Broker’s duty to advise Insurers – measure of damages for breach

Introduction

The House of Lords recently held that following a broker’s negligent omission to advise that adequate reinsurance was not available in respect of insurance cover that the claimant was seeking to enter into, the proper measure of damages was the full extent of the claimant’s losses ( Aneco Reinsurance Underwriting Ltd (In liquidation) v Johnson & Higgins Ltd [2001] UKHL 51). The facts of that case were uncontroversial. Aneco were invited by the defendant brokers (Johnson) to participate in an excess of loss account of certain Llyod’s marine syndicates under a proportional treaty (ie for each risk ceded, a proportion of the insured’s premium equivalent to a proportion of the risk is ceded to the underwriter/insurer). Aneco made it a condition of their arrangement with the broker that their entry into the treaty was subject to the broker’s obtaining satisfactory reinsurance on similar terms. Johnson, therefore, not only acted as brokers for the syndicate, but as brokers for Aneco for the reinsurance.