Reynolds v Rossborough

RWA recently sent out details of the Reynolds vs Rossborough judgement to all our clients, and what a fascinating response we got.

Over 10% of those who were sent the email responded within 48 hours and so we are currently speaking with one of the leading Broker PI lawyers and also a leading firm of PI brokers to put together a workshop to look closely at the problems raised and to add in a few more key thoughts on how to limit PI risk for brokers.

Those of you who did read the judgement realised that the needs arising from what the judge had to say are very firm specific and it really would be remiss on our part to give a precis of one of those rare judgements that in many different ways will affect every broking firm and insurer in the UK.

It is not a replacement for Environcom, indeed the judge will have relied on that case for many of the points he made, but the real issue lies in the online aspects of the transaction and the “lies and misrepresentations” about the risk that sit on insurer’s computer systems.

Interestingly I have just had a motorbike restored and spent 20 minutes on the phone to a specialist broker arranging insurance.

Three days after having gone on cover I received the Statement of Fact and went through it in some detail. There were 5 key misrepresentations which the broker had made without referring to me, of which at least 3 were clearly material:

1) The bike is not garaged

2) The bike does not do only 1500 miles per annum

3) The bike has been adapted (converted from  fuel injection to carb)

In addition the cover is SD&P and commuting (I will use it on a couple of days a year on business trips).

I also studied the explanatory Demands and Needs letter and whilst it might pass the Environcom test it would not meet the Reynolds v Rossborough standards if I had been a layman. Warnings were not clear and prominent (buried on page 3) and they were not brought to my attention.

One of the interesting things about the RvR case is that a key warranty was brought to the attention of the customer in a personal letter when running a previous cafe but not in a manner that caused him any reason to consider the matter of any great importance (“please familiarise yourself with the warranty as it is fundamental to the policy”).

Many of you have recognised that there is an urgent need to review your standard documentation and the way that you warn customers about significant and onerous conditions and their effect but how many of you spotted the fact that so many people in the industry are using the minimum defaults used in the online quotation world to get cheaper quotes with less hassle, but then not making reasonably sure that the Statement of Fact that is used to put cover on risk is in fact true?

The argument of the Defence in this case was that it is so hard to make any money on a small commercial package policy now that the broker’s duties should be reduced to avoid the need to take reasonable steps to ensure the customer knows what they are buying.

Well, maybe one day a Judge will agree with that proposition and there is some merit in the argument that if the customer agrees to take full responsibility (or to absolve the broker from any responsibility) that this might be a way forward, but the problem is that to make such an agreement watertight you would have to go through such a process ensuring that the customer knew and understood what they were signing that the obtaining of the agreement would take longer than the education of the client in the first place.

In short, here are some examples from R vs R:

1) If you want a customer to answer truthfully whether a property is standard construction you have to be sure they understand what it means

2) if you want a customer to be responsible for a breach of warranty then they must know how important the warranty is, where it can be found, what they have to do or not do and what happens if they are in breach

3) if you want your customer to be responsible for under insurance then they must know and understand the condition of average

4) if you want a customer to be responsible for the wrong name of the insured on the policy then they must know and understand the importance of insurable interest

5) If the indemnity period is too short and you do not want to be held responsible then you must be reasonably sure that the insured understand the importance of choosing a period which is adequate.

Finally, it is becoming clear that if you deal with AR’s or are a wholesaler dealing with brokers online then you need to be extra careful. People will quickly learn how to get round the “refer to underwriter” syndrome and in our experience, if that means being economical with the truth then you are at risk. We believe that mystery shopping will become the norm and we can provide a service making enquiries to your distribution network to check if information is being conveyed to you correctly. Get in touch.

Master-classes and workshops will be announced shortly and if you want a one to one with us just let us know.

Robin