Eurokey Recycling Ltd v Giles Insurance Brokers Ltd

This is a brokers’ negligence claim for breach of contract and/or negligence which is brought by Eurokey Recycling Ltd against its former insurance brokers following a fire at Eurokey’s main premises at Enderby, Leicestershire, on 2 May 2010. The defendant brokers are Giles Insurance Brokers Ltd, and the claim is in respect of a commercial combined policy arranged by Giles with a Lloyds syndicate acting through its agent Paladin Underwriting Agency Ltd. This covered, amongst other things, business interruption risks for the period 13 April 2010 to 12 April 2011, and a major part of Eurokey’s case relates to the business interruption cover. On 21 February 2014, it was ordered by Judge Mackie QC that the trial was to be of liability only.

Eurokey claims that it was under-insured because Giles negligently advised it, and failed to arrange adequate levels of cover, causing insurers to threaten avoidance of cover by reason of under-insurance. Its case is that if it had been properly advised by Giles, it would have been fully insured, and its claim is for the shortfall between the settlement it reached with insurers and the sum which it says it would have recovered had it been properly advised and insured, together with consequential losses. Giles denies all allegations of negligence, and says that the insurance was arranged on the basis of specific instructions received from Eurokey. It says that Eurokey cannot prove causation and could not have obtained cover on the basis it contends should have been arranged, and that any damages must be substantially reduced for contributory negligence.

The factual witnesses who gave evidence on behalf of Eurokey were Mr Harinder Singh Dhillon, known as John Dhillon, its owner and managing director, and Mr Joseph Bisland, its former commercial director who had responsibility for arranging Eurokey’s insurance in 2009 and 2010. The factual witnesses who gave evidence on behalf of Giles were Mr Richard Evans, the insurance broker responsible for arranging Eurokey’s insurance, and Mr Tom Brooke, an insurance broker who assisted him in 2010 (and who had little recollection of the relevant events).

The key witnesses were Mr Bisland and Mr Evans. Mr Evans is an insurance broker of some 35 years experience, and was on the whole a good witness, though he did not seek to maintain his witness statement evidence in all respects.

Eurokey says that Mr Bisland was “transparently honest” and gave what was clearly honest evidence that his previous involvement with business insurance had amounted to operational matters such as checking compliance with survey requirements. His demeanour when giving evidence, Eurokey says, was of a straight-forward down-to-earth businessman.

Giles mounted an attack on the evidence of Mr Bisland, saying that he has given false evidence to the court about “a whole host of issues”, a substantial list of such alleged falsehoods being provided in Giles’ written closings. Some of these, in my view, amounted to disagreements on the evidence. I do not accept that Mr Bisland came to court to give dishonest evidence, and I generally consider that he sought to assist the court with his evidence as best he could. He was understandably defensive about aspects of the insurance he was responsible for as commercial director of Eurokey, and while there was a tendency (sometimes on the claimant’s side as well I felt) to try to attach exclusive blame to him for the under-insurance that happened in this case, I do not accept an analysis along those lines. In some respects it seems to me that he did a considerably better job for Eurokey than had been done before.

There are, however, some aspects of his evidence which I do not accept, and which I identify below. There are also some aspects that I cannot regard as truthful, and these were principally his evidence as to what he says he told Mr Evans about turnover prior to the insurance being placed in 2010, his evidence as to the source of figures which he himself sent on to other insurers in an effort to find cover at lower rates than Giles had found, and his evidence as to the reason for sending the company’s draft accounts to Mr Evans. These I consider are significant in terms of his credibility, and where their evidence differs, I prefer that of Mr Evans.

Giles also sought to portray Mr Bisland as a “sophisticated businessman” who “clearly understood commercial insurance” when he joined Eurokey full time as commercial director in January 2009. It makes these points to support its case that an insurance broker needs to direct its explanations to a particular client, and if that client has a good understanding of the relevant insurance concepts, very little explanation needs to be given. It seeks findings of fact that Mr Bisland had experience of commercial insurance prior to joining Eurokey, and was fully aware of (i) the nature and implications of the duty of disclosure, (ii) the fact that stock and machinery should be insured on a reinstatement basis, (iii) the method of calculating the sum insured for business interruption cover, and (iv) the concept of floating cover.

The position is that prior to joining Eurokey, Mr Bisland had been working in Scotland for a timber company and a packaging company. He had managerial roles with both, and was managing director of the packaging company. The impression I got was that he came in to Eurokey to add structure to the company’s operation (the management he said was essentially him and Mr Dhillon working out of a small office on site). However, though he was experienced in business, it would be misleading to describe him as a “sophisticated businessman”, and between the two, Mr Evans was in my view the more sophisticated.

Mr Dhillon’s evidence was to the effect that he thought that Mr Bisland had some previous experience of commercial insurance, but would expect him to have the benefit of expert advice from the brokers where necessary. Mr Bisland accepted that as commercial director, arranging the company’s insurance was his task. However, he said that he was not familiar with the details of placing commercial insurance, and specifically not with business interruption insurance. I find that Mr Bisland did have experience of commercial insurance, but only in an operational sense, as he said. There is no evidence that he had any experience of business interruption cover. I decline therefore to make the findings of fact that Giles seeks in this regard, though I accept that Mr Bisland was aware of the nature and implications of the duty of disclosure, the fact that stock and machinery should be insured on a reinstatement basis, and in general terms the concept of floating cover, none of which present any difficulties to an experienced business person like him, as he indeed effectively accepted in cross-examination.

However, as I have said he was brought into the company because of his experience. Mr Dhillon agreed in cross-examination that he was satisfied that Mr Bisland had everything in hand “insurance-wise once he began his work”, and also agreed that if Mr Bisland gave him that impression, no doubt he gave that impression to Mr Evans as well. Whilst I do not think this experience bears the weight that Giles seeks to place on it, I consider that it played its part with Mr Evans, and certainly justified Mr Evans in not challenging the figures that Mr Bisland gave him.

Expert broking evidence was given by Mr Barry Hammond on behalf of Eurokey, and Mr Robin Wood on behalf of Giles. Both are well qualified, and their evidence was of assistance to the court. There was in the end little relevant difference between them as to the standards expected of a competent insurance broker.

The facts as I find them are as follows. Eurokey is a waste recycling company established in 1995, and owned and run by Mr Dhillon. Its turnover rose over the period encompassed in this case from about £3.2m in 2005 to £16.8m for year ended 31 August 2009 (the last set of accounts relevant at trial), though the trend was not uniformly upwards. There are a number of other companies in the group, but Eurokey is the most important. In 2008, Eurokey acquired further premises in Lount, also in Leicestershire, but the centre of the company’s operations has at all material times prior to the fire been at Enderby.

Mr Evans is, as indicated above, an experienced broker, who joined Giles, which is a major firm of brokers (it has since been acquired by another business) in 2004. He had already been acting for Mr Dhillon and Eurokey, and on his move to Giles, he took the account with him. The company’s insurance year ran from April to April.

So far as the evidence at trial is concerned, details of Eurokey’s insurance begin in 2005/6, the policy including stock, machinery and business interruption cover. The BI sum insured was £350,000 declaration-linked on a gross profit basis with a twelve month indemnity period, as it remained throughout. In 2007 the insurance was placed with Quinn Insurance Ltd, and business interruption cover at that stage was £650,000. In 2008, which was the first year that received any attention at trial, the policy was renewed, and business interruption cover insured at £800,000.

In July 2008, Mr Bisland began working as a consultant for Eurokey, becoming the full time commercial director in January 2009. This was the first year he dealt with Eurokey’s insurance with Mr Evans. Eurokey’s accounting year ended on 31 August, and its most recent accounts at that time were for the year ended 31 August 2007 (which were not signed off until 13 February 2009). These showed turnover of £8.18m and gross profits of £2.15m. There were at that time two other associated companies insured under the Eurokey policy, Recoverypak Ltd and County Recycling Ltd, with turnover of £1.5m and £0.5m and gross profits of £202,000 and £168,000 respectively.

To prepare for the meeting with Mr Bisland, Mr Evans prepared a pre-renewal report dated 10 February 2009. At the meeting (the date of which is not clear) I think Mr Bisland accepts that Mr Evans took him through it annotating it in hand. Mr Evans says his annotations were updates reflecting the information that Mr Bisland gave him, and although that is in dispute, it seems very likely. As regards business interruption cover, the figure of £800,000 is crossed-out and £2m inserted in manuscript.

A figure for turnover has to be given in the products liability section of the report. When Mr Evans annotated the equivalent document in 2008, he noted a turnover figure of £11m, which was what went into the pre-renewal report for 2009. This was made up of £8.4m in respect of Eurokey, £1.6m in respect of Recoverypak, and £1m in respect of County Recycling. (I was told that County since ceased to trade.)

