Insurance Brokers - Measure of damages for breach of duty

Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001] UKHL 51

Where an insurance broker is asked to obtain cover for a risk, but negligently fails to do so, the measure of damages normally recoverable by the assured from the broker is based on the amount which would have been obtained from insurers had the broker’s duties been carried out properly. This will be the case even though the assured would not have run the risk had he been aware of the absence of insurance cover: the principle, laid down by the House of Lords in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 (SAAMCO) is that there is no liability for losses which the client may incur as having entered into a transaction in the belief that his position had been secured, and that the only liability is the loss of the security itself. The House of Lords in Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001] UKHL 51 has considered whether that remains the case even where the broker had been instrumental in setting up the very transaction for which insurance cover was required. As will be seen the House of Lords has, by a majority (Lords Slynn, Browne-Wilkinson, Lloyd and Steyn, Lord Millett dissenting) upheld the Court of Appeal’s view ( [2000] Lloyd’s Rep IR 12 ) that the broker may face liability for the entire loss in such a case.