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Liability Insurance
Saturday, September 1, 2007
Liable for poor advice

While reams of stuff have been written about the responsibility of brokers to provide the correct advice, there is one case in the UK that illustrates it clearly.

In the case of Arbory Group v West Craven Insurance Services it was found that the broker who did not inform his client properly about how to calculate the insurable Gross Profit on his Loss of Profits policy (that is, Business Interruption) was liable for the client’s short payment by his insurer.
When setting up the insurance the broker assisted in the completion of the proposal form but failed to point out that the method of calculating Gross Profit for insurance purposes was quite different from the calculation used by accountants.
It seems odd that this had to go to court. It was certainly one of the first things I was taught when I started to do Loss of Profits insurance in the dinosaur days. However, I have found that more than a few brokers have very little knowledge on how to set up Loss of Profits covers, not least being the advice to give on the best way to establish the period of indemnity. I have also seen many policies where the period is far too short – six months is used for no good reason.
In the Arbory case the insured was awarded damages of the difference between what he got from the insurer and what he should have got if the calculation had been done properly. One of the problems I encountered in my day was that the company accountant had no idea how to calculate the Insurable Gross Profit and unless properly led he would give the Gross Profit on the accounts. This will almost invariably lead to short payment in the event of a claim.
It just goes to underline the necessity of having a broker who knows his subject and is professional in his approach. A broker has only two things to offer – service and expertise – not either, but both. By Henry Tours

Copyright © Insurance Times and Investments® Vol:20.8 1st September, 2007
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