In annotating the pre-renewal report at the 2009 meeting with Mr Bisland, Mr Evans crossed out the turnover figure of £11m from the previous year and substituted £9m. Mr Bisland said in evidence that this information did not come from him, since turnover was not going down. However, I accept Mr Evans’ evidence that the only source from which that figure could have come was Mr Bisland. For the same reason, I accept Mr Evans’ evidence that the figure of £2m in respect of business interruption cover was also given to Mr Evans by Mr Bisland, contrary to Mr Bisland’s evidence. There is however an issue I will have to come back to as to what explanation was given by Mr Evans as to the nature of the cover.

So far as the documents are concerned, Eurokey’s accounts at this point were being produced late. Its accounts for the year ended 31 August 2007 showed a turnover of £8.1m compared with the figure of £8.4m in the accounts for the year ended 31 August 2006. The gross profit figure in the accounts was £2.1m compared to £1.9m the previous year.

Mr Evans’ evidence is that following the pre-renewal meeting with Eurokey, he would approach insurers with a market presentation seeking quotes. He would then prepare a renewal report to be discussed with the client at a second meeting. For 2009, the renewal report is dated 8 April 2009, and although he did not keep notes of his meetings, it is not in dispute that a meeting with Mr Bisland would have taken place round about this time. He recommended renewal with Quinn, the premium being £29,600.

Eurokey’s accounts for the year ended 31 August 2008 were not finalised until 27 July 2009, in other words after the renewal meetings for that insurance year. They show turnover of £9.2m and gross profit of £2.9m (according to a table produced by Eurokey in opening Recoverypak’s figures were £1.6m and £267,000 respectively, County having dropped out of the picture). However, Mr Bisland says, and I accept, that turnover was increasing during 2009. The company identified a new site at Hinckley in Leicestershire, though it did not acquire that site until the end of 2010 after the fire. At this point, it is clear that the parties envisaged a renewal with Quinn. Mr Bisland and Mr Evans went round the Enderby and Lount sites with a Quinn surveyor on 8 December 2009, and the report the surveyor produced is relevant particularly as regards the dispute between the parties as to the indemnity period for the BI insurance described below.

Renewal was due in April 2010, and following an exchange of emails, Mr Evans and Mr Bisland arranged to meet on 5 March 2010. Mr Evans prepared a pre-renewal report dated 4 March 2010. It included the approximate turnover split between the three companies that I set out above, which Mr Evans says, and I accept, was left in by mistake. Eurokey fairly comments that this was one of a number of mistakes in the Giles documentation. Mr Bisland was not sent a copy in advance, and says (which I do not accept) that he was not given a copy to keep. I am satisfied that Mr Evans, who was accompanied by Mr Brooke, took him through the document. Mr Bisland says that the main purpose of the meeting was to discuss an ongoing personal injury claim, and whilst this was discussed, I reject this suggestion, which is inconsistent with the other evidence as to the purpose of the meeting.

According to Mr Bisland’s witness statement, he had told Mr Evans when they met in 2009 that projected turnover to August 2009 was in the region of £17m. In oral evidence he suggested that this figure was given to Mr Evans in 2010. In his witness statement, he says that when they met in 2010, he told Mr Evans that the combined Eurokey and Recoverypak turnover for the year to August 2009 would be over £19m, and with turnover projected to be in the region of over £22m by August 2010. This is strongly disputed by Mr Evans.

Some light is shed on this by Eurokey’s draft accounts for the year ended 31 August 2009 which Mr Bisland got about 17 March 2010, so after the pre-renewal meeting on 5 March 2010. These showed turnover as £17.6m and gross profits as £4.57m (both numbers came down when the accounts were finalised on 14 September 2010). According to a table produced by Eurokey in opening, Recoverypak’s figures were £2m and £331,000 respectively (but as I understand it these were the figures in the finalised accounts).

The question of what Mr Bisland told Mr Evans about turnover goes to the respective credibility of the two witnesses. In a statement of 17 June 2010 some weeks after the fire given to the loss adjustors, Mr Bisland suggested that he would have told Mr Evans that Eurokey projected to achieve a turnover in the region of £25m by August 2010. I deal further with his statement and that of Mr Dhillon later.

Mr Evans’ evidence on this point is that in 2009 he asked for an estimate of turnover for the twelve months commencing 10 April 2009, and Mr Bisland told him £9m. In 2010, the estimate of turnover Mr Bisland gave him for the next twelve months was £11m. He would have annotated the £11m figure on his copy of the 4 March 2010 pre-renewal report, in the same way as he annotated the document in 2009. Unfortunately, Giles has been unable to produce a copy of the annotated document, but Mr Evans is adamant that if he had been told about the figures which Mr Bisland says he was given, these are the turnover figures he would have adopted.

Similarly as regards business interruption cover, Mr Evans says that Mr Bisland told him that the sum insured should be increased from £2m to £2.5m and that the 12 month indemnity period remained appropriate. Mr Bisland denies this, and says he does not know how the figure was arrived at.

In March 2010, Quinn, which is (or was) an Irish insurer, went into administration. I infer that Mr Evans had to find alternative insurers, though he says it was unnecessary immediately to replace Quinn because of an Irish Government guarantee. In any case, he prepared a market presentation dated 6 April 2010 which requested BI cover with a 12 month indemnity period for a sum insured of £2.5m. Under products liability, he filled in the box for “Annual Turnover Estimates” under “turnover (next twelve months)” as £11m. There is a turnover split as between Eurokey and Recoverypak (£8.4m and £1.6m) which Mr Evans says was included by mistake.

The only quote he got was from Paladin, and this was reflected in the Renewal Report dated 9 April 2010 which he prepared for his meeting with Mr Bisland on that day. I am satisfied that the purpose of the meeting was to confirm that the insurance to be placed was in order. In submissions, Eurokey pointed out that in a letter from Giles’ solicitors dated 21 July 2011 which purports to set out Mr Evans’ practice “from which he never departed”, has market presentation for the placement of the insurance coming after the renewal meeting. This is one of a number of points which Eurokey derives from the letter by which it seeks to undermine Mr Evans’ credibility. However, in my view, this point is simply a mistake on the part of the solicitors. The market presentation came before the renewal meeting, and it had to, since the client needed to know the proposed premium among other things.

Mr Bisland says it was a short meeting, and they “did not go through the contents of the Renewal Report in detail”. Nonetheless, the turnover figure of £11m is stated in the Renewal Report, as is the sum insured for business interruption, namely £2.5m, as well as the figures for stock and machinery. Mr Evans says that they went over the figures, and Mr Bisland confirmed that they were all correct, which Mr Bisland denies. However, I prefer Mr Evans’ evidence in this respect.

It is clear that Mr Bisland was strongly concerned about the Paladin premium, which was about £40,000. On about 9 April 2010, emails were sent off by Eurokey to various other potential insurers, attaching some 14 pages of the Renewal Report, and supplemented by an email giving figures from Mr Bisland about stock and machinery which he actually typed out. The pages which he sent to the insurers included the pages with the BI sum insured of £2.5m and the turnover figure for the next 12 months of £11m. Giles places considerable reliance on this, but Mr Bisland says that he did not notice what he says was the wrong information.

These approaches by Mr Bisland drew a blank. Mr Evans emailed Mr Bisland the market presentation with all the numbers including the £2.5m and £11m numbers, but he was in Ireland for a wedding, and says he could not easily look at it on his blackberry. He says he did not notice the figures. He told Mr Evans on the phone that cover should be placed with Paladin, and Mr Evans took the necessary steps on the afternoon of 13 April 2010. The insurers confirmed cover from midnight, subject to survey.

Eurokey intended to finance the premium through a company called Premium Credit Ltd. There is a further dispute on the evidence in this respect, and for the moment I simply note the facts. Early on the morning of 14 April 2010, Mr Bisland sent Eurokey’s draft accounts for the year ended 31 August 2009 to Mr Evans (these were the draft accounts that showed turnover of £17.6m). Mr Evans says that the accounts were required by Premium Credit before credit would be extended, and he sent the draft accounts on to Premium Credit later that day. He says he did not read the accounts, and had no reason to do so.

Mr Bisland disputes this version of events. He says that the accounts were sent to Mr Evans not for Premium Credit, which Eurokey suggested did not need them, but “for the purpose of confirming Eurokey’s trading figures as I had been out of the office the day before. We were very proud of the turnover figures set out in the 2010 draft accounts and we were pleased they have been finalised in good time following the end of the financial year”. (At the start of the trial, Eurokey adduced some late Civil Evidence Act evidence from Premium Credit, but it had no weight, and little if any reliance was placed on it in closings.) On 15 April 2010, Premium Credit agreed to provide credit.

On 2 May 2010, a fire occurred at Eurokey’s Enderby site. The pictures make plain the extent of the damage, and following the fire, I am told that Enderby was not rebuilt. There followed extensive activity by loss adjustors for the insurers and for Eurokey.

