The recent $2.7 million Supreme Court decision in Kotku
Bread Pty Ltd v Vero Insurance Ltd & Anor  QSC 109
confirms that an insurance broker owes a duty of care to its client
to not only take reasonable steps to inquire as to the property to
be insured, but to not misrepresent the property to a third
On 19 August 2010, the plaintiff's bakery was destroyed by
fire. He claimed against his insurance policy with Vero, which had
been arranged by his insurance broker. The plaintiff's previous
insurance was held with Suncorp-Metway Insurance
(Suncorp), which had insured the plaintiff's
business for several years. Suncorp acquired Vero in 2007 and
certain information held by Suncorp was 'pre-populated'
into Vero's computer system.
Vero asserted that the way in which the broker had completed the
online insurance application form conveyed a misrepresentation
under section 28 of the Insurance Contracts Act 1984
(Act) about the amount of expanded polystyrene
(EPS) in the internal walls. Vero claimed that if
it had known the true amount of EPS, it would not have insured the
Vero alleged that its system asked a specific question about
EPS, to which the the broker's employee selected zero percent
when the correct answer was more than 33 percent.
The broker argued that because Vero was a Suncorp subsidiary, it
knew (or should have known) the true extent of EPS through
Suncorp's records. Alternatively, the broker submitted that if
the true extent of EPS was not known to Vero, the scope of a
broker's duty did not oblige the broker to conduct
investigations. At its highest, the scope of the broker's duty
was to advise the plaintiff that the extent of EPS was a fact that
might affect Vero's decision.
The court held that the broker had a duty to inform itself about
the construction of the building. The answer of zero percent was a
misrepresentation and it amounted to a breach of the
plaintiff's duty of disclosure.
Although the broker submitted that the information provided
pertained to an existing client, Suncorp had no reason at the time
of the automated transition of pre-populated data to Vero to
believe this, because it was told it was a new business and neither
Suncorp nor Vero could not have been expected to find archived
information in the ordinary course of business.
Vero was entitled pursuant to section 28(3) of the Act to reduce
its liability to nil. The court affirmed that a broker is not under
a general duty to ensure that its client is impervious to loss or
risk of loss through the absence of insurance. However, the broker
had a duty to inquire about matters in respect of which it had not
made adequate inquiries in previous years.
Reminders to the plaintiff about its duty of disclosure under
the Act, coupled with the plaintiff's knowledge of the
building's internal construction, did not relieve the broker of
the duty to advise the plaintiff of something that the broker knew
but the plaintiff did not. The broker owed the plaintiff a duty to
inquire about these things.
In giving the answer 'zero percent', the broker failed
to discharge its contractual duties to the plaintiff and also
breached its duty of care under general law, leading to judgment
for the plaintiff for more than $2.7 million, plus interest.
Winner - EOWA Employer of Choice for Women Citation 2009, 2010
Winner - Australasian Law Awards Gold Employer of Choice 2011
Finalist - ALB Australasian Law Awards 2008, 2010 and 2011 (Best
Winner - BRW Client Choice Awards 2009 and 2010 - Best Australian
Law Firm (revenue less than $50m)
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Whereas most insurance policies exclude liability arising under contract, insurers can
positively benefit where an insured has limited or excluded its liability under contract.
This usually arises where the insured's contract has a limitation or exclusion of liability clause in the insured's favour.
The Northern Territory Court of Appeal recently reviewed the Wayne Tank principle in a case where the loss resulted from more than one cause.
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