Gallagher denies negligence and breaches over Paradigm claim

Paradigm is claiming for damages, interest and costs and alleged in a court filing that Gallagher failed to arrange cover for one of its buildings.

Paradigm had used Gallagher as its broker across its property portfolio since 2004 and, since 2008, cover was provided by Aviva underwritten by Gallagher subsidiary Pen Underwriting. The cover had been provided for the Slough building on a leaseholder basis.

Freehold

Paradigm filed its particulars of claim at the High Court in June and in the latest development Gallagher responded with its defence document dated 14 July 2022.

Paradigm alleged that the broker stated that it could not find freehold cover for the flat block due to the freehold being passed to The Crown after the original freeholder went bust in 2012. The Crown is not expected to find cover for the freeholds in its possession so Paradigm asked Gallagher if it could help. Therefore, the organisation obtained cover for the freehold via Towergate Risk Solutions for the period of 2013 – 2019.

In 2019, the housing firm alleged, it instructed Gallagher to obtain cover for the freehold and cancelled the Towergate policy. The Gallagher defence document denied this was the case and posited that instead Paradigm instructed Gallagher that it intended to purchase the freehold and that it wished for the broker to obtain cover once this had been done.

The defence document stated: “At no point subsequent to the meeting was Gallagher informed that Paradigm had acquired the freehold or otherwise wished Gallagher to procure cover for the property.”

It continued: “It is denied that there was any uncertainty or ambiguity in Gallagher’s minds about Paradigm’s instructions. In the premises, there was no duty on the part of Gallagher to seek clarification from Paradigm.”

Absence

The broker also attacked the notion that it failed to obtain cover as stated in its own renewal report and then failed to report the absence of that cover to Paradigm.

The defence document noted: “It is admitted and averred that Gallagher did not seek to obtain a quotation in relation to insurance for the property from Pen/Aviva. It is denied that this constituted a breach of duty as it was entirely in accordance with Paradigm’s instructions that Gallagher should not obtain cover for the freehold until Paradigm had acquired the freehold. Paradigm did not instruct Gallagher to procure insurance for the leasehold interest.”

It also argued it did not seek to obtain cover for the freehold because it had not been instructed to do so. The report continued: “Paradigm did not instruct Gallagher to procure cover for the leasehold interest.”

The broker also insisted it was fully aware that the 2019 quote did not provide cover for the property freehold.

Gallagher reported in the defence document: “It is admitted that Gallagher did not specifically inform Paradigm that the Aviva/Pen proposal contained in the 2019 quotation included no cover for the property. It is denied that Gallagher was under any duty so to inform Paradigm, in circumstances where Paradigm had instructed Gallagher not to seek cover for the freehold of the property until the freehold had been acquired, and had not instructed Gallagher to seek cover for the leasehold interest.”

Gallagher also denied it was under a duty to advise Paradigm of the risks to which it was exposed by the absence of any insurance cover for the property.

The defence continued: “Paradigm was a knowledgeable and sophisticated client which fully understood the risks of having no insurance cover.

“Further and in any event, Gallagher was not informed of Paradigm’s intention, having instructed Gallagher not to procure cover, to instruct its existing brokers in respect of the property, Towergate, not to renew their existing policy with Allianz in respect of the property.”

Advice

On the point that Gallagher offered “incorrect advice over insurable interest” Gallagher stated: “It is averred that at all material times, Gallagher conveyed Pen/Aviva’s position to Paradigm; it did not offer advice that Paradigm could never have obtained cover in relation to the freehold interest in the property and/or that Paradigm did not have an insurable interest in that part of the property which had not been demised to it.”

It also denied that Gallagher created the false impression that such cover was unavailable.

On the accusation of negligence Gallagher argued: “If, which is denied, Paradigm has suffered any loss as a result of having no insurance cover in respect of the property, it is averred that such loss was caused and/or contributed to by Paradigm’s own failure to exercise reasonable care and skill to protect their own interests, in that (being knowledgeable and sophisticated in respect of insurance matters) they:

• Instructed Gallagher not to procure cover for the freehold of the property pending acquisition of the freehold.
• Did not instruct Gallagher to procure cover for the leasehold of the property
• Failed to take reasonable steps promptly to acquire the freehold of the property
• Failed to advise Gallagher that they were not intending to procure cover for the property through alternative brokers
• Failed, having instructed Gallagher not to procure cover for the property, to obtain such cover through alternative brokers or otherwise
• Failed to query (as set out in the Renewal Report Update of 22 November 2019) the fact that the quote from Aviva/Pen for property stock was unchanged from the previous 16 year’s which had not covered the property (the rebuild value of which was in excess of £8m).”

Invalid

The broker went on to argue that, if it was in breach of contract, which it denied, defects in the property would have made the insurance invalid anyway.

It stated: “If cover under the policy had been procured, Pen/Aviva would have refused to indemnify Paradigm on the basis that the damage to the property was caused by a hidden and/or existing defect and/or by faulty design and/or materials.”

“If (which is denied) cover would have been procured under an alternative policy, insurers would have refused to indemnify Paradigm for similar reasons.”

The broker argued that damage to the roof was caused by an existing defect and stated it would rely on an article written by the CEO of Paradigm and published in Inside Housing in 2020 in which the CEO wrote that “that the roof was deficient in design or build or both”.

Gallagher denies breaches of duty and negligence. The case continues.

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