Brokers

Payment of brokerage

There is very little modern authority on the manner in which a broker is to be remunerated for his services. There is a general assumption that the broker, although the agent of the policyholder for virtually all purposes (assured or reinsured), is actually paid by the underwriters, in the form of authorisation by the underwriters to deduct a sum agreed by the underwriters from the gross premium paid by the policyholder. Further, it is widely accepted that brokerage is earned by the broker finding business for the underwriters, and that it accrues in full as soon as the business is placed. These principles are subject to two serious conceptual difficulties. The first is that it is difficult to see why the law should countenance the notion that an agent appointed by party A to place business with party B is to be remunerated by party B in an amount not disclosed to party A. This seems to be as clear a conflict of interest as may be imagined. Second, the idea that brokerage is fully earned as soon as the policy incepts is inconsistent with the recognition of the continuing duties of the broker to the policyholder to assist during the currency of the policy and, in particular, to pursue any claims by the policyholder against the underwriters. It may be thought that accepted market practice cannot withstand serious scrutiny. Indications of the existence of serious doubts are found in the judgment of HHJ Havelock-Allan QC in C arvill America Inc v Camperdown UK Ltd, Commercial Court, September 2004, unreported, [2005] Lloyd’s Rep IR (forthcoming).