Naturally, the insurance cover came under immediate scrutiny. It transpired that Giles had not arranged for liability cover, something that Eurokey emphasises as showing its negligent conduct of the insurance generally. It says that it has a causal significance in that the insurers would not have been looking out for the turnover figure (I do not accept the relevance of this point). In any case, the mistake had no direct consequences, because on 28 May 2010 Paladin confirmed liability with effect from 13 April 2010.

Both Mr Dhillon and Mr Bisland gave statements to the insurers’ loss adjustors dated 16 and 17 June 2010 respectively. I have already referred to that of Mr Bisland, and that of Mr Dhillon was largely the same.

So far as stock is concerned, they said that the total level of stock at both Enderby and Lount was in the region of £400,000 in April 2010. Mr Dhillon said he “did believe that it was a floating sum insured”. In fact, stock at Enderby was only insured for £25,000 (a figure of £35,000 appears in places in the Giles documentation, but whilst fairly described as sloppy, this has no consequences). As regards the value of machinery, they said that the replacement cost of the machinery at Enderby was about £1m, against a sum insured of £460,000.

I have already mentioned what was said about turnover in Mr Bisland’s statement. They said that County Recycling had stopped trading in 2008, and Recoverypak had achieved a turnover of £2m to February 2010. Eurokey had an anticipated turnover of £25m to August 2010, having achieved a turnover of £17.6m to August 2009 (this was the figure in the draft accounts). It was said that, “The correct turnover figure should have been about £27m for the two companies, as the rate of gross profit for Eurokey is 25%-30% and the rate of gross profit for Recoverypak limited is around 40%. This would give an anticipated gross profit figure of £7/8m”. In his oral evidence, Mr Dhillon said that £27m was a “target figure”. As noted already, insurers had been told that the turnover was £11m for Eurokey and its associated companies, and the amount insured by way of gross profit for business interruption purposes was £2.5m.

It was therefore obvious that Eurokey was grossly underinsured, and this is not in dispute between the parties. (Eurokey says that it must have been underinsured throughout the whole period in which Giles was its broker.) On 18 June 2010, Mayer Brown (lawyers appointed by Paladin) wrote raising concerns in relation to the turnover figures based on the review by Paladin’s loss adjustors. This concern was passed on to the parties for their comments.

In his response in an email dated 18 June 2010, Mr Evans said that “… we held a pre-renewal meeting with Joe Bisland on 5th March when he gave me the £11m figure. This was confirmed in our renewal report presented 11th April. For 2009 client had advised an estimate of £9m so we had no reason to doubt the uplift to £11m for 2010”.

In his response also in an email dated 18 June 2010, Mr Bisland said: “Draft accounts were available in March which showed a £17 million turnover. Why settle on 11, why not 12, or 13 or 14. Two options really. I told him 11 or I told him 17 and he declared 11.” The email also says that no discussion took place on gross profit. I agree with Giles that this is a somewhat odd response because it lacks an unequivocal assertion that he gave the higher figure to Mr Evans (it does not refer to the even higher figures of £22-25m referred to above). Mr Bisland said that he would not have sent an email in these terms if he had time to reflect on it.

On 2 July 2010, having reviewed the statements provided by Mr Dhillon and Mr Bisland, Mayer Brown reverted on the subject of turnover. The letter also said that Mr Dhillon’s statement indicated that the value of stock stored inside the premises was around £60,000 with around £100,000 stored outside the premises. The declared value of stock was £35,000 (as noted this was a mistake, and the figure was £25,000). The letter drew attention to the discrepancy in the replacement cost of plant and machinery, and other matters which are not relevant.

On 15 July 2010, a without prejudice settlement meeting took place at Mayer Brown’s offices, and it was agreed that Eurokey would accept a payment of £1.5m in settlement. Of that sum, insurers paid out in full on the property policy, but only paid out £820,000 on the combined commercial policy. Eurokey was told that unless the offer was accepted, it would be withdrawn, and Paladin would exercise its avoidance rights. Eurokey took advice from a QC, and accepted the offer. No issue arises as to whether or not it was reasonable to accept the offer.

Meanwhile, through new brokers, Eurokey was seeking substitute cover. Eurokey obtained insurance with Recyclesure incepting on 26 July 2010. The cover included £13m of business interruption cover on an 18 month indemnity period for a premium of £79,286.

The draft accounts for the year ended 31 August 2009 were signed off on 14 September 2010. Whereas the draft accounts show turnover to 31 August 2009 as £17.6m, the final accounts show turnover at £16.8m. As. to gross profit, the figure of £4.6m in the draft accounts was reduced to £3.7m.

Following exchanges of solicitors’ letters in 2011 and subsequently, these proceedings were begun against Giles on 28 January 2013.

Eurokey says that Mr Evans (and Mr Brooke) and Mr Bisland had a 40 minute meeting on 5 March 2010 from which the wrong numbers for sums insured and estimated turnover emerged. By the time a site inspection was carried out and the participants had visited the scene of a personal injury claim there would have been little time to consider all of the matters that required to be addressed in relation to the renewals, and also address with any diligence the calculation of a business interruption sum insured.

As to business interruption, the figure of £2.5m was arrived at by Mr Evans who said “I was trying to establish a number” following some kind of very limited and general discussion with Mr Bisland about the performance of the business. No detailed business interruption calculations were undertaken by either of them. No explanation was given as to the approach to be taken by Mr Bisland in calculating the sum insured but to the extent that there was any discussion about this the explanation given by Mr Evans was clearly deficient.

That Mr Evans’ explanation to Mr Bisland as to how calculate the business interruption sum insured was deficient is supported by the fact there are no records of any adequate explanation having been given, and the only manuscript notes of the “workings” of the sum in the 2008 and 2009 Pre-Renewal Reports make no reference to “estimated gross profits”, are backward looking and for 2009 only address Eurokey and not Recoverypak. It is also supported by the fact that the figure produced is so much lower than it ought to have been in circumstances where Mr Bisland knew Eurokey’s trading figures and he was providing information under Mr Evans’ direction.

As to stock and machinery, Giles has not called into question Mr Bisland’s competence or suggested that he lacked information such as the value of Eurokey’s stock and machinery, and there has never been any suggestion that Mr Bisland deliberately underinsured, and the evidence points to him taking pains to secure full risk protection.

The estimated 2010/11 turnover figure of £11m in the Product Liability section of the 2010 Market Presentation was inserted by mistake by Mr Evans. Giles 2008 renewal documents recorded in manuscript by Mr Evans an approximate turnover split of Eurokey £8.4m, Recoverypak £1.6m and County Recycling £1m. At the 2009 renewal, this figure was deleted from the renewal report, but Mr Evans admitted in oral evidence that he was responsible for its mistaken reintroduction in a Giles Risk Register of 7 December 2009. Thereafter, these now out-of-date turnover figures featured in all Giles’ documents (including the 2010 Market Presentation sent to Paladin). Mr Evans accepted that this was Giles’ fault, and that the approximate turnover split figures ought to have been deleted. That approximate turnover split totalled £11m, and Mr Evans took that total as the figure for estimated turnover in the Products Liability section.

Mr Bisland had no reason to provide instructions that estimated turnover to April 2011 as £11m, when draft accounts he received on 17 March 2010 recorded turnover for the year to August 2009 of £17.6m and Eurokey was growing rapidly. Mr Bisland was fully aware of Eurokey’s up to date trading position. He had full access to up-to-date data including management accounts from Eurokey’s computer systems as Mr Evans knew. Furthermore, on 14 April 2010 Mr Bisland sent Mr Evans the 2009 draft accounts showing turnover of £17.6m. It is not plausible that Mr Bisland would tell Mr Evans in March 2010 that estimated turnover was £11m and a month later send him accounts disclosing £17.6m for the previous year;

No plausible explanation has been offered as to why Mr Bisland would have got the estimated turnover figure so wrong if he had been asked the correct question and his answer accurately recorded. Given Mr Evans’s mistake about the approximate turnover split figures that totalled £11m coming from Mr Bisland, it is not safe to rely upon what he says about the source of the £11m estimated turnover figure.

Eurokey’s allegation of sloppiness in this aspect of Giles’ broking of Eurokey’s insurance must be considered in the context of the numerous and serious other deficiencies that occurred.

As regards the law, Mr Evans was under a duty to, and failed to, properly advise the client about the type and scope of cover which the client needs and, in doing so, to match as precisely as possible the risk exposures which have been identified with the coverage available (Jackson & Powell on Professional Liability, 7^th ed, §16-045; Standard Life Assurance Ltd v Oak Dedicated Ltd [2008] All ER (Comm) 916, [102]; Tomlinson J, ICOBS at 5.2.3(b), 5.2.2(1) and 5.2.2(2)).

