Henderson sued over ‘poor advice’ in underinsurance claim

Henderson Insurance Brokers is being sued by a client that claims it was left severely underinsured when one of its factory buildings was damaged by fire.

Sartex Quilts and Textiles claims the broker failed to give adequate advice on how to calculate business interruption (BI).

Following the fire on 25 May 2011 in Rochdale, Sartex received £657,127 to cover BI losses and £2.1m for material damage.

But the company argued that its BI loss in the 12 months after the fire was £1.7m, while it should have received £3.6m to replace the plant and machinery.

The company alleged it suffered a further loss of profits of £3.5m in the second year after the fire but was not entitled to this because the BI cover was only valid for one year.

Henderson denies that Sartex was underinsured; adding that if there had been any underinsurance it was because the directors had failed to provide accurate figures to Henderson. 

Henderson had been arranging cover for Sartex since 2004.

At the time of the fire, the buildings cover for Crossfield was £2m, the machinery and plant cover was £2.5m, while the BI was set at £1m, with a 12 month indemnity period.

Sartex lawyers argued that the BI indemnity period should have been more than 24 months, while the BI cover for each of the 12 months should have been £2.1m.

Lloyd’s syndicate Montpelier, acting through underwriter Paladin also imposed a 20% co-insurance excess. As a result, Paladin paid 80% of the material damage and BI cover.

Henderson argued that Sartex directors were correctly advised and had shown they were familiar with insurance concepts of duty of disclosure, calculating BI cover, how to select an appropriate indemnity period and how to calculate the cover for the buildings, plant and machinery.

Henderson also alleged the directors failed to properly ascertain the value of the machinery and buildings, the likely loss of gross profits that might result from a fire, and how long it might take to return to normal trading.

Sartex directors also knew that Paladin had imposed the 20% co-insurance prior to the fire and had “insisted” on a 12-month indemnity period for its BI cover, the broker said.

Triton Global which is acting on behalf of Henderson said: ”Henderson is the subject of a claim for negligence by Sartex Quilts & Textiles in the Admiralty & Commercial Court. Henderson has filed a defence denying all the allegations that have been made against it. As this is an ongoing case, neither Triton nor Henderson are able to comment any further.”