The small print is no longer enough. The recent case of Cafe de Lecq Limited v R A Rossborough (Insurance Brokers) Limited 2012 JRC 53 has put an end to the cry "it"s in the small print. That would be more than enough to make anyone who wishes to rely on an exclusion clause to sit up and take notice; but, even more importantly for insurers, an expert in the case labelled so called Quote Engines as laying the ground for the next big miss-selling scandal. For such an important case the basic facts were quite simple. On 8 May 2007 the Cafe de Lecq burnt down. The cause was agreed to be overheating of cooking oil by a deep fat fryer on the premises.

It was also agreed that the insurer was able to decline payment on the policy because of a clause which stipulated that any deep fat fryer on the premises should have a thermostat and an automatic cut out system if the thermostat failed. The fryer in question had no such safety features.

The case hinged on whether the broker (Rossborough) had discharged its duty of care to its client (Cafe de Lecq) and the extent to which that duty may be affected by the experience of the client.

The Court found that

  • The client had received complete copies all of the pertinent documentation including enclosures.
  • The full terms of the deep fat fryer warranty were clearly intelligible and any reader studying the terms of the ...warranty...would have had no difficulty in understanding what was being warranted.
  • The client even though a previous cafe owner had no special expertise in the context of the warranty in question and an attempt to classify him as such by the broker was said to be setting the bar too low.

The insurance broking industry in Jersey is regulated by the Codes of Practice for General Insurance Mediation Business issued by the Jersey Financial Services Commission in accordance with the powers conferred by article 19 of the Financial Services (Jersey) Law 1998. The Code requires that brokers must have due regard for the interests of its customers; must act with due skill, care and diligence; and where providing advice or exercising discretion must be able to demonstrate that it has provided the best advice or exercised the necessary discretion that is appropriate for its customers needs.

The broker had, in fact, simply sent the documentation to the client and told them to check the details shown on the attached schedule of cover to ensure that they remain in accordance with your requirements. A later letter again failed to say anything about the warranty in question. The Court stated that the crucial text was if not quite buried among other provisions of the policy, far from immediately apparent.

The court agreed with an expert called by the client that "leaving a client to find it for himself in the policy quotation, schedule or full wording is not good enough". A warranty is an onerous obligation and an important restriction on cover. The assumptions by the broker that the client was sufficiently experienced without ever having questioned him as to his experience fell below the standard required.

It was found by the Court that reliance on a so called Quote Engine had played a role in the broker"s shortcomings. The insurer had provided its software to the broker enabling the broker to offer quotations on behalf of but without further reference to the insurer. The process depends on the broker populating the software with information supposedly gleaned from the client. However the existence of default settings meant that any information insufficiently explored with the client could lead to arbitrary assumptions being incorporated in the quotation. In this case it was conceded by the broker that to a "large extent" he had populated the software with information that he had not specifically discussed with the client. This the court said "drained the broker"s role of much of its raison "etre" and placed the broker more closely allied to the insurer than is healthy to the detriment of the client whose interest the broker is supposed to be looking after.

In coming to its conclusion the Court found the client/broker relationship as pivotal. The whole premise of that relationship was that it should accomplish something over and above what the client could do for himself were he to approach an insurer direct. That had clearly not happened in this case.

The Codes and the case law clearly point to the need for unusual, limiting or exempting provisions being brought to the attention of the client Harvest Trucking C Ltd v Davis [1991] 2 Lloyd"s Rep 638.

In effect the Court stated the client was simply told Here is the policy documentation: be sure to read it and check that it meets your requirements. Irrespective of the client"s experience, said the Court, that is not good enough.

The warnings are clear therefore. If you wish to rely on an unusual, limiting or exempting provision then it must be brought to the attention of the client preferably both orally and in writing thereafter. It may also be necessary to take a step back from automated processes or proformas whereby the setting up of contracts is concerned.

Without wishing to be alarmist it may also be prudent to consider any contracts that have been automatically generated. There may be a time bomb ticking in your filing waiting to go off.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.