No breach: JLT wins councils mutual class action

The NSW Supreme Court has dismissed a class action launched against JLT by local governments that became dissatisfied with a mutual scheme, finding the company was not acting as a broker for individual councils in conflict with its role as an adviser for the pool.

Richmond Valley Council (RVC) and others alleged JLT breached its duties by only recommending property and liability cover provided by the Statewide mutual scheme each year and failing to advise on lower premiums available in the open market.

Justice Kate Williams found Statewide-adviser JLT was fulfilling its role in line with a pool Deed, and it did not provide broking services to Richmond Valley Council in relation to the property and liability cover.

“The terms of the insurance declarations and renewal reports made it clear that JLT was negotiating and placing the property and liability lines of cover on behalf of Statewide members collectively and not on behalf of RVC individually,” Justice Williams says in a decision first reported by insuranceNEWS.com.au in a Breaking News last month.

No allegation was made that JLT didn’t provide advice to the mutual scheme board about pooled risk placements, or that it did so in a manner contrary to its obligations, Justice Williams says.

Separately, JLT acted as a broker for Richmond Valley from time to time on non-Statewide covers, while as part of the Statewide scheme individual councils were asked to make choices such as deductible amounts and sub-limits.

Scheme members could retire from the pool and seek other options for that cover after a notice period, which from 2013 was increased from three to 12 months.

Richmond Valley Council argued that JLT had “held itself out as a broker” to group members in documents and communications, while general managers were asked in court about how they would have responded if they’d been advised about cheaper premiums available compared to the Statewide contributions.

But Justice Williams describes the hypothetical scenarios as unrealistic because by the time renewal paperwork was presented it was too late for councils to leave the pool for the coming year due to the notice periods. The judgment also says Statewide documentation language was different compared to non-Statewide covers, and they needed to be looked at in context.

The judgment found JLT had not breached fiduciary duties to individual councils and there was no conflict of interest, given it wasn’t providing broking services or making a recommendation to them on the pooled cover.

“RVC had made the choice to take itself out of the market as an individual insured and to have its property and liability risks pooled with other group members on the express basis that JLT would place insurance for those pooled risks on the instructions of the board,” the decision says.

“RVC was aware of the terms of the Deed that it had acceded to when it made that choice and by which it remained bound unless and until it gave the requisite period of notice.”

Before the 2014/2015 renewals, Willis Australia had contacted the Northern Rivers Regional Organisation of Councils suggesting it could assist members, and a benchmarking process with another group of councils “showed considerable savings on offer by moving to a regional insurance program”, the court heard.

In February 2015 Aon Risk Solutions approached Richmond Valley Council, flagging “significant potential savings”, and later providing indicative prices.

Richmond Valley Council gave notice of its retirement from the Statewide mutual in June 2016, ahead of joining with nine other councils in August that year to form an insurance procurement group (IPG).

JLT, Aon, Marsh and Willis participated in a three-year IPG tender, with Aon awarded the role in February 2017.

Richmond Valley argued that the aggregate 40% difference between contributions it paid to the mutual property liability funds in 2016-2017 and JLT indicative pricing in an IPG tender response was “strong evidence that RVC had overpaid for its insurance that year, and that JLT had failed to obtain the lowest price it reasonably could have from Statewide”.

The judgment says the IPG tender was conducted retrospectively based on fictitious data for anonymised councils, was “plainly not designed” to elicit any binding insurance quote and other differences included that flooding wasn’t covered.

“It is unremarkable that JLT sought to make its indicative pricing competitive by approaching the pricing in a different manner from that which applied to setting Statewide contributions,” Justice Williams says.

In 2019, Richmond Valley Council tendered for insurance and broking services for the period from June 30 2020. From July that year it ceased to use Aon as its broker and became a member of the CivicRisk mutual, the judgment says.

The court action against JLT, now part of Marsh McLennan, related to the period from January 2009 to December 2018.

The decision is available here.