The claimant operated amusement arcades in Southend and owned a number of gaming machines which were stored in a converted church, the Rock Factory. They were destroyed in a fire on 22 December 2008 caused by arson following a break-in.
The claimant’s insurers, Equinox, repudiated liability for the claim because, firstly, the claimant had failed to implement various minimum safety standards (“MSS” – requirements for mortice and other locks on doors and window locks or steel bars on accessible skylights and windows) and secondly, the claimant had failed to take reasonable precautions to prevent loss (the “Reasonable Precautions” ground).
The claimant accepted that it had failed to implement the MSS but denied that Equinox was entitled to repudiate on the Reasonable Precautions ground (which achieved some significance in the ensuing litigation). The claimant therefore accepted that Equinox was entitled to repudiate its claim and turned to its brokers, Towergate, because they had failed to warn it that the MSS formed a requirement of the Equinox insurance policy. Towergate accepted that so the focus of the claim was on issues of causation and loss.
The main thrust of Towergate’s submissions seems to have been that the claimant would not have been able to secure an indemnity from Equinox either because it would not have implemented the MSS if told of them by Towergate or because it was in breach of the Reasonable Precautions ground (and it was that rather than the failure to implement the MSS which had caused the loss).
However, HHJ Waksman’s findings proved fatal to that defence:
- The claimant would have implemented the MSS if it had been told of them by Towergate – the cost of implementation was modest.
- On the facts, the claimant had not failed to take Reasonable Precautions.
- Likewise on the facts, the fire would have happened anyway if the MSS had been implemented. Pausing here, these findings were sufficient to ensure the claimant’s success.
- Even if Equinox had not been required to indemnify the claimant (presumably because it had failed to take Reasonable Precautions), Towergate still owed a duty to the claimant to advise it of the MSS, ie Towergate owed a free standing duty to the claimant to advise on loss avoidance provisions going beyond and separate from its duty to secure viable insurance for its client.
Note though that this finding was unnecessary (and therefore obiter) in the light of the first three findings.
The final finding raises the Environcom point. In Jones v Environcom, the claimant used plasma guns, a very high fire risk, to dismantle and recycle refrigerators. The defendant brokers failed to elicit Environcom’s use of plasma guns and advise that it needed to be disclosed to Environcom’s insurers. The insurers avoided for non-disclosure. The brokers defeated the claim on causation: Environcom’s use of plasma guns rendered it uninsurable had it been disclosed to its insurers.
Environcom then tried, at the last moment, to raise an unpleaded argument that if it had been advised by its brokers to discontinue the use of plasma guns, it would have done so and the critical fire in that case would not have occurred. The argument was rejected at first instance and in the Court of Appeal because it was raised too late (Environcom was refused permission to amend its pleadings). However, Rix LJ (with whom his two fellow Lord Justices agreed) doubted whether a broker owed any broad duty to his or her clients to advise on risk mitigation (as opposed to a duty to obtain viable insurance if it is possible to do so).
In this case, HHJ Waksman doubted whether Rix LJ’s (also obiter) observation in Environcom represented the law. The thrust of his reasoning was that the existence of a duty to advise on risk mitigation is highly fact sensitive. In this case, where Equinox’s policy required the insured to take risk mitigation measures, the MSS, it was not unreasonable to impose a duty on the broker to advise on them.
Towergate fared no better on the assessment of loss. HHJ Waksman held that what Equinox would have paid out on an otherwise valid claim was irrelevant. He preferred the claimant’s expert’s assessment of the value of the machines (which had “nudge” and “hold” features now outlawed on new machines) at £360,000 which was allowed in full.
Conclusions and implications
First, it is not easy to understand how Towergate’s breach of a duty to advise on risk mitigation and the MSS could (were the point relevant and not obiter) have caused any recoverable loss if (as had been held earlier) the fire would have occurred even if the MSS had been adopted.
Secondly, on a principled level it remains clear that the existence or otherwise of a broker’s duty to advise on risk mitigation remains uncertain. Comments on the subject in both Environcom and this case are obiter. As HHJ Waksman observed, the existence of any such duty is likely to be fact sensitive and not subject to some general principle.
Finally, one pauses to speculate whether a “loss of chance” approach to this case – the lost chance of securing an indemnity from Equinox - might at least have nudged the damages below £360,000. However, the judge’s terse rejection of Towergate’s loss argument – what Equinox would have paid out – suggests that might have been difficult.