Brokers once again face litigation based on their continuing duty of care. This case is the third set of proceedings arising out of the derailment of a GNER train on June 16th 1998, caused by the disintegration of one of its wheels.

GNER was insured by Avon Insurance plc, but on what terms? The cover placed by the original brokers, Fenchurch, had included an exception clause wide enough to protect Avon from any liability arising from the derailment. However, at a renewal in March 1998 the new brokers, JLT, had put forward terms under which Avon would be on risk. The Avon underwriter omitted to read the revised terms before confirming the renewal.

Avon declined to indemnify GNER in respect of its material damage and business interruption losses arising out of the derailment. A High Court action by GNER against Avon failed, the judge ruling that the Fenchurch wording applied: since the broker had failed specifically to draw the underwriter’s attention to the new terms he was entitled to assume that he was renewing “as expiring”. However, an action against Railcare, the servicers of the defective wheel, succeeded, and GNER were awarded £2.4 million in damages.

GNER believed that this sum did not represent its full insured loss (or the loss which should have been insured had JLT done its job properly) and sued JLT for the balance. JLT, while admitting negligence in failing to obtain the necessary amendments, asserted that the claim against them was time-barred and applied to strike it out. The action against them began in June 2004 – more than six years after the JLT renewal but within six years of the derailment. GNER contended that JLT owed them a continuous duty, in effect to place the insurance correctly, up to the date of loss.

Decision:
Cresswell J rejected the application to strike out on the basis that there were compelling reasons why the limitation issue should be disposed of at trial. Expert evidence as to the practice of brokers would assist the court about the extent and nature of any continuing duties owned by JLT. However, it was noted that even if GNER established a continuing duty of care, difficult issues as to causation may well arise. In the light of the judge’s warning that GNER might be at risk of indemnity costs should they fail to establish liability, it remains to be seen whether this litigation will continue.

This Viewpoint item appeared in issue 109 of JTW News - October 2006

Author: Ben Crook