Specifically as regards business interruption cover, in order to ensure that Eurokey had sufficient and effective cover, Mr Evans therefore needed to (and did not) explain to Mr Bisland: the meaning and importance of a Maximum Indemnity Period and how to go about selecting an appropriate period, what ‘insurable’ gross profits were, as compared to the usual meaning of ‘gross profits’ with which he would be familiar (Arbory Group Ltd v West Craven Insurance Services [2007] Lloyd's Rep IR 491 at [25]), the approach of insuring in respect of costs which would remain fixed in the event of a loss, the period for which insurable gross profit needed to be identified (and/or estimated, depending on how the accounting and insurance years would fall) and declared to insurers and, finally, how this figure would relate to the actual amount of cover which Eurokey would receive (in particular, the role of the 33.33% uplift in declaration-based policies).

Mr Evans has never said that he went through these matters with Mr Bisland, and Mr Bisland says it was never explained to him how the business interruption sum insured should be calculated. These matters were not clear from the Giles renewal documents, which did not explain how the estimated gross profit related to a “sum insured” for business interruption.

The broking experts are agreed that a reasonably competent broker would have explained to Mr Bisland how to calculate a business interruption sum insured, and to make reasonably sure that the explanation had been understood. Mr Wood says that, “The well established duty is reasonably to ensure that the client can calculate the gross profit figure” and as part of this the broker “should explain the basis of calculating a sum insured and alert the client to what might be termed “typical pitfalls” that every insurance broker should be aware of. For example, the definition of gross profit is not the same as in a set of company accounts…”. It is common ground between the experts that a reasonably competent broker would reasonably satisfy himself that his client had understood the explanation given as to how to calculate the business interruption sum insured so he is able to give informed instructions.

If, contrary to Mr Bisland’s evidence, the gross profit sum insured was supplied by Mr Bisland, Mr Evans needed to satisfy himself that Mr Bisland had had the opportunity to properly calculate the gross profits sum insured, to make enquiries as to how it was arrived at and sense-check it against the other information which Mr Evans had about the business. If there was any indication Mr Bisland had made a mistake, Giles needed to investigate what had happened and provide more assistance to Mr Bisland in setting the maximum indemnity period and gross profits sum insured.

Further, as is well established, the broker needs to explain the consequences of under-insurance to his client (Jackson & Powell, ibid, §16-069). These duties were broken by Giles, with the consequence that Eurokey was underinsured, and had to settle its claim.

As regards causation, Giles in its defence merely denied that alternative cover would have been available to Eurokey in the market. Its causation defence has since grown, and is an attempt to make something out of nothing, because:

Eurokey claims for the shortfall between its settlement with insurers and the sum which it would have recovered had it been properly advised and insured, together with consequential losses. It says that if it had been properly advised by Giles it would have sought at its 2010 renewal (and obtained):

Eurokey says that after the fire it would have recovered from insurers £160,000 in respect of stock (which is what Mr Dhillon says was at the site at the time of the fire), £1m in respect of machinery at the site and £2.9m in respect of business interruption, totalling £4.1m. It claims from Giles the difference between this and the £820,000 obtained in settlement from Paladin, which is £3.18m. The complicated route to this number is set out in the Reply, but since quantification of Eurokey’s claim is for any quantum hearing, the court was not taken to the calculations (save in respect of a causation point taken by Giles in oral closings mentioned below). Eurokey also claims for consequential loss of profits, as to which there is a dispute of principle.

Save that it does not accept that the Arbory Group case (ibid) was correctly decided, the differences between Giles and Eurokey on the legal principles are largely a matter of emphasis. As broker, Giles accepts that it had a duty to take reasonable steps to ascertain the nature of Eurokey’s business and its insurance needs, and says that the duty will depend upon the particular circumstances of the case, especially the instructions given by the client, the client’s sophistication and the number of times the broker has met the client in the past. Giles had a duty to take reasonable steps to help Mr Bisland understand the nature and terms of the insurance he had instructed it to obtain, which required some steps to be taken to assess the client’s existing knowledge. Some explanation of the duty of disclosure will normally be needed when the risk is first placed and at each renewal, and the 2010 Pre-Renewal Report contained clear warnings about Eurokey’s duty of disclosure (one under the heading “Our Terms of Business – Please Read Carefully”).

As to the specific cover at issue, a broker is not expected himself to calculate the business interruption sum insured or choose an indemnity period, but must provide some explanation of the relevant terms. The broker has a duty to take reasonable steps to help his client understand how to calculate the sum insured for stock, namely that the sum insured should reflect the replacement value of the stock, and should take reasonable steps to help the client understand the concept of floating cover and ascertain whether that is suitable for the client’s needs. As regards machinery cover, an insurance broker is under no duty to calculate the sum insured for machinery himself, but must be reasonably satisfied that his client knows how to calculate that figure, in particular that machinery should be insured on a reinstatement basis.

Giles’ case is that all these duties were satisfied. It submits that Mr Bisland had experience of commercial insurance prior to joining Eurokey. He was fully aware of: (i) the nature and implications of the duty of disclosure; (ii) the fact that stock and machinery should be insured on a reinstatement basis; (iii) the method of calculating the sum insured for business interruption cover; (iv) the concept of floating cover.

As to the facts, it asks for findings as follows. Mr Evans met Mr Bisland on three occasions in the months preceding inception of the Paladin Policy: during the Quinn risk surveys on 8 December 2009, at the pre-renewal Meeting on 5 March 2010, and at the renewal Meeting on 9 April 2010. Mr Bisland received adequate written and oral warnings about the duty of disclosure prior to inception of Eurokey’s insurance for 2009/10 and 2010/11. He also received adequate written and oral explanations about the nature of stock, machinery and business interruption cover.

Prior to inception of the Paladin Policy, Mr Bisland was aware that Giles offered a premium service (the Giles Plus Service) but chose not to purchase that service for Eurokey.

At the 5 March 2010 pre-renewal meeting, Mr Evans was provided with a copy of the 2010 Pre-renewal report. Mr Bisland gave Mr Evans instructions at that meeting to obtain, amongst other things:

Mr Bisland also told Mr Evans at the 2010 pre-renewal meeting that the estimated turnover for Eurokey and its associated companies for the next 12 months was £11m.

Mr Bisland gave no instructions at the 2010 pre-renewal meeting to obtain stock cover on a floating basis between multiple locations.

Mr Evans recorded the instructions he received by making annotations to his own copy of the 2010 Pre-Renewal Report. The instructions were also recorded in the figures contained in the Market Presentation and the 2010 Renewal Report.

At the 2010 Renewal meeting on 9 April 2010, Mr Bisland confirmed the accuracy of the figures and information contained in the Renewal Report, including the above points as to cover and turnover. Mr Evans was entitled to follow Mr Bisland’s instructions in relation to Eurokey’s insurance for the 2010/11 policy year. Regardless of whether he was entitled to accept Mr Bisland’s instructions as to the sums insured for Eurokey for the 2010/11 policy year, he was entitled to arrange a 12-month maximum indemnity period for Eurokey.

Eurokey’s draft accounts were sent by Mr Bisland to Mr Evans on 14 April 2010, after inception of the Paladin policy, solely for the purpose of being forwarded to Premium Credit Ltd in order to enable Eurokey to obtain finance to pay the premium for the Paladin policy.

Regardless of any errors concerning the BI sum insured and the estimated turnover figure, Paladin would have sought to avoid the Paladin policy in any event as a result of the errors relating to Eurokey’s stock and machinery cover.

Mr Bisland was negligent in that he (a) provided inaccurate estimated gross profit, turnover, stock and machinery figures at both the pre-renewal and renewal meetings, (b) read neither the 2010 Pre-Renewal Report nor the 2010 Renewal Report, despite the fact that he sent the latter document to other brokers in order to obtain alternative quotes and typed out extracts from it, (c) did not look at the Market Presentation which was sent to him on 13 April 2010, (d) did not review the Paladin policy documents after receiving them and did not review the insurance cover which Eurokey had in place prior to the Enderby fire, (e) did not read the 2009/10 Quinn policy schedule, (f) provided inaccurate information during the Quinn risk surveys on 9 December 2009 and failed to check the contents of the Quinn risk survey reports. Mr. Bisland’s negligence caused or contributed to Eurokey’s alleged loss.

Eurokey would not have been able to obtain business interruption cover of £17m prior to inception of the Paladin policy on 13 April 2010. In any event, such cover would have been on much more restrictive terms than the Paladin policy and would have required the installation of sprinklers (which Eurokey would have been unwilling to pay for). Even if business interruption cover cover of £17m had been available, Eurokey would not have been willing to pay the necessary premium for such cover.

If, on or after 14 April 2010, Paladin had been told of the errors in the insurable gross profit and turnover figures it had been given, Paladin would have avoided the Paladin policy or would have come off risk. Eurokey would not have been able to obtain business interruption cover of £17m between 14 April 2010 and the date of the fire on 2 May 2010.

