Halewood Joinery: a cheaper policy, an unexplained flood exclusion
Halewood Joinery Ltd runs a workshop in a converted barn beside the River Culm. It has 12 employees and turnover of £1.4m. For five years its broker, Caldwell Insurance Services, placed property and business interruption cover with the same insurer, including flood cover at a £5,000 excess. In October 2024 the client emailed: "Same as last year please, plus the new CNC machine, sum insured £1.5m." Caldwell placed the risk with a different insurer at a premium £900 lower. The new policy excludes "loss or damage caused by flood" and the demands-and-needs statement on file reads "price-sensitive, standard cover required". Caldwell did not send the schedule until three weeks after inception and never explained the exclusion. In January 2025 the river burst its banks and the workshop flooded; the damage is £260,000. The client says it would never have accepted a policy without flood cover, and that its office manager, who received the schedule, filed it without reading it. Caldwell's file contains no note of any conversation about flood.
1. Is Caldwell liable to Halewood, and what defences are available to the broker?
Read the worked answer
Scope of retainer. A broker owes a duty to exercise the reasonable skill and care of a competent broker in the scope of the instruction given. "Same as last year please" is an instruction to replicate the expiring cover, with one addition. That fixes the standard: Caldwell had to match the previous policy, or tell the client clearly where it could not.
Breach. A competent broker comparing the expiring and proposed wordings would see that flood cover had disappeared. Placing the risk without flagging a material reduction in cover, and without any file note of the conversation, is a breach of that duty.
Causation. Halewood must show, on the balance of probabilities, that but for the breach it would have had flood cover. This is strong: it had the cover for five years, it asked for the same cover, and flood risk beside a river is obvious. The £900 saving does not break the chain but will be credited.
Contributory negligence. Under the Law Reform (Contributory Negligence) Act 1945 a breach of a contractual duty of care can be reduced for the claimant's own fault. The office manager's failure to read a schedule three weeks late is culpable, but a commercial client is entitled to rely on its broker; expect a modest, not a substantial, reduction.
Quantum. Damages would be the uninsured flood loss, £260,000, less the policy excess and the £900 premium saving, adjusted for contributory negligence.
Broker's protection. Notify the professional indemnity insurer immediately and reserve rights. The broker cannot contract out of its own negligence to a client of this size and should not try.
2. Which FCA requirements did Caldwell breach, and what should the file have looked like?
Read the worked answer
Principles. Principle 2 (due skill, care and diligence) and Principle 7 (communications clear, fair and not misleading) are both engaged. A price-led switch that silently strips out flood cover fails both.
ICOBS. ICOBS 5 requires a demands-and-needs statement that genuinely reflects what the customer requires. "Price-sensitive, standard cover required" is a generic label, not a record of Halewood's actual requirement to replicate its existing cover. ICOBS 6 requires disclosure of the nature of the service and of remuneration on request, and clear product information before the customer is committed. Sending the schedule three weeks after inception is too late to inform a decision.
PROD 4. As a distributor, Caldwell must understand the product and ensure it is distributed within the target market and meets identified needs. A generic commercial combined policy excluding flood was outside this client's needs.
Record-keeping. SYSC requires adequate records; the absence of any note about flood is itself a breach and destroys the broker's ability to defend the claim.
A compliant file would show: a comparison of expiring and proposed cover, an explicit written recommendation explaining the exclusion, a client acknowledgement before inception, the schedule and policy documents delivered at or before inception, and a dated record of the advice given.
Regulatory reporting. A breach with a £260,000 client loss should be assessed under the firm's notification obligations to the FCA, and the SMF holder should be told.
3. Halewood wants to take the matter to the Financial Ombudsman Service. Can it, and what are its practical options?
Read the worked answer
Eligibility. The Financial Ombudsman Service can consider complaints from consumers, micro-enterprises, small charities and small trusts. A micro-enterprise is defined by both turnover and headcount – turnover under €2 million and fewer than 10 employees. Halewood has turnover of £1.4m but 12 employees, so it fails the headcount limb and is not an eligible complainant.
Consequence. Caldwell must still handle the complaint fairly and promptly under Principle 6 and DISP-style good practice, and should give a clear final response, but it need not follow the eight-week timetable or issue an FOS referral notice, because the ombudsman route is closed.
Halewood's real options:
- Negotiation with the broker and its PI insurer – usually the fastest and cheapest route, and the broker's insurer has an interest in settling a clear liability.
- Court proceedings in contract and/or negligence. At £260,000 the claim is multi-track; Halewood needs evidence of the expiring wording, the instruction email and the broker's file, so a solicitor's letter before action should demand the full file.
- Complaint to the FCA, which does not award compensation but can act on patterns of misconduct.
Practically, the missing file note means the broker will struggle to prove any oral warning was given, so early settlement is likely to be its best commercial outcome.