ABN Amro Bank N.V v Royal & Sun Alliance Insurance Plc & 14 Ors. 26 February 2021
As in Ireland, court rulings against intermediaries are relatively rare, as court proceedings are very expensive. As a result, when challenges against them are brought before the courts, the resulting decisions are often significant for intermediaries, which is likely to be the case in this decision.
A bank took out, through an insurance broker, a marine insurance policy for goods in-transit with fourteen insurers. At the time the policy was taken out, the broker asked the insurers to add a clause known as a “transaction premium clause” (“TPC”), drafted by a law firm acting for the bank. This clause is unusual in marine insurance as it broadens the scope of cover to include the risk of financial loss resulting from a default in payment. The insurers, who were not familiar with this type of clause, agreed to include it in the Bank’s policy at the broker’s request.
In 2016, two of the bank’s clients, having set up a fraudulent scheme, became insolvent, resulting in considerable losses for the bank.
The fraudulent products were of a lesser quality and value than those declared at the time the policy was taken out. The bank then made a claim, asking insurers to respond to the TPC clause. The insurers refused, arguing that such cover should have been taken out under a credit insurance policy and that in this case cover should be interpreted as being applicable only when there was physical damage to the cargo. The bank then sued them in conjunction with the broker, holding the broker responsible for not providing it with a credit insurance policy that would have allowed it to expect full indemnity from this type of clause.
The Bank won the case before the judges, who considered that the insurers should provide it with an indemnity, having contractually agreed to do so. The court also ruled that the broker had failed in its duty to the bank, caused by the risk of litigation stemming from the introduction of such a clause in a marine insurance policy. Indeed, the broker should have drawn the bank’s attention to the fact that the cover should have been taken out under a credit insurance policy, and should have redirected the bank to a specialist broker.
Finally, the judges stated that it was incumbent upon the intermediary to point out to insurers the cover being requested, due to the unusual nature of the clause in this type of policy.
This decision, which is harsh on the broker, can only motivate intermediaries to be vigilant about the risks and cover they put before insurers, and to use specialist brokers when certain risks do not fall within their own area of expertise. In this case, having gone to the marine and not the credit insurance market, the broker should have taken care to explain to insurers the purpose and consequences of such a clause, even when drafted by lawyers.