The legal principles as to insurance brokers’ duties generally were not in dispute (see e.g. JW Bollom & Co Ltd v Byas Mosley & Co Ltd [2000] Lloyd’s Rep IR 136 at 140, Moore-Bick J, Jackson & Powell on Professional Liability, 7^th ed, chapter 16) and were not debated at trial. There were however several points arising out of the particular nature of business interruption cover on which I should state my views.

To quote the LBIA guide to business interruption insurance and claims, page 4, the intention of a business interruption policy is to maintain the turnover of the business during the indemnity period following an insured incident so that it can resume trading at its anticipated pre-loss trading level. The purpose is to put the insured in the same trading position after the interruption as it would have been had the loss not occurred.

However, fixing the amount of the cover is not necessarily simple. I am indebted to Mr Michael Davie QC, counsel for Eurokey, for drawing my attention to a 2012 publication of the Insurance Institute of London in collaboration with The Chartered Institution of Loss Adjustors called, “Business Interruption Policy Wordings – challenges highlighted by claims experience”. The preface says (by way I think of euphemism) that “…when it comes to business interruption (BI), we think it would be a good idea to take the concept of contract certainty a little further”. The study group says:

“Our concern is that there has been a lack of clarity for a long time now – for insurers, adjusters and customers – over certain aspects of BI policies. For example, there is often a big difference between the technical meanings for words in a policy and the way those words are used in everyday business. The way indemnity periods are worked out can be confusing and there are parts of standard BI policies that even the professionals have never agreed about. In these circumstances, its hardly fair to expect customers to have the right answers.”

The lack of clarity referred to here is, in my view, borne out in the present case. The two particular problems illustrated are as follows. The cover is described (or was described in this case) as on a “gross profit” basis. However, as the pre-renewal report states, “The insurance definition of gross profit differs from the usual accountancy calculations”. As the expert witnesses explained, this is because the insured figure on the gross profit basis should reflect the fact that in the event of a catastrophic event, the insured will not be incurring the cost of purchases or variable as opposed to fixed costs. There were explanations of how gross profit for business interruption was calculated for the purposes of business interruption insurance in both the Giles pre-renewal report which I am satisfied was gone through with the client, and the Paladin policy which was not (the broker accepted that he had not read the latter explanation). This kind of insurance is commonplace, and neither expert took the view that complex calculations are necessarily required. In fact, the experts agreed that a “simple and safe approach” was simply to take “turnover less purchases”. The result of taking too high a figure is that the insured will be over-insured, and the suggestion was that, depending on the terms of the policy, it might be open to reclaim premium at the end of the relevant insurance period.

The other main point debated in the evidence relates to the fact that the insured obtains the benefit of the cover for the period of the indemnity. It is future not past gross profits which are relevant. The maximum indemnity periods can be twelve months or two years (or as agreed). The element of projection has to take account of the fact that the insured event may take place at or near the expiry of the policy. The evidence was that although a 24 month period is more realistic in terms of getting a business up and running again, there is considerable client reluctance since the premiums will be commensurately much higher, and 12 months is the most usual period in practice. These points are discussed in a body of writing (see e.g. Harry Roberts, Riley on Business Interruption Insurance, 9^th ed, 2011).

In the light of this, I am satisfied on the authorities, the expert evidence and the parties’ submissions that, as relevant to this case, the following principles apply to business interruption insurance:

I should add that Eurokey’s primary case in relation to these principles is that they are not satisfied on the facts, and that in particular that (1) the sums to be insured came from the broker not the client, (2) Giles is wrong about the extent of Mr Bisland’s experience and sophistication, and (3) in any case the required questions were not asked, and the required advice was not given, business interruption insurance in particular being sufficiently complex to require it to be explained before every renewal, particularly where there is a new insurer.

Eurokey refers to Mr Hammond’s evidence to the effect that it was underinsured in respect of business interruption insurance from at least 2006, and that the common thread in this was Mr Evans. I do not need to make findings in this regard, because it is not in dispute that Eurokey was underinsured for the year 2010-11 in which the fire occurred.

Eurokey criticises the quality of Giles’ broking generally, saying that it forms the backdrop against which the claim for negligence falls to be considered. I agree that the Giles pre-renewal report is misleading in referring to declaration-linked business interruption cover being subject to average. Giles’ pre-renewal reports also wrongly referred to the declaration-linked basis of the cover as being an inflation provision, whereas it describes the basis on which the cover operates. There were some differences in the declaration section in the pre-renewal report and in the Paladin policy wording as to how the insured sum was to be calculated, but I do not accept Eurokey’s submission that it was “totally different”. I accept Giles’ submission that the explanations given were consistent.

There were also some mistakes in the documentation relating to entries in respect of the turnover split, and book debts. The schedule sent by Paladin on 20 April 2010 was deficient in a number of respects. While these are valid criticisms, I do not think that any of them have much weight in terms of the issues for decision which are centred on specific points.

More significantly, Eurokey says that the explanation as to business interruption given in the pre-renewal report is also inadequate because the definitions of “gross profits” and “maximum indemnity period” do not provide sufficient information to the client to work out what they were. Mr Wood accepted that this information is not sufficient in itself. I also accept that the information was not sufficient in itself, and in so far as this was submitted on behalf of Giles, it was not enough in itself to satisfy the broker’s duty to explain the cover as set out above. That means that the evidence as to what advice was given at the various meetings in this respect is particularly important.

It is correct, as Eurokey says, that after the fire it emerged that Giles had not obtained cover for liability risks. I have dealt with the facts in this respect above. This was an oversight, but it was rectified by the insurance company. Eurokey sought to develop a contention that since the turnover figure appears in the market presentation under the liability heading, this affected the weight which turnover had for the insurers when considering the position before and after the fire. I reject that contention, since turnover was relevant in a wider context.

It is not in dispute that Giles had a duty to make Eurokey aware of and understand its duty to disclose all material facts to insurers. This is not a case, however, in which the brokers need rely on the standard form written warning (as to the limitations of which see Jones v Environcom Ltd [2010] Lloyd’s Rep IR 675 at [63], David Steel J). I accept Mr Evans’ evidence that he made Mr Bisland aware of the duty of disclosure, and Mr Bisland accepted in cross-examination that he fully understood the duty.

Although on the figures the underinsurance in respect of stock and machinery is significant, it did not feature at length in Eurokey’s submissions. However, Giles’ submission is that this part of the claim is very important in assessing where the truth lies in this case.

Eurokey’s starting point is that Mr Evans had to explain the need to insure the maximum level of stock which Eurokey might hold at its premises during the period of insurance, and that as to machinery, Mr Bisland had to understand that the insurable value he needed to produce to insurers was for the replacement value of the machinery.

The factual position as to the sums insured is as follows:

Eurokey relies on Mr Bisland’s evidence to the effect that Mr Evans did not guide him to insure on that basis, and that their meetings did not involve a methodical working-through of the sums insured. There was a brief, general discussion about the state of the business. He stated that his assumption was that where figures were being recommended by Mr Evans they would be appropriate. This is a reference to the fact that Mr Bisland’s witness statement says that the insured sums for stock and machinery came from not from him, but from Mr Evans. He says that he would have advised that stock on the Enderby site alone had a value of £160,000, instead of the figure of £25,000 that was given to the insurers, and that had he understood that Eurokey needed to insure machinery on a reinstatement basis, he would have requested insurance of £1m for the machinery at Enderby instead of the figure of £460,000 that was given to the insurers. These figures are the ones on which Eurokey’s claim for loss is based. (He also says that stock cover should have been on a floating basis. But after the fire instructions were given to Recyclesure to obtain stock cover for specific locations. I do not believe that this point was pursued in closing, and in any case it makes no difference.)

Eurokey submits that the evidence supports the conclusion that Mr Evans did not provide adequate explanations to Mr Bisland because the meetings were brief and had to deal with much material. In such circumstances, an overlooked or inadequate explanation would be entirely plausible, and that, it says, is reflected in Mr Evans’ own evidence. In the absence of any explanation from Giles as to how Mr Bisland got the information as to stock and machinery so wrong, the fact that the figures came from Mr Evans is the only remaining plausible explanation for the events which occurred.

I reject Eurokey’s case that the figures came from Mr Evans. It is plain that the figures can only have come from Eurokey, and I accept Mr Evans’ evidence to that effect. As to the advice given, Mr Bisland accepts that he knew that machinery was insured on a reinstatement basis, “new for old”. As regards stock, I am satisfied that Mr Bisland provided estimated stock figures to Mr Evans based on both his knowledge of the quantity of stock at Eurokey’s premises at any one time and his experience of the value of that stock.

Further, as mentioned above, once Mr Bisland became aware of the amount of Paladin’s premium, he sought additional quotes directly from other insurers. On 9 April 2010 he sent an email setting out the cover required as regards Enderby. As regards stock in trade, he specified the sum insured as £25,000. In respect of machinery and plant, he specified the sum insured as £460,000. He says that he typed it from the information on the pre-renewal report. That may be, but had the figures been wrong, he could and should have changed them. The obvious inference, which is the inference I draw, is that he was the source of these figures, and he gave them to other prospective insurers because they were in his view correct. There is no question, in my view, of any shortcomings as regards advice from the broker, and I consider that this aspect of Eurokey’s claim lacks credibility.

