A global insurance broker could get into a legal battle over allegations that its brokerage advice has led local councils to pay excessive premiums.
Law firm Quinn Emanuel Urquhart & Sullivan revealed it is “well advanced” in its investigations into a possible class action against Jardine Lloyd Thompson (JLT), which has specialised in local government services since the 1970s and caters to more than 500 of the almost 550 councils across the country.
“JLT, as a broker of insurance, owed a duty of care to our clients,” said Michael Mills, managing partner at QE. “The fact that a number of local councils have, since leaving JLT, made substantial savings on their premiums, indicates that JLT may not have acted in the best interest of local councils or their ratepayers, who really are the ones ‘paying the cost’ for these insurance schemes.”
QE said local councils “regularly procured some or all of their insurance through various insurance schemes that were managed by JLT and its related entities” after getting advised by JLT, and were also provided with other insurance services by the British multinational company.
“JLT may also have breached its fiduciary duties owed to local councils as members of the insurance schemes, in its capacity as manager of those insurance schemes,” QE said in a statement.
In 2015, the scheme which sees JLT delivering insurance services to local councils, has been criticised by the Victorian auditor-general in that state for not undergoing a competitive tender process despite a 2010 independent review which raised "concerns about the performance of the provider" and recommended competitive tendering, AFR reported.
In 2014, the City of Ballarat said it saw more than $600,000 in savings, or a 1% cut in rates, after putting its insurance out to tender.
In February, QE obtained access to JLT documents relating to the scheme on behalf of the Mornington Peninsula Shire Council.
In a ruling handed down just before Christmas, James Allsop, Federal Court chief justice, said in all circumstances, "the belief that the council may have a right to relief is one that is reasonably held," AFR said.
"Though the language of the auditor-general's report is somewhat opaque, it provides a reasonable basis for the council to believe that there may be a right to obtain relief from JLT concerning the levels of fees and costs if there be, as there may be, a fiduciary relationship between JLT and member councils," Allsop said.
Allsop also held that it was “plausible” that a fiduciary duty was owed.
"The relationship is potentially one in which members of the LMI scheme were vulnerable to any abuse by JLT of its position and, depending on the terms of the management agreement between MAV and JLT, it may also be one in which JLT has undertaken to act in the interests of the members of the LMI scheme," he said.
A spokeswoman for JLT said the firm was "confident that the council has no case for compensation against JLT.”
"This case involved no more than a preliminary decision that the council is entitled to discovery of certain documents so that it may decide whether or not to start a proceeding," she told AFR.
She also stressed that the court "did not receive evidence [or] form a view as to whether there are reasonable prospects of a case for compensation,” AFR reported.