A landmark House of Lords decision last week could mean greater liability for reinsurance brokers.

The decision upheld a 1999 Court of Appeal decision that insurance brokers Johnson & Higgins (J&H), a company since bought out by Marsh & McLellan, should pay Aneco Re - a Bermuda-based reinsurer now in liquidation - all losses suffered under a failed reinsurance contract.

The landmark decision could see J&H's liability grow to $60 million. The court ruled J&H gave negligent advice to Aneco on the terms and availability of reinsurance coverage.

J&H now faces the payment of damages, significantly in excess of the initial amount of reinsurance sought by Aneco - $12 million.

The House upheld the earlier ruling that Aneco is entitled to damages for the losses it suffered under the exposed contract, which may go as high as $60 million.

UK lawyer John Trotter told the Financial Times, the decision could mean "brokers are potentially exposed to claims on their advice to clients, on the market, rather than simply on placing the insurance".

A local lawyer saw the decision as having limited ramifications on the insurance broking industry, which is well-represented in Bermuda.

Warren Cabral, formerly the head of insurance at Appleby Spurling & Kempe, and who is now head of intellectual property and information technology, said: "The case seems to extend the scope of professional liability which will of course have ramifications for reinsurance brokers.

"But, it is very much the way of the world today to extend liability and of all people the insurance industry is best placed to understand and respond.

"Really, this is nothing new; it is an extension of a well-known phenomenon. I do not believe the ramifications are particularly great," he said.

A press release from CMS Cameron McKenna, the legal firm acting on behalf of PriceWaterhouse&Coopers (PWC), Aneco Re's liquidators, said: "It is the first successful claim of its type against a reinsurance broker and has important consequences for the way brokers place reinsurance business."

CMS Cameron McKenna was acting on behalf of Aneco's liquidator Peter Mitchell of PWC Bermuda and Chris Hughes of PWC London, who claimed negligence against J&H, a subsidiary of Marsh.

Mr. Mitchell told The Royal Gazette this was an important case and, as their lawyers stated, will likely have consequences on the way brokers now place reinsurance.

Mr. Mitchell added: "The affect of the judgement is an increase in the dividend that (Aneco) creditors can expect."

In the case, it was claimed that J&H negligently advised Aneco that reinsurance was available at a certain price when, in fact, it was not.

J&H knew that Aneco was not prepared to accept the contract without reinsurance in place.

The reinsurers subsequently gave notice of avoidance because of various misrepresentations by J&H.

Aneco was then exposed to losses after a series of major catastrophes, including Hurricane Hugo and Exxon Valdez, which occurred in 1989.