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The New South Wales Court of Appeal has upheld a decision
dismissing a client's claim for damages arising out of the
negligent advice of an insurance broker, in Prosperity Advisers
Pty Ltd (Prosperity) v Secure Enterprises Pty Ltd (trading as
Strathearn Insurance Brokers (Strathearn) [2012] NSWCA
192.
The facts
Prosperity carried on business providing accounting and
financial planning services. It engaged Strathearn to arrange
professional indemnity insurance on its behalf. Strathearn
recommended a particular policy that would provide cover of up to
$6 million. Prosperity sought advice from Strathearn in relation to
an aggregation clause in the policy. The question asked was:
If, say 100 clients had an investment in a particular product at
say $40,000, and it went bad and we were found to be negligent in
our advice, would this be seen to be one claim or 100 claims?
The broker responded that in such a scenario the insurer would
treat it as one claim and not separate claims. Prosperity then
instructed the broker to arrange the recommended policy.
On Prosperity's recommendation, a number of its clients
invested in funds and subsequently suffered substantial losses when
the parent company of these funds, Westpoint, collapsed.
Many of the investors commenced proceedings against Prosperity,
arguing it was negligent in recommending the investments. The
amounts claimed totalled approximately $17 million. Prosperity made
a claim for this amount on its professional indemnity
insurance.
The insurer alleged that Prosperity owed $2.5 million in
deductibles on the basis that each action by a client of Prosperity
was a separate claim. However, a settlement was reached under which
the insurer agreed to contribute $4.25 million if Prosperity paid
$800,000 in deductibles.
Prosperity then sued Strathearn, seeking damages and arguing
that the broker provided negligent advice regarding the calculation
of deductibles. Had the broker not given negligent advice,
Prosperity argued that it would only have been liable for a maximum
of $120,000 in deductibles.
The decision of the trial judge
Justice Ball of the Supreme Court was satisfied that the advice
given by the broker was negligent, misleading or deceptive, or
constituted a breach of contract. Therefore, the primary issue for
determination was whether or not Prosperity could recover damages
from Strathearn. This required consideration of whether or not
Prosperity suffered any harm as a result of the broker's
negligent advice.
Prosperity alleged that the harm it suffered was in the form of
the loss of a chance to obtain or negotiate an alternative
insurance policy on terms that would have minimised its liability
in the circumstances. The trial judge accepted that Prosperity had
lost an opportunity to procure insurance on more favourable terms,
but emphasised the need for Prosperity to prove that such loss was
of some value.
Justice Ball concluded that 'the possibility that Prosperity
could have and would have obtained cover that meant that only one
deductible would have been applied to the Westpoint claims was at
best speculative and (did) not satisfy the threshold needed to
assess Prosperity's damages as loss of a chance'. The
Supreme Court therefore dismissed Prosperity's action.
On appeal
Prosperity appealed the decision. However, the New South Wales
Court of Appeal unanimously found that Prosperity failed to
establish that its loss of opportunity constituted a loss capable
of being valued.
According to the Court there was insufficient evidence as to
what Prosperity would have done had it known that its policy did
not offer cover on the terms it wanted. For example, the evidence
showed that Prosperity was 'at least as concerned about the
premium cost (as) the quality of cover'. Also, there was
insufficient evidence that Prosperity would have been able to
negotiate the terms of the aggregation clause it sought with any of
the various insurers suggested by Prosperity at trial.
Significance
The message from this decision is that damages do not
necessarily flow from every negligent act or omission of an
insurance broker. It is for the client to prove that the negligent
advice has caused loss or damage. The client must be able to prove
that, properly advised, it would have chosen a different policy if
necessary, was prepared to pay a higher premium, and an alternative
policy was available.
Winner - EOWA Employer of Choice for Women Citation 2009, 2010
and 2011
Winner - Australasian Law Awards Gold Employer of Choice 2011
Finalist - ALB Australasian Law Awards 2008, 2010 and 2011 (Best
Brisbane Firm)
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.