There are a number of aspects to the claim as regards business interruption cover, and these are set out below. The way the claim has been put at trial has rested primarily on what Eurokey says were deficiencies in the advice given by the brokers that led to its underinsurance.

Eurokey’s case is that Mr Evans had a duty to explain the advantages and disadvantages of declaration-linked cover and cover on the difference basis. It relies on Mr Hammond’s evidence to the effect that a declaration-linked policy would not be appropriate if growth in the business to the end of the indemnity period was likely to exceed 33.3%. Mr Wood disagreed, and said that the majority of such cover is now written on a declaration-linked basis, which is borne out by the “Business Interruption Policy Wordings” study group document referred to above. In any case, on the facts, I am satisfied that Mr Evans did not have the duty alleged. I agree with Giles that there was no need to explain the 33% uplift, because this was effectively a benefit to the client at no extra cost, and prefer Mr Wood’s evidence in this regard. As to potential growth in the business, this is linked to the discussion on turnover dealt with elsewhere.

The Paladin policy defined “estimated gross profit” as the “amount declared by the Insured to the Underwriters as representing not less than the Gross Profit which it is anticipated will be earned by the Business during the financial year most nearly concurrent with the period of insurance …”. Eurokey argues that this was never declared, and relies on this as showing that Eurokey had no reason to think it was necessary to provide estimated gross profits to Giles.

As to the lack of declaration, I agree with Giles that the declaration was made to Paladin in the market presentation, and accepted as such. That is not a good point, in my view. However, it is correct, as Eurokey says, that the pre-renewal report refers to the policy document for “exact definitions of Estimated Gross Profit”, and Mr Evans did not read the policy document. Eurokey says that the fact that gross profits had to be estimated was overlooked.

Giles says that it is inconceivable that Mr Evans would have overlooked the fact that business interruption is about estimating gross profits. Eurokey responds that the history of negligence is scattered with examples of people overlooking the obvious. That is true, but I do not think it was overlooked by Mr Evans in this case. I accept Mr Evans’ evidence that he fully understood that he was looking at estimated gross profits for the future. This is not a difficult concept to grasp, and is at the heart of what the cover is there for. I also accept his evidence to the effect that Mr Bisland understood that the purpose of this cover was to protect anticipated future profits. Eurokey says that Mr Evans’ approach was backward rather than forward looking, but he said in his evidence that his approach was to focus on the twelve months from the end of the policy period, and that he was satisfied that Mr Bisland understood that. I accept that, and do not think that there were any misapprehensions on Eurokey’s part that it was anticipated profits that were covered by this insurance.

As regards other declarations required in the Paladin policy, these applied at renewal or expiry. This did not apply in the case of Paladin, which had not previously insured Eurokey. Quinn had asked for a year-end declaration on 4 February 2010, but this was not supplied by Giles. I did not find particularly convincing Mr Evans’ explanation that Quinn’s request was aimed largely at the construction industry. Nor did I find very satisfactory Mr Wood’s evidence that it is not market practice to send declarations. However, I agree with Giles that this does not affect the issues for decision.

Maximum indemnity period

The business interruption cover arranged for Eurokey was for twelve months, and this is the figure which appears in that part of the pre-renewal report that deals with business interruption. Eurokey’s case is that had Giles performed its duties properly, the insurance would have been for a two year period, (with total cover of £17m, so £8.5m per year). The period in question is the “maximum indemnity period”, and, as stated above, the meaning of this is something which a careful broker must explain to the client, and this is not in dispute.

This issue is dealt with very briefly in Eurokey’s closings. It points to the fact that although Mr Evans said that a twelve month maximum indemnity period is the norm within the industry, this is an inadequate “default setting”. It typically takes longer than that, and a 24 month period would have been appropriate. (I do not accept this criticism, and refer to the evidence referred to above as to 12 months being the most usual period.)

However, the real point on this issue relates to the facts. Eurokey accepts that Mr Bisland believed and told Mr Evans that property damage at Enderby and Lount could be repaired in short order. It relies on Mr Hammond for the view that this of itself should have revealed Mr Bisland’s naïveté to Mr Evans. In any case this was only part of what needed to be considered. Apart from the time taken to reinstate the damage, there is the time it will take for turnover to return to pre-fire levels.

Mr Evans says that he received clear instructions from Mr Bisland that a twelve-month indemnity period was sufficient because if one site was damaged, Eurokey could operate from alternative sites. His view was that business continuity would not be difficult in the event of loss or damage to one of Eurokey’s sites, and therefore an indemnity period of twelve months for business interruption cover was perfectly adequate.

I do not understand this evidence now to be challenged. There is independent evidence supporting it in terms of what Mr Bisland told the Quinn surveyor during the risk survey that was attended by Mr Evans as well. The survey report of 8 December 2009 has in the section dealing with business interruption a question as to whether the indemnity period is appropriate. The surveyor has ticked the box for “yes”. The same box is ticked for the question whether the business can be carried out elsewhere. As to how long it would take to repair/reinstate premises, two to three months is stated. This is inconsistent with the case now advanced. All this information came from Eurokey, and Mr Bisland accepted this, though commenting that it had come at the end of a long day. The surveyor stated, “Business interruption all appears in order”. A third party is stating this after a survey, where the claim is that business interruption cover was not in order because proper advice was not given by the broker.

It is clear in my view that Eurokey was well aware of the indemnity period it had chosen, and did so because it was confident it could get the business up and running again quickly in the event of a fire or some other insured incident. The premium, of course, would have been much more expensive on a 24 month indemnity period—Mr Wood estimated the premium for the second year would be between 60% and 75% of the first year. I agree with Giles that Mr Evans followed his instructions in fixing the period at twelve months. This issue, in my view, goes to the overall credibility of Eurokey’s case.

The facts are as set out above, and although there is now no record of the dates there was likely a pre-renewal meeting and a renewal meeting between Mr Bisland and Mr Evans around February/March 2009. This was the first year that Mr Bisland had responsibility for the insurance. At this time, as explained above, the most recent audited accounts available were for the year ended 31 August 2007 which showed a slightly reduced turnover figure for Eurokey from the previous year: £8.38m down to £8.18m.

Giles has produced its pre-renewal report dated 10 February 2009 which has on it Mr Evans’ manuscript annotations which he made at the meeting. Mr Evans’ evidence was that he went through the report with Mr Bisland, annotating it in manuscript according to the figures that Mr Bisland gave him. This he said was his usual practice, and I accept this evidence.

In oral evidence, Mr Evans was asked about the meeting and the discussion of business interruption cover. The previous year, the sum insured was £800,000. On the report, that figure is crossed out, and Mr Evans has written in the figure of £2m. He says that Mr Bisland must have given him that figure, and I accept that evidence, in preference to that of Mr Bisland. He denied that the figure was “backward looking”, and said that they talked about gross profit and what went above the line and below the line. If he had had any doubts as to Mr Bisland’s ability to do the calculation, he said, an expert could have been brought in.

Mr Evans said that he gave Mr Bisland a full explanation of how to calculate gross profits, and “on the basis of that explanation – given this is a significant increase, so he must have realised that in the past his predecessor hadn’t quite got the full picture. This is a massive increase”. The increase “made me think that … we were now on the right basis, that Mr Bisland had understood it and we had – and he had got it right”. He described Eurokey’s case that it was he who came up with the figure of £2m as “just preposterous. I have never in my career given a client a figure to insure for. It’s just not something you do”.

In his oral evidence, Mr Bisland accepted that the annotations were Mr Evans’, but that it was not a precise “sit across a desk and go through this document page by page” occasion. It was, he said, absolutely not the case that he was taken through the numbers in the document one by one. He was not taken to the definition of “gross profit” in the pre-renewal report. He disagreed with Mr Evans’ evidence that they always discussed business interruption cover both at the pre-renewal and renewal meetings, and that the appropriate sum insured would be reviewed at the pre-renewal meeting. He disagreed that the sum insured would then be altered in line with his instructions.

Mr Bisland denied that Mr Evans had got the figure of £2m from him. He said he would have told Mr Evans that the turnover would be £9m and that they were running at a 25%-30% gross profit. He said that he had absolutely no idea how to work out gross profit from an insurance perspective. He strongly disagreed that Mr Evans specifically explained to him on several occasions the insurance definition of gross profit and how the business interruption sum insured should be calculated. He did however say that he had a conversation with Mr Evans telling him that Mr Dhillon’s expectation was that he wanted to make a £2m net profit.

