London Market - August 2010

Brokers Duty of Care, Directors' and Officers' Liability Insurance, Third Party Rights

In Crowson v HSBC Insurance Brokers Ltd (2010) Unreported, Hughes Brickworth Limited (“HBL”) had entered into an arrangement with HSBC Insurance Brokers Ltd (“HSBC”) who agreed to put into effect insurance polices identical to policies that had been arranged by HBL’s previous brokers. The previous insurance policies had included a director’s and officer’s liability insurance policy which HSBC failed to renew or replace.

HBL’s managing director, Mr Crowson, who had sought to rely on the policy, brought a claim against HSBC in his own name for negligence and breach of contract, relying on the Contracts (Rights of Third Parties) Act 1999.

HSBC applied to have the claim struck out on the grounds that it did not owe Mr Crowson a duty of care at common law and that it was not in a contractual relationship with him.

Since this was an application to strike out, the judge only had to assess whether he agreed with HSBC that the case “disclosed no reasonable grounds for bringing the claim”.

Master Bragge held that:

It was at least arguable that Mr Crowson had a valid claim against HSBC even though it was HBL, not Mr Crowson, who had contracted with HSBC.

1. There are two situations where it is arguable that a broker could be liable in tort to a person who had not appointed him, namely:
   
   

   (i)         Where a broker is instructed to arrange insurance for the person instructing him and for others;

   (ii)         Where a policy is intended to benefit a third party.

2. HSBC knew that Mr Crowson was the managing director of HBL and that he and the other directors required a director’s and officer’s insurance policy. HSBC also knew that such a policy would be for the benefit of the company and the directors. Mr Crowson gave instructions to HSBC on behalf of HBL and himself and was at least arguably acting as an agent for the other directors. There is arguably a contract between the broker and those for whose benefit the policy is effected.
   
3. In any event, the situation falls within the Contracts (Rights of Third Parties) Act 1999 and Mr Crowson has a right to enforce the contract on two grounds.

(i)         Under section 1(1)(b) of the Act as the contract confers a benefit on him, namely insurance as a director; and

(ii)         Under section 1(3) of the Act as he is expressly identified as a member of a class or answers to a particular description.  

The application to strike out Mr Crowson’s claim was dismissed.