A recent case has delivered a sharp lesson to insurance brokers that slackness in informing themselves in relation to a new client can land them with liability. In McNealy v. The Pennine Insurance Co. Ltd. West Lanc. Insurance Brokers Ltd. and Carnell [1978] 2 Lloyd’s Rep. 18, the plaintiff was a property repairer and a part-time musician. He wanted to arrange comprehensive insurance on his car ready for his return from a tour in Italy, and so contacted brokers who suggested that he should insure with the Pennine Insurance Company, who offered low rates.

One qualification to this apparent boon was that the low premium was restricted to a limited class of motorists. The broker had in his office a leaflet headed “underwriting instructions” issued by the insurance company. It set out a list of “Risks not acceptable” and excluded, inter alia, “bookmakers, jockeys and others connected with racing”, “journalists and Press photographers”, “students”, and “whole or part-time musicians”. The broker knew about these exclusions, yet when the plaintiff went to see him he simply asked, “What is your occupation?”, to which the plaintiff simply answered, “Property repairer”. The insurance company accepted the risk, but when the plaintiff claimed for an accident which had caused both damage to his car and injury to his passenger, on discovery of his additional occupation as a part-time musician, the insurers denied liability on the basis of non-disclosure.

At the trial before Crichton, J., this was accepted by all parties, and so the plaintiff turned to the brokers for indemnity, and the learned Judge found them liable. His decision was upheld by the Court of Appeal.1 Lord Denning, M.R., confirmed that the non-liability of the insurers rested on basic principles—the fact that the broker is the agent of the assured,2 that the undisclosed fact was material,3 and so ought to have been disclosed.

The interesting part of the case was the basis of liability of the brokers. Clearly this rested on the well-established principle that a broker owes a duty to excercise reasonable skill and care towards his principal. There are two aspects to this—the extent of the duty and whether it has been breached. According to Lord Justice Shaw, the broker’s counsel advanced two propositions; first, that it was the duty of the broker only to take reasonable care in effecting the policy of the proposed assured, and secondly, that in this case the broker had discharged that duty by asking the plaintiff what his occupation was and recording his answer on the proposal form.

Taken together these propositions would seem to suggest that the idea of “effecting” a policy involves some restriction on the extent of the broker’s duty—perhaps with an eye to the more usual type of case, e.g., where the broker completely fails to obtain cover, or is so negligent regarding his instructions that either he obtains the wrong cover altogether, or obtains cover of insufficient extent. Such a restriction would be, it is submitted, both unfortunate and difficult to apply, for in the end result any breakdown in communicating the correct facts to the insurers will result in the