Mr Evans’ evidence was that he explained to Mr Bisland how to calculate a gross profit sum insured by reference to the explanation provided in the pre-renewal reports. Eurokey attacks this on the basis that it was new evidence. No mention was made in earlier material of the declarations page of the report. Further, the declarations page is not on the business interruption page, and Eurokey never completed declarations. The only record kept is the manuscript note that shows the change from £800,000 to £2m, but this is backward looking, and does not refer to estimated gross profits on a forward looking basis. However, on balance I accept Mr Evans’ evidence. This was, in my view, a significant part of the overall advice given.

One of the contrary points made by Eurokey is that the theory that the only financial information Mr Bisland had was the 2007 accounts finalised in February 2009 was a “far-fetched notion”. The business would have needed to use current trading figures, not figures from 18 months before. Mr Bisland’s evidence was that the monthly turnover information from Eurokey’s Sage accounting system was available to him. Further, a reconstruction of the figures does not lead to a sum of £2m. Mr Evans’ evidence, Eurokey says, is also contrary to common sense, particularly given the short duration of these meetings.

The position as to the Sage accounting system is that Eurokey says that it had up to date management accounts that showed its position on an ongoing basis, though it did not say when this system was installed. The figures were generated on a monthly basis, Eurokey said, and so there would have been no question of relying on out of date figures in accounts.

There has been a dispute on the evidence as to this. Eurokey produced spreadsheets showing its monthly turnover from September 2009 until December 2010. The total for this period is just over £30m. As at the time of renewal in February, March and April 2010, the turnover is shown as exceeding £2m per month. This obviously points to a figure for estimated turnover of far more than the £15m that Mr Evans noted at that time.

However, these are not contemporaneous documents, and are not held out as such. They may have been prepared for the litigation. Eurokey has not demonstrated to my satisfaction that Giles was wrong to state that no contemporary management accounts have been disclosed. On the state of the evidence, I do not think it is established even on the balance of probabilities that Mr Bisland had ready access to reliable, current turnover figures. If that is wrong, it is difficult to see why they were not properly reflected in the numbers given to Mr Evans.

I accept that imperfections and inconsistencies can be pointed to in Giles’ evidence as to what happened at these meetings in 2009. Eurokey is right to point to the absence of satisfactory records on Giles’ part. However, I am satisfied that the figures which Mr Evans wrote in manuscript in the pre-renewal report came from Mr Bisland. They cannot have come from any other source. That includes the £2m insured for business interruption purposes, and the turnover figure of £9m. As to the latter, in cross-examination Mr Bisland accepted the obvious fact that he gave the £9m turnover number to Mr Evans, so that is common ground.

The question remains as to whether Mr Evans gave an adequate explanation of how to calculate the sum insured, applying the principles set out above. In that regard, it is in my view significant that the figure was increased sharply from the year before, especially where as a matter of Eurokey’s available accounts, turnover was slightly down (though gross profits were slightly up). In any case, the increase in the insured sum has the hallmarks of a proper discussion between Mr Bisland and Mr Evans as to what this insurance covered, and the way the sum insured needed to be calculated.

Ultimately, I am faced with a conflict of evidence between that of Mr Evans and that of Mr Bisland. For reasons set out above, I prefer the evidence of Mr Evans where there is a conflict between them. On balance, I consider that adequate advice was given by Mr Bisland in 2009 as to business interruption.

Again, I have set out the facts above. For the reasons just given, I approach the placing of the insurance in 2010 on the basis that Mr Evans gave adequate advice in this respect to Mr Bisland the previous year. The two material changes that were made in 2010 were that the sum insured for business interruption cover was increased to £2.5m, and the turnover figure was increased to £11m.

Mr Bisland said that the twelve month indemnity period was not discussed, and that the figure of £2.5m came from Mr Evans. He did not instruct Mr Evans to revise the turnover figure back up from £9m to £11m, because the draft accounts showed a turnover figure of £17m for the previous year. In any case, he had available the up to date turnover figures through the Sage accounting system (I have dealt with this point already).

Eurokey’s case is that what Mr Evans probably did is that, not allowing enough time for the setting of sums insured at his meeting on 5 March 2010, he took £11m as a turnover figure on the basis of the approximate turnover split that he carried through in the documents, and took a rough and ready gross profit rate approach to come up with a BI sum insured of £2.5m. This is contested by Giles, which says that the number came from Mr Bisland.

Mr Evans says that at the pre-renewal meeting on 5 March 2010, he specifically took Mr Bisland to the written explanation of the business interruption sum on the declarations page of the pre-renewal report. Mr Brooke was at this meeting, and he said that he was not aware of any reason to go to the declarations page. However, he made it clear he had no recollection of the meeting. Mr Evans said that he asked Mr Bisland for an estimate of the group’s activity levels for the next twelve months, and he gave him £11m. He could not have proceeded without asking for the estimated gross profits of Eurokey for the period of cover. He said he gave an explanation as to the difference between fixed or variable costs. Giles’ case is that adequate advice was given to enable Mr Bisland to come up with the figure of £2.5m, which is what he did.

Again, this resolves ultimately into a conflict of evidence. In this regard, I consider that the position as to turnover is important in assessing which of the witnesses’ accounts is the more reliable. As I have said in the factual section of this judgment, Mr Bisland says that he gave Mr Evans a turnover figure of £17m, and a projected turnover of £22-25m. His evidence as to these numbers is not easy to follow, but it is the difference between them and £11m that is so striking. I am satisfied that had Mr Evans been given any such number, he would have recorded it. As he said, he would have had no reason not to record it. I do not consider Mr Bisland’s evidence to be truthful in this regard. I find that the number Mr Evans was given was £11m, which he passed on to potential insurers in the market presentation. I do not accept Eurokey’s explanation that the figure derives from the turnover split between the three companies, which had by mistake remained in the documentation. Had Mr Evans been told that the turnover figures were of the order of £17m or more, I am satisfied that this would immediately have called into question the gross profits for calculating the insured BI figure of £2.5m which (as I have found) was also given to Mr Evans.

I further reject the suggestion that the approach taken by Mr Evans was backward looking. This in my view is clear from the market presentation he prepared dated 6 April 2010. This gives the turnover figure of £11m for the “next twelve months”. This is not an easy part of the case, and I have not found it easy to determine. The absence of proper records counts against Giles, and I have rejected its contention that prior to joining Eurokey, Mr Bisland was aware of the method of calculating the sum insured for business interruption cover. Nevertheless, on balance, and based on his evidence, I consider that Mr Evans gave Eurokey adequate advice as to the business interruption element of the insurance, and that there was no reason for Mr Evans to go behind the figures given to him by Mr Bisland.

I have set out above the facts as to the sending of the draft accounts by Mr Bisland to Mr Evans, and their sending on by Mr Evans to Premium Credit so that Eurokey could get credit to cover the premium. I reject Mr Bisland’s evidence that he sent the draft accounts to Mr Evans on 14 April 2010 to confirm the turnover figures. I am satisfied that they were sent so as to be passed on to Premium Credit, as Mr Evans says. The surrounding evidence and the overall probabilities strongly support his account, and I do not consider Mr Bisland’s evidence to be truthful in this respect, and this affects generally my assessment of his evidence.

Eurokey submits that even if the accounts were sent for the purpose of transmission to Premium Credit, Mr Evans should have read them (HIH Casualty & General Insurance Ltd v JLT Risk Solutions Ltd [2007] 2 Lloyds Rep 278). It submits that a broker is under an active duty to read documents sent after inception and identify potential coverage issues. Mr Evans, it submits, was under a duty to at least look at the contents of the accounts. It relies on the relationship between the parties, its ongoing role, that looking at the accounts would not be onerous, that it had a duty to understand Eurokey’s business, Eurokey’s ongoing duty of disclosure to Paladin, Giles’ ongoing obligation to identify potential policy liability issues, the fact that the financial information which Mr Evans had been given was anomalous, and the fact that Eurokey’s cover was at that point on a held-covered basis pending a survey. It further relies on the fact that although post inception, the risk was not clearly post-placement. Mr Evans had, therefore, to read the draft accounts to ensure that the proper insurance was in place.

There is, in my view, little force in these submissions. As Giles points out, Mr Evans had no reason to believe that the draft accounts contained any information which was inconsistent with what he had told Paladin in the market presentation. He was not aware that anything in the information he had been sent would have a material and potentially deleterious effect on the insurance, nor did he have any reason to be aware.

Mr Hammond sought to support a duty to check the documents on the basis that the broker “… would be interested to know how the company was doing and he would be very interested to know as to whether his bill is going to be paid”. I do not accept this evidence.

In the HIH Casualty case, the court rejected the broker’s contention that it had to do no more than act as a “mere postbox” (at [67]). In my view, the present case is different on the facts. In this case, the broker was literally to act as a mere postbox, passing the accounts on to the credit provider in respect of the premium. In the absence of anything to alert the broker to the fact that the information in the accounts could have a material and potentially deleterious effect on insurance cover, he was in my view under no obligation to read the accounts. Eurokey, on the other hand, was well aware of the contents of the draft accounts, and yet allowed the turnover figures given to the insurer to stand.

