Brokers

Marine brokers and payment of premium

Section 53(1) of the Marine Insurance Act 1906, reproducing common law principles, states that it is the duty of the broker to pay the premium to the underwriters. The obligation arises as soon as the premium is due, and does not rest upon the broker having received the premium from the assured. In those cases in which the broker has funded the premium without having been paid, the broker is given a statutory lien over the policy and there is often included in the policy a ‘brokers’ cancellation clause’ which allows the broker to cancel the policy if the assured does not provide an indemnity. The rule is confined to the marine market, although for this purpose it is generally assumed that reinsurances of marine contracts are within the rule. The important question raised in Heath Lambert Ltd v Sociedad de Corretaje de Seguros [2003] EWHC 2269 (Comm), forthcoming in [2004] Lloyd’s Rep IR, is whether a placing broker must look to the (re)insured or the producing broker for indemnification of the amount of the premium. This case had an additional twist, in that it raised the further question of whether the premium payment rule applies only where the (re)insurance contract is governed by English law. The case was heard by Deputy High Court Judge Jonathan Hirst QC.