A burgeoning waste recycling company which turned out to be grossly under-insured following a devastating fire at its factory has failed to convince the High Court that the brokers who arranged the cover were negligent.
The company had achieved spectacular success in the four years prior to the blaze, its turnover having risen from just £3.2 million to £16.8 million. Its management was predicting a turnover of £25 million in the year when the fire struck and anticipated gross profits of £7-8 million.
However, when the blaze took hold, the company was insured by a Lloyds syndicate on the basis that its projected turnover was just £11 million. The sum insured by way of gross profit for business interruption purposes was only £2.5 million. The value of stock and machinery had also been seriously understated.
The insurers – who had charged a £40,000 premium under the policy – swiftly noticed the discrepancies and made a once-only offer of £1.5 million to settle the entirety of the company’s claim under the commercial combined policy. The company accepted the offer on legal advice after it was told that the insurers would otherwise seek to avoid the policy.
The company argued that £1.5 million was only a fraction of the sum it would have been due under the policy had it been adequately insured. It accused its then brokers of negligence and claimed substantial damages.
However, in dismissing the claim, the Court found that the brokers had adequately explained the nature of the policy and the level of cover. The Court was also satisfied that the turnover and business interruption figures had been provided to the brokers by the company’s then commercial director.
The individual broker who advised the company, a man with 35 years’ experience, had ‘no reason to suppose’ that the cover provided was inadequate and, so far as stock and machinery were concerned, the Court again found that the wrong figures had been provided to the brokers.