Conclusion

On balance, I am satisfied that Mr Evans provided an adequate explanation to Mr Bisland of business interruption cover in 2009 when the sum insured was increased from £800,000 to £2m. On balance, I am satisfied that Mr Evans provided an adequate explanation to Mr Bisland of business interruption cover in 2010, bearing in mind their meetings the previous year. On balance, I am further satisfied that the figures that Mr Evans recorded for both the sum insured for business interruption and turnover were provided by Mr Bisland, and that Mr Evans had no reason to suppose that they were inadequate. I am further satisfied that the 12 months indemnity period was fixed on Eurokey’s instructions, and reflected the period it considered it would take to get its business up and running after an incident. It follows that Eurokey’s case in relation to business interruption cover fails.

Giles had three causation arguments. The first was advanced in oral closing on the basis that assuming Giles was instructed to obtain business interruption cover for twelve, not for 24 months, this would halve its claim in that respect. On the further assumption that Mr Bisland was responsible for the underinsurance in respect of stock and machinery, the shortfall in relation to the business interruption cover would have made no difference to the overall settlement. It would have settled for the same sum anyway.

Although I have upheld these factual assumptions, the causation argument drawn from them was not easy to follow. In my view, Eurokey answered it effectively by reference to the calculations in its reply, which appear to show that most of the losses would fall in the first twelve months. This is a liability only trial, and I have not been concerned with the loss calculations. I reject Giles’ contentions in this respect.

Giles’ second causation argument is to the effect that even if Mr Evans breached his duty in relation to arranging business interruption cover for Eurokey, such breach had no causative effect since Paladin could and would have threatened to avoid the policy on the basis of the misrepresentations as to Eurokey’s stock and machinery. I reject that contention as well. Mayer Brown’s letter of 16 July 2010 suggests that non-disclosure of anticipated gross profits of £7-8m is “particularly significant”. I do not think that the stock and machinery issue would in itself have resulted in the stance which Paladin took.

In this regard, I should deal with an assertion by Eurokey in its closing submissions that it was only the insured gross profit figure that concerned Paladin, not the misrepresentation as to turnover. In my view, whilst it is true that there is no necessary correlation between increased turnover and increased profits, turnover and profits are plainly linked, and it is clear that that is how the matter was viewed by Paladin. Mr Davie QC for Eurokey accepted that in order to get to estimated gross profits, your starting point is always going to be turnover.

In Mayer Brown’s first letter of 18 June 2010, the only concern raised relates to the turnover figures, and the huge discrepancy between the estimate given to Paladin, and the turnover figures given by Mr Dhillon and Mr Bisland after the fire. I have set the facts out above. In Mayer Brown’s letter of 2 July 2010, the turnover issue is the first matter raised. The same is true in Mayer Brown’s letter of 16 July 2010, which followed the without prejudice meeting, and sets out what the parties agreed. Eurokey says that estimated turnover is not identified as a material fact in this letter. However, the issues were linked, and I am satisfied that the turnover issue was very important in driving Paladin’s position.

Giles’ third causation argument (raised in written closings) is as follows. It submits that the cover which Eurokey says it should have had was unlikely to have been available on the market, and any damages to which Eurokey may be entitled must be significantly reduced to reflect the fact that Eurokey lost merely a chance to obtain such cover.

Its case in summary is that prior to 13 April 2010, Paladin would not have been willing or able to offer Eurokey business interruption cover of £17m on a 24 month period. This was because of limits on its underwriting authority. It is highly unlikely that any other insurer would have been willing to provide such cover, because of the difficulty of placing waste recycling risks. Even if such cover had been available, it would have been on much more restrictive terms, because Paladin’s terms were unusually relaxed. The installation of sprinklers would have been required, and a far higher premium would have been charged.

Further, Giles submits that if Paladin had been told after 14 April 2010 of the errors in the information it had been given, it would have avoided the policy and come off risk. In those circumstances, no other insurer would have been willing to provide cover.

While there is force in some of the individual points made by Giles in this regard, in my view these contentions fail on the facts. I agree with Eurokey that Paladin was not reluctant to offer it terms. Even after the fire, it offered to provide a 60% lead on combined business interruption insurance of £12.375m. I do not accept Mr Wood’s evidence that it was unlikely that another insurer would have taken up the remaining 40%.

In the light of Paladin’s response, I further reject Giles’ contention that Paladin would have avoided the policy had it been informed by Eurokey of the correct figures after receipt of the draft accounts but before the fire. There would clearly have been a major issue, but I accept Mr Hammond’s evidence that in those circumstances Paladin would probably have worked with Eurokey to resolve the position.

The most important point, in my view, is that after the fire, Eurokey did in fact manage to obtain insurance from Recyclesure for £13m of business interruption cover on an 18 month indemnity period. This is not so different from cover of £17m for 24 months, which is what Eurokey says it should have had all along. Though I accept that the Recyclesure terms were more onerous than those of Paladin, not least because they were framed in terms of conditions and warranties, the basic cover would have been there. Mr Evans accepted that on the hypothesis that there was no fire, Eurokey would have been a more attractive risk.

Further, in cross-examination Mr Evans accepted that Giles probably could have obtained cover for Eurokey on the basis of £17m estimated gross profits for a 24 month indemnity period. That in my view makes the causation defence in this regard untenable.

It is, of course, true that insurance at this level would have resulted in a very much higher premium, and potentially the expense of a sprinkler system. Plainly, Eurokey would have been very reluctant to pay such a premium. However, on balance I accept Mr Dhillon’s evidence that faced with such a premium, he would have paid it to have remained fully insured, and would have complied with all warranties required, including a sprinkler system if required.

In those circumstances, this third causation argument fails as well, and I do not accept Giles’ submission that the claim must be dealt with on the basis that Eurokey lost only a chance of obtaining alternative cover. I am satisfied that alternative cover could and would have been secured if it had been sought.

Giles submits that Eurokey cannot recover consequential loss of profits as a matter of law. It submits that Arbory v West Craven Insurance Services, ibid, was wrongly decided. Eurokey contends that the decision was correctly decided, and that a loss of profits claim lies which is £13m and continuing. This is a matter that goes to damages. Had I found in favour of Eurokey on liability, it would have fallen to be decided at the damages hearing. I need say nothing more about it.

Had I held Giles liable, the question of contributory negligence would have arisen. Eurokey says that this is not a case where there has been any contributory negligence. It points out that Eurokey was paying a professional to assist it in respect of its insurance, and that the pre-renewal and renewal meetings with Mr Evans were short and cannot have provided a detailed review. It relies upon the reasoning in Bollom v Byas Mosley, ibid, at 152:

“When a person engages a professional man to provide specialist services the law will not ordinarily impose a duty on that person to take steps to protect himself against negligence on the part of someone who has himself undertaken to act with reasonable skill and care. Negligence involves a failure to guard against a risk that is reasonably foreseeable and there cannot therefore be contributory negligence in a case of this kind unless the plaintiff ought reasonably to have foreseen that his adviser might fail to carry out his responsibilities.”

Eurokey submits that it was not in the circumstances negligent not to review the 2010 Renewal Report in any detail, and that Mr Bisland was not asked to check the market presentation, both of which contained the figures now challenged.

Giles says that this was a case where contributory negligence approaches 100%. It says that the Bollom case does not assist Eurokey, because each case must be judged on its facts. In terms of documents where the figures are set out, it points as well to the Risk Register sent to Mr Bisland on 14 April 2010 containing gross profit, turnover and stock and machinery figures, none of which were corrected. It relies on the fact that Mr Bisland provided inaccurate estimated gross profit, turnover, and stock and machinery figures to Giles, as well as to other potential insurers.

So far as stock and machinery are concerned, this in my view is a case in which the wrong figures were given to the broker. The only credible case advanced by Eurokey was that inadequate advice as to business interruption cover was given by Mr Evans. For reasons stated above, I do not approach this case on the basis that Mr Bisland had experience of business interruption insurance. However, whilst I do not think that Mr Bisland can be criticised for failing to read in detail the documentation provided to him by Giles, the fact is that Eurokey had the numbers which are now complained of. Further, Eurokey must take responsibility for the fact that the wrong turnover figures were given to Giles, which should have been obvious from the draft accounts which it had from 20 March 2010 (if from nothing else). Finally, the figures were passed on to other prospective insurers by Eurokey itself when trying to find cheaper insurance. Had I found in favour of Eurokey on the basis that the advice given by Mr Evans was inadequate, or that Mr Evans should have taken issue with the figures he was given by Eurokey, I would have assessed contributory negligence on Eurokey’s part at 50%.

For the reasons set out above, I dismiss the claim in this case. I am grateful to the parties for their assistance, and will hear them as to any consequential matters.