The broker’s job is essentially to obtain coverage for his client. In performing that role, he generally prepares contract documentation. If that documentation is not fit for the purpose, there may be a problem as the client does not have the coverage which he thought he had.
When this happens, it is tempting for the broker to say "you should have checked what we gave you" especially in the current climate of contract certainty, which urges that attributes such as "law, jurisdiction and arbitration" and "sound legal basis" be achieved in the contractual documentation. Many organisations seek sign-off from their legal advisers to comply with this.
HIH v JLT Risk Solutions Ltd (2006) considered the issue amid a plethora of others. The broker had been central to a film financing insurance scheme, part of which involved placement of reinsurance for HIH. Reinsurers successfully refused to pay on the basis of a breach of warranty regarding the number of films on the "slate". HIH turned their guns on the broker and, in the event, failed because although there had been a breach of duty, it had not actually caused any loss. The judge, however, did consider what would have been the position had HIH succeeded.
The facts of HIH are complex but, in brief, the broker argued that HIH contributed to its own negligence by failing to read risk management reports which would have told it of the reduction in the number of films on the "slate" and therefore alerted it to the breach of warranty. The judge decided that HIH should bear a 20 per cent responsibility towards its own losses as a result.
Why 20 per cent, you may ask? The answer is because it had been applied once before in an equally notorious market dispute, the so-called "Superhulls" case (Youell v Bland Welch) in 1992. That matter involved an insurance and reinsurance programme for the construction of large liquefied gas carriers in the US. The original insurances permitted extensions of cover until delivery of the superhulls; the reinsurance, however, was restricted to a 48 month period of coverage. The inevitable happened, insured losses occurred outside the 48 month period and the brokers who put the programme together were sued.
The judge held that the insurers were 20 per cent responsible for their own misfortune in not having read the reinsurance documents properly.
It might be premature to regard this as a set tariff for contributory negligence where there is failure to check the documents (in the same way as, for example, 25 per cent is generally applied if you don’t wear a seatbelt). However, perhaps we can definitely see a trend emerging.
HIH then addressed a more challenging question. HIH had paid certain claims without reinsurer’s agreement knowing that its reinsurers would not pay. HIH were arguably on the horns of a dilemma, often encountered by captives or insurers who have back to back reinsurance on disputed claims. The breach of warranty defences were out there and HIH themselves could have taken them against their policyholders. They opted not to however. The judge decided that their contributory negligence towards any claim against the brokers would have been a far more substantial 70 per cent.
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