In the recent decision of Mr Peter Crowson v HSBC Insurance Brokers Ltd (16 November 2009, unreported), the High Court had to consider whether a person can have rights of action against an insurance broker with whom it has no contractual relationship.

Clearly, brokers do not owe duties to the world at large, but in that case, the question arose because the broker had failed to renew a policy that was, inter alia, for that person's benefit.

When reading this article please bear in mind the correction to it posted on 17 March 2010.

Background

Following a move of its company's banking to HSBC, the managing director of Hughes Brickwork Limited ("HBL"), Mr Crowson, had approached HSBC Insurance Brokers Limited ("HSBC") to renew HBL's insurance policies. HSBC allegedly failed to renew HBL's Directors and Officer's policy, aimed to cover not only HBL, but also HBL's directors, including Mr Crowson.

Mr Crowson issued proceedings against HSBC, claiming negligence on their part in failing to renew the D&O policy. HSBC, however, applied for Mr Crowson's claim to be struck out on the ground that since the contractual relationship was between HSBC and HBL, not Mr Crowson, the latter had no cause of action against HSBC.

The Decision

Since this was an application to strike out, the judge only had to assess whether he agreed with HSBC that the "statement of case disclosed no reasonable grounds for bringing the claim" (under CPR 3(2)(a)). The judge disagreed, and instead found that it was at least arguable that Mr Crowson had a cause of action against HSBC, even though technically it was HBL that had instructed HSBC to renew the policies.

The decision was based on the following three grounds:

• It was at least arguable that a broker could be liable in tort to a person other than the person who appointed him as broker in two situations: (i) when the broker was instructed to arrange insurance for both that person and others; and (ii) where the policy was intended to benefit a third party (then the broker may be liable to that third party);
• Where a person instructs a broker to effect insurance for his own benefit, and the benefit of others, there is a valid argument that the person giving the instructions (HBL in this case) is acting as an agent of the others (Mr Crowson). There will therefore be a contract between the broker and those others for whose benefit the policy is effected (i.e. HSBC and Mr Crowson);
• Finally, even if none of the above were correct, the Judge held that in the present situation, the Contracts (Rights of Third Parties) Act 1999 applied so as to give Mr Crowson the right to enforce the contract. It was arguable that Mr Crowson could enforce a term of the contract between HBL and HSBC because he was a third party to it, and the contract conferred a benefit on Mr Crowson.

Whilst the judgment does not actually specify that HSBC owed a duty to Mr Crowson, it provides useful guidelines on the circumstances that may lead to brokers owing duties to people they do not consider to be their clients.

The dispute is now due to proceed through the usual Court system, and in due course it may produce a full judgment on the extent of brokers' duties in those circumstances. In the meantime, brokers should take note and bear in mind their potential duties to third parties.

Correction 17 March 2010

We wish to make a correction to our E-Alert sent on 10th March 2010 concerning the case of Mr Peter Crowson v HSBC Insurance Brokers Ltd (16 November 2009, unreported), as follows:

"(...) even though technically it was HBL that had instructed HSBC to renew the policies." Those facts were assumed to be correct for the purposes of the strike out application only, but are otherwise still being disputed. HSBC Insurance Brokers Limited argue HBL did not instruct HSBC Insurance Brokers to renew the policy to which Mr.Crowson's claim relates, pointing out that the expiring D&O policy had not been placed by them, and that they were not made aware of it existence.