BROKERS - THE MEASURE OF DAMAGES IN ACTIONS AGAINST BROKERS

(Aneco Reinsurance Underwriting Ltd v Johnson & Higgins [2000] Lloyd’s Rep IR 12)

Where a broker is charged by an assured or reinsured with the duty of obtaining a valid policy, the broker’s negligent failure to do so gives rise to an action for damages. In general, the measure of damages is the amount that the assured or reinsured would have recovered had the policy been valid and enforceable. However, that sum may not represent the full amount of the loss suffered by the broker’s client where the client, acting on the assumption that there is a valid policy in place, has entered into a transaction which would not have been effected but for the policy. The question before the Court of Appeal in Aneco Reinsurance Underwriting Ltd v Johnson & Higgins, forthcoming in [2000] Lloyd’s Rep IR 12 , was whether the broker is liable for the additional loss suffered by the client in entering into the transaction to be secured by the policy. At first instance [1998] 1 Lloyd’s Rep 565 , Mr Justice Cresswell held that the broker’s liability was limited to the amount of the policy moneys. The decision, while significant in the context of insurance brokers, is likely to be of far wider significance in that it potentially expands the amout of damages for which any professional adviser may be found liable.