‘Blanket’ broker PI exposure following Covid BI fallout is ‘overhyped’ – Fenchurch Law

As a result of the current industry cauldron bubbling away a concoction derived of a hardening market, the Covid-19 pandemic and a vast number of policyholders facing business interruption (BI) declinatures from insurers, “of course there’s going to be broker exposure” in terms of professional indemnity (PI) claims, said Aaron Le Marquer, partner at Fenchurch Law.

Despite this potential risk, Le Marquer believes “the blanket exposure which is being talked about is probably overhyped in our view”

Talking at Fenchurch Law’s Virtual Coverage Symposium event on Tuesday 8 December, he said: “We don’t think the exposure is too great here, but it’s inevitable that in a hardening market – we’re seeing massive rate increases and capacity decreases – the context of a systemic loss event, which is the pandemic, and then widespread declinatures and uninsured losses, of course there’s going to be broker exposure and we see some parties in the public domain trying to whip up some enthusiasm for claims against brokers.

“We know that brokers have handled thousands of declined Covid-19 BI claims, so the question arises: do they face allegations of negligence for failing to obtain adequate cover, or for failing to notify claims effectively?”

Establishing negligence

Although PI claims may be brought against brokers, Le Marquer continued that claimants will find it difficult to establish and prove that a broker has breached its duty within the context of business interruption claims – the fact that the Supreme Court is now weighing into the matter surely indicates how unexpected and unknown the pandemic and its impact on insurance is.

“Claims will be brought of course, but in our view there are going to be issues with claimants establishing breach of duty and causation here. It’s going to be quite difficult for a claimant to establish that a broker first breached the duty in obtaining them the policy that they provided,” he said.

“The coverage that was available under those policies was just not known until recently; that’s why we’ve had a test case, that’s why it’s had to go to the Supreme Court. To argue that a broker should have known two years ago what the Supreme Court would say about these different coverages seems to be quite a high hurdle for claimants to meet.”

“And the same with causation. Even if a different policy had been available and was available, the claimant’s going to have to prove that they really would have taken it if the broker had offered it to them. And it may have been that the other policy would have been more expensive and the evidence wouldn’t support that.”

Significant challenge

Le Marquer added, however, that there will be some genuine cases of broker negligence – but on the whole, the exposure for brokers’ PI claims remains low.

He continued: “We see significant challenges to broker negligence claims, in relation to BI at least. That’s not to say that there won’t be some.

“There will be individual examples where brokers genuinely have been negligent and I don’t doubt that.

“If a broker was requested to obtain pandemic cover and did not obtain pandemic cover, of course that’s a very specific circumstance in which the claimant may well have a good claim. But the blanket exposure which is being talked about, is probably overhyped in our view.”

In some instances, claims against the broker may be brought just because the insured is searching for a way to recoup their business losses from the pandemic via their insurance, but is struggling to find a policy to pay out.

“It’s really a question of these are the same losses which businesses are suffering, and then they’re trying to find somewhere to settle in an insurance context,” Le Marquer explained.

“If they’re not covered under the BI policy, do they then give rise to PI claims against the broker? If there’s no coverage from the brokers’ PI policy, will the business go insolvent, will that then give rise to [directors’ and officers’] claims? At some point, this liability and loss is going to settle somewhere.”