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Broker facing £3.5m legal claim for underinsurance

Updated: May 3

A UK based insurance broker is facing a legal claim for damages of “at least £3.5 million” after a fire revealed one of its commercial clients had been significantly underinsured, according to reports.

Legal news source Law360 said a waste management company based in the South West of England had filed a claim in the High Court against a Lloyd’s of London broker after “its main processing facility, including its factory, machinery, fixtures and electrical office equipment had been destroyed in a fire in March 2017.”

According to the report, the waste management firm believed the broker “had breached its duties when arranging the waste processor’s insurance coverage… by failing to take into account the company’s needs and not making clear the extent of losses it could suffer as a result of a fire.”

The company blamed the broker for the fact that insurers had capped a subsequent insurance claim at £4.4 million. The waste company said it required at least £7.9 million in compensation and was suing the broker for the difference. The company was also said to be claiming loss of profits, the sum of which was not revealed.

Law360 said the legal claim read: “The defendant failed to take reasonable steps to arrange a policy that was suitable for the claimant’s insurance requirements.”

The report added that the waste company had sought insurance cover for commercial risks, but that it now claimed to have been left “substantially underinsured” because its property “was covered on an indemnity basis instead of the requested reinstatement basis.”

According to the legal claim, the buildings, meanwhile, were covered for £1.84 million, when it was later revealed that a more accurate evaluation should have been £2.75 million, and the policy did not include any coverage for loss of gross profits.

In addition, it was said the broker had failed to advise the client on several factors that should have been taken into account as the policy was being drawn up, such as including the cost of rebuilding the parking lots, yards, roadways and gates at the property. The costs of demolition, debris removal and fees related to rebuilding or the length of business interruption and time it would take to resume operations were also not considered, according to the claim filed.

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