interests. Accordingly, there existed no insurance against the loss suffered by the broker’s Customer.

Had the policy included the owners as an Insured, separately from the  business/company,  the Administrator would have been expected to notify them of the intention to cancel the policy  and so given the  owners the opportunity to arrange separate insurance on their asset.

Opinion sought:

Would a reasonably competent insurance broker ascertain the ownership and insurable interests of an owner managed business and make provision for insurance that reflected the several insurable interests and demands and needs?

Opinion given:

A competent broker would be expected to understand the insurable interests of the owner of property as a separate interest to that of the company incorporated to hold the business. The ordinary practice of a competent broker is to assess the demands and needs of the customer annually prior to the renewal of a contract of insurance and it would be ordinarily expected of a competent broker to  ascertain whether the customer has property in a trust or pension fund, for example that may have been leased to the business owned by the customer.

The opinion resulted in a settlement in favour of the broker’s customer.

Case Study 3


Public  Liability – Costs- Primary layer obligation for defence costs and Excess Layer responsibility for same after exhaustion of Primary limit.

Insurance contract 2020/21

Expert to the Primary insurer

What is the obligation between Excess Layer insurer of a public liability insurance programme and the Primary layer insurer with regard to liability for Costs in the investigation and defence of the original claim?


The Primary PL  insurer provided a limit of indemnity of £2,000,000. A Memorandum attaching to the policy cited the several sub limits of indemnity applicable to the various ‘extensions of cover’ under the policy. The Memorandum included, amongst these, a reference to “Costs incurred in the investigation and defence of the claim.”  The Memorandum  concluded with an ambiguous statement that “…the liability of insurers  under this Memorandum ……. shall not exceed the sum of £2,000,000.”

The Primary insurer, having expended well in excess of £2,000,000 in investigation of the claim opted to withdraw from the claim having exhausted the policy limit of £2,000,000.

The excess layer insurers claimed that the primary insurer was not entitled to do so, asserting that the Costs obligation under the policy was ‘infinite’

The question arising was “did the £2,000,000 limit referred to in the Memorandum apply to Costs or only to any payment of the claim?

Opinion Sought:

What is the ordinary market practice with regard to excess layer ‘follow’ terms and conditions as between excess layer and primary insurer and how would Costs of investigation and defence ordinarily be apportioned?

Opinion given:

Ordinary practice is to share the Costs in a pre-agreed proportionate sum as set out in the relevant policy. In the event of ambiguity or absence of mention of the apportionment of Costs a common sense approach would be applied.

The opinion resulted in a settlement in favour of the Primary insurer’s conduct.

Case Study 4


Commercial Combined Policy – Broker negligence – Advice on Sum Insured – Business interruption.

Insurance Contract 2018/19

Expert to Broker

What obligation has a competent broker to influence the decision of the Customer  (Insured) in ensuring the Sum insured is suitable to meet the needs of the business in the event of a loss? 


The Insured, a commodity manufacturer, relied upon its broker for a number of years and a ‘good relationship’ existed between the broker representative and the ‘officer’ of the company responsible for accounts and insurance. The business had four distinct locations and in the course of discussing with the broker the potential outcome of a fire or flood at any one of them,  the Insured was confident of being able to relocate the ‘works’ to one of the others.

Business interruption cover was an important part of the suite of insurances needed by the Insured. However, the ‘officer’ found it difficult to persuade the directors of the company to spend the money (premium) on BI cover, it being, in the mind of the directors, ‘expensive… and an unnecessary expense  because [they[ could relocate, easily, if anything went wrong’.

A serious fire  destroyed the factory and it was discovered that not only could they not easily re-locate but also that the buyers of the products  quickly found alternative suppliers and the business was summarily truncated by loss of custom.

Such payments as insures made under the policy were inadequate and the company sought to hold the broker responsible for failure to advise an ‘adequate sum insured.

Opinion sought

To what lengths ought a reasonably competent broker go to reinforce the advice it gives to a client when the client is reluctant to take the advice and  arrange sufficient insurance?

Opinion given:

A broker can only advise as to how to arrive at a suitable sum insured. They cannot nominate the sum for the client. It is necessary to put advice in writing and review and revise the advice annually at renewal. The advice should include the consequences of underinsurance and of failing to take reasonable care to be properly insured in accordance with the business’ demands and needs. In this case the broker’s  advice was not recorded unequivocally in writing sufficient to prove a reasonable discharge of a competent broker’s obligations. 

The opinion resulted in a modest settlement in favour of the Claimant.

Case Study 5


Commercial Combined Policy – Broker negligence – Advice on Sum Insured – Business interruption.

Insurance Contract 2018/19

Expert to Broker

What obligation has a competent broker to influence the decision of the Customer  (Insured) in ensuring the Sum insured is suitable to meet the needs of the business in the event of a loss? 


The Insured, a commodity manufacturer, relied upon its broker for a number of years and a ‘good relationship’ existed between the broker representative and the ‘officer’ of the company responsible for accounts and insurance. The business had four distinct locations and in the course of discussing with the broker the potential outcome of a fire or flood at any one of them,  the Insured was confident of being able to relocate the ‘works’ to one of the others.

Business interruption cover was an important part of the suite of insurances needed by the Insured. However, the ‘officer’ found it difficult to persuade the directors of the company to spend the money (premium) on BI cover, it being, in the mind of the directors, ‘expensive… and an unnecessary expense  because [they[ could relocate, easily, if anything went wrong’.

A serious fire  destroyed the factory and it was discovered that not only could they not easily re-locate but also that the buyers of the products  quickly found alternative suppliers and the business was summarily truncated by loss of custom.

Such payments as insures made under the policy were inadequate and the company sought to hold the broker responsible for failure to advise an ‘adequate sum insured.

Opinion sought

To what lengths ought a reasonably competent broker go to reinforce the advice it gives to a client when the client is reluctant to take the advice and  arrange sufficient insurance?

Opinion given:

A broker can only advise as to how to arrive at a suitable sum insured. They cannot nominate the sum for the client. It is necessary to put advice in writing and review and revise the advice annually at renewal. The advice should include the consequences of underinsurance and of failing to take reasonable care to be properly insured in accordance with the business’ demands and needs. In this case the broker’s  advice was not recorded unequivocally in writing sufficient to prove a reasonable discharge of a competent broker’s obligations. 

The opinion resulted in a modest settlement in favour of the Claimant.