The recent brokers’ negligence case George on High Ltd v Alan Boswell Insurance Brokers Ltd (High Court, 2023) is a cautionary tale why brokers must always properly consider who ‘the insured’ is and convey that accurately to insurers.
The case involved a dispute about an insurance policy taken out for The George, a 16th-century hotel in Rye, Sussex. George on High Limited (GOH) owned the freehold, and George on Rye Limited (GOR) was responsible for operating the hotel. GOR paid rent to GOH for using the premises for the hotel business. Both companies were under the common ownership of Mr and Mrs Clarke.
The Defendant insurance broker arranged the insurance cover over multiple years. From 2013 onwards the insurer was New India Assurance Company (NIAC). A policy was in effect for the period from 18 November 2018 to 17 November 2019, naming “The George on High Ltd t/a The George in Rye” as the insured – in other words, it contains no express reference to GOR. However, it was common ground that, by November 2018, NIAC was aware that GOR existed and that GOR operated the business of the hotel.
A fire largely destroyed the hotel on 20 July 2019, leading the Claimants to seek indemnification from NIAC for losses caused by the fire. NIAC accepted liability for damage to the hotel owned by GOH but declined payment for business interruption and other items related to GOR (the “Insurance Claims”), reasoning that GOR was not an insured party under the policy.
GOR claimed against the broker alleging that it had negligently failed to obtain insurance for GOR. In turn, the broker asserted that NIAC was responsible for paying the Insurance Claims and NIAC was added as a second defendant.
Unusually, the broker accepted that it was liable to the Claimants for the Insurance Claims to the extent NIAC was not liable. In other words, there was no question that the Claimants would be successful on liability, the dispute was solely between the broker and NIAC as to who was liable to pay for the Insurance Claims.
The Court considered three main arguments presented by the broker:
- The Construction Argument
- The Rectification Argument
- The Estoppel Argument
As to (a), the dispute was what the insured name on the policy “George on High Limited t/a The George in Rye” means. The broker contended that it impliedly included GOR. NIAC denied that. Based on standard principles of contract interpretation, the Court held that a reasonable person knowing that NIAC was aware that GOR operated the business, paid the insurance premiums and having all other knowledge which was reasonably available to NIAC at the time, would conclude that the meaning of the “Insured” is “George on High Limited and the business operated by GOR t/a The George in Rye”.
Although not strictly necessary in the light of that, the Court then considered (b) the Rectification Argument, in which the broker argued that the policy should be rectified (ie retrospectively amended) to include GOR as an insured party. This was decided through application of a 4-stage test. The first is common intention, which was met; i.e. despite a lack of clarity over company identities, the clear common intention was for NIAC was to provide insurance for the business of the hotel trading as The George in Rye and the intention for GOR was to pay for such insurance. The latter 3 tests – of outward expression of accord, intention continued at the time of execution of the instrument and that the instrument (ie the policy) did not reflect that common intention – were all satisfied in the eyes of Court. Therefore, the Court held that the policy would be rectified to say “George on High Limited and the business operated by GOR t/a The George in Rye”.
Regarding (c), the broker argued that, under the doctrine of estoppel by convention, NIAC should be prevented from denying liability to GOR under the policy. One ingredient of estoppel is a common assumption. According to the broker, the common assumption was that NIAC was insuring the business known as “The George in Rye”, and the fact that the business was legally owned by GOR rather than GOH was irrelevant. NIAC said that their intention was not to insure ‘The George in Rye’ but, instead, to insure “GOH and to the extent it operates the business, the business t/a The George in Rye.” However, based on payment of previous claims by NIAC, the Court held that the common assumption of NIAC was to insure the business of operating the hotel, which was GOR’s business. By its actions, NIAC made it clear that it expected and believed GOR would be covered by the insurance under the policy. The Court held that all ingredients for estoppel were met and, as a result, NIAC was ‘estopped by convention’ (ie prevented) from denying liability to GOR.
Therefore, on these three bases, the Court found NIAC liable under the policy to indemnify GOR for losses for business interruption, contents, and stock. However, the Court also found the broker liable for the uninsured losses of the rental income from GOR to GOH during the time the hotel was closed, for which NAIC was not liable.
Even without the benefit of hindsight, the case looks to have been entirely avoidable for the broker if it had properly identified at the outset of its retainer precisely for whom it was acting – ie whether it was for GOH, GOR, Mr & Mrs Clarke, and other affiliated companies they owned – and then ensured that that information was properly recorded on the policy. Then, on annual renewal, checked that the information remained correct.
Even in fast-paced, high-volume, commercial insurance broking, it is a mistake for a broker not to always ask themselves – when looking at a new risk or a renewal – who is buying this cover, for whom, and have I that accurately explained that position to insurers?
Apart from claims prevention (and therefore a better loss record when buying E&O cover), asking these questions can have commercial benefits. During a policy year a client company may expand – eg it forms a new company or buys one. Those new entities may need new or different forms of insurance cover than the parent company. So there are opportunities for upselling or cross-selling.
Image taken from: https://thegeorgeinrye.com/
Caitlin Griffin, Trainee Solicitor / September 2023