Critical insights for policyholders, brokers, and insurers on the duties of insurance intermediaries and the assessment of liability for losses when insurance coverage falls short

As part of our series of articles focusing on insurance broker claims, Mark Healy and Sorcha Blessing examine the recent UK Court of Appeal decision in Norman Hay PLC v Marsh Ltd.

The recent UK Court of Appeal decision in Norman Hay PLC v Marsh Ltd offers critical insights for policyholders, brokers, and insurers on the duties of insurance intermediaries and the assessment of liability for losses when insurance coverage falls short. This case is especially relevant for clients operating in complex or cross-border risk environments.

Background: Cross-Border Insurance Oversight

Norman Hay PLC (“NH”), a UK-based parent company with global subsidiaries, found itself exposed following a serious road traffic accident that occurred in the USA in 2018. An employee of the company’s German subsidiary, Internationale Metall IMPrägneier GmbH (“IMP”), was involved in a collision that left a third party severely injured. NH settled the injury claim for $5.5 million in early 2021.

During its investigation into the accident, NH discovered that contrary to its belief, their insurance cover did not include non-owned auto liability insurance for IMP. Marsh Ltd (“Marsh”), the insurance broker responsible for arranging worldwide coverage, had allegedly failed to secure this essential protection.

The Legal Dispute

NH sued Marsh for professional negligence, claiming the broker’s error cost them not just the settlement payment, but also the chance of being indemnified under a policy that should have been in place.

In response, Marsh argued that NH had no legal entitlement to recover because it had not alleged in its pleadings (defending the claim of the Third Party) that it was legally liable for the accident. Marsh also argued that it was not retained to carry out a risk assessment or for risk consultancy services generally, and that it was NH’s responsibility to provide Marsh with all relevant information about the group's business. It argued further that worldwide non-owned auto cover was not a typical feature of liability policies written in the United Kingdom so that it was under no obligation to arrange such cover or to advise about it.

Marsh sought to strike out the claim by way of preliminary application. However, both the High Court and Court of Appeal disagreed with Marsh’s attempt to strike out the claim.

In the Appeal hearing, the Court clarified that in broker negligence cases, the standard is not whether the claimant would have been indemnified under a policy, but whether the claimant lost a real and substantial chance of indemnity due to the broker’s failure. This “loss of chance” doctrine is a flexible and realistic way to assess liability in cases where the outcome of a theoretical underlying insurance claim is uncertain.

Key Takeaways for Clients

1. Broker responsibilities are significant:

Insurance brokers must exercise reasonable care and skill in understanding their risk exposure and arranging appropriate coverage. They must hold detailed meetings with their clients so that they have a solid understanding of their client’s business and insurance requirements. Errors can have serious financial and reputational consequences, especially in multinational and multi-jurisdictional operations.

2. Loss of Chance is enough for a liability to arise:

Even if there is no guarantee that an insurer would have paid a claim, clients can recover damages if they can show they might have been indemnified had the proper cover been in place.

3. Courts will adopt a pragmatic understanding in how claims are handled / settled generally:

The UK Court of Appeal acknowledged that insurers often settle claims based on commercial considerations rather than strict legal liability. This common-sense view supports the rights of policyholders who have had to settle third-party claims out of pocket due to broker errors.

4. Documentation and communication are crucial:

As always, brokers should maintain a record of communication, including emails, policy documents, and advice given. These records could be vital if a dispute arises.

What This Means for You as Brokers

If a similar claim arises in the Irish jurisdiction we expect that Irish Courts will adopt a similar view to their UK counterparts. In that regard, this case underscores the importance of robust risk management and diligent broker oversight, particularly in cross-jurisdictional contexts. It also demonstrates the courts’ willingness to take a realistic, commercially aware approach to insurance disputes.

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