Strategic Property Holdings (Strategic) owned significant
property assets, including a property in the ACT which was leased
to the Commonwealth and used by the Australian Defence Academy (the
ADA Property). The Broker was retained by Strategic and its
property and investment manager (Eclipse) to arrange insurance for
Strategic's property assets, including the ADA Property.
In 2005, the Broker arranged an Industrial Special Risk (ISR)
policy with Suncorp. The ISR policy:
Was a 'master policy' covering all properties owned by
Strategic, each of which were specifically declared in a Schedule
of Assets. The declared value of all property insured was $128.8
Listed the ADA Property in the Schedule of Assets with a
declared value of $22 million
Had a limit of indemnity for material loss or damage of $30
Featured a sub-limit for 'accidental damage' of
Defined 'accidental damage' as accidental loss,
destruction or damage but not including loss, destruction or damage
caused by perils specifically insured (which were each listed in
the policy) or any peril excluded by the policy
Excluded damage caused by faulty materials or faulty
workmanship but not 'subsequent loss, destruction or damage to
the Property Insured occasioned'.
During the policy period the roof of the ADA property collapsed
due to inadequacies in the design and construction of the roof
Suncorp admitted liability to pay under the ISR policy but
applied the accidental damage sub-limit of $200,000. Strategic and
Eclipse unsuccessfully challenged Suncorp's decision to apply
the sub-limit in separate proceedings. That left an uninsured loss
in the order of $1.9 million. Strategic and Eclipse then sued the
Broker to recover its uninsured loss.
The Broker was held to have breached its duty of care and found
liable to Strategic. That conclusion followed from the following
It was an implied term of the Broker's retainer that the
Broker would give advice to its client in relation to the
availability of different types of cover, the nature of any
exclusions and limitations on the cover, and the material risks
associated with the level of cover proposed by the Broker having
regard to the declared value of the properties insured. That
implied term arose as a usual incidence of the broker-client
Specifically, the Broker had a duty to advise Strategic of the
presence and effect of the accidental damage sub-limit, including
explaining the type of damage to which the sub-limit might apply as
defined in the Policy. The Broker did not provide any advice in
relation to the effect of the sub-limit and, in fact, had a
fundamentally flawed understanding of the concept of
'accidental damage' and, therefore, the extent of the risk
faced by Strategic.
Had the Broker provided adequate advice as to the accidental
damage sub-limit, including the fact that a higher sub-limit could
have been negotiated for additional premium, Strategic would have
instructed the Broker to obtain an accidental damage sub-limit of
$2 million. That cover would have been available at an additional
premium of $21,375, which Strategic would have paid.
Brokers need to understand the operation of sub-limits included
in policies of insurance arranged by them and to consider the
appropriateness of those sub-limits to their client's needs.
Where the sub-limits have the potential to expose their clients to
material uninsured losses, Brokers should explain that potential
exposure to the client so that the client has the opportunity to
instruct the broker to negotiate a higher sub-limit (where
available). In this case, the large disparity between the value of
the ADA Property and the accident sub-limit required specific
advice to be given to the client.
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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