Clarification of the appropriate test for causation in insurance brokers’ negligence cases
The Hon Mr Justice Butcher, sitting in the Commercial Court, has given welcome clarification of the appropriate test for causation in insurance brokers’ negligence cases in the recent decision of Dalamd v Butterworth Spengler  EWHC 2558 (Comm). Butcher J has confirmed that a Court should decide on the balance of probabilities the causation issue of whether a policy of insurance either was voidable or would not have provided an indemnity for reasons other than the insurance brokers’ negligence. The Claimant insured had contended that such an issue should be determined on a loss of a chance basis. That would have exposed insurance brokers to litigation as it would have made claims very difficult to defend. Butcher J rejected the Claimant’s contentions and set out the correct position in clear terms. See paragraphs 125 to 140.
In a further useful clarification of the law, Butcher J confirmed that if there is a non-disclosure which induces a variation of an insurance, the ordinary position is that the variation is avoided, not the cover, which survives as unamended. See paragraph 144.
This was a brokers’ negligence case arising out of the non-payment and avoidance of two separate insurance policies following a fire at a recycling plant. Of the seven heads of claim brought by the Claimant, Butcher J dismissed six of them, concluding (at para 181) that “Dalamd’s claim succeeds in relation to its claim in relation to the XL policy, but otherwise fails.” The case also provides useful guidance as to the application of a brokers’ duties in respect of warning as to the duties to disclose, in the placing of business interruption cover, and in what is required where an insured is advised to place cover but refuses.