You obtained your insurance through an insurance broker or agent, have faithfully paid your premiums for many years, then suffered a loss. Your insurance company writes to advise you that you have no insurance coverage for the loss. You then turn to your insurance broker or agent. Will they be found responsible for this loss?
The legal responsibility of an insurance agent or broker will depend upon why he or she was initially hired. If a broker is hired to obtain specific insurance, the broker's obligation will be to use a reasonable degree of skill and care and if unable to obtain this specific insurance, to advise the client.
Where there is a request of an insurance agent or broker for "full coverage" and the agent or broker is aware that the client is relying upon the agent's expertise to see that his interests are protected, then the Courts expect a high standard from the agent in the performance of his or her duties. If there is available coverage which would have protected the client, and the broker/agent failed to obtain this insurance, the broker/agent will be responsible for any loss arising.
Some examples of where agents/brokers have been held responsible are noted below.
Failing to Place Any, or Any Adequate Insurance
An example is where an importer of cattle specifically requested "all risk" insurance coverage on some exotic cattle he was importing into Canada. The insurance broker assured the cattle importer that his cattle would be covered. The broker was unaware that one of the exclusion clauses in the policy of insurance excluded insurance coverage if one of the animals was to be slaughtered under Government order. The Court concluded that the insurance broker was clearly responsible for the loss as he represented himself as being competent and qualified to obtain the specific insurance requested and he failed to advise of this exclusion.
Another example is where the client requested "coverage for mechanics' tools. The client had obtained a quote from another insurance agent which included fire and theft of the tools. Due to an oversight, the insurance agent failed to obtain theft coverage over the tools. When the tools were stolen, the insurance company refused to pay for the tools. The Court found that the agent was liable as a specific request was made for coverage in the event of theft.
In another case, the client called the insurance agent and asked that insurance be placed on a new residence that had been purchased. The agent did not discuss the value of the home, or the obtaining of an appraisal. The second residence was destroyed. The replacement cost was $150,000.00 but the insurance coverage was limited to $80,000.00. The Court found the agent was responsible for the difference.
Failing to Properly Inspect the Client's Premises
A farmer called his insurance agent and asked that all out buildings be insured, including a barn and its contents. The agent visited the farmer's property and inspected the out buildings. He went into the barn, but did so only as he was curious as to the construction of the barn. He did not properly assess the contents of the barn. The barn was later destroyed by fire and there was insufficient contents coverage. The Court found that the agent was liable as he did not inspect the barn to determine the amount of contents, but rather, inspected the barn out of curiosity. The agent should have assessed the contents to ensure that adequate contents coverage was provided for.
Failing to Properly Review Documents
Where there are contracts which impact upon the type of insurance which is needed, the client must provide a copy of the contract and the agent must review the contract to ensure that the coverage provided will be sufficient to cover the client's contractual needs. In one case, the agent failed to review a lease agreement which allowed the client to sublet an airplane. The agent arranged a policy of insurance which excluded coverage where the airplane was sub-let. The Court held that the agent was responsible for the loss and had a duty to use reasonable care, sufficient to protect the owner's interest.
Failing to Determine Who has an Interest to Be Protected in the Property
The insurance agent must be sure that the parties named in the insurance policies are those who have an interest in the property. In one case, the client operated a restaurant with a partner. The restaurant was later sold to the client's wife. No changes were made to the insurance policy although the agent was aware of this change. When a loss occurred, the insurance company refused to pay the loss as the wife was not listed on the insurance policy. The agent was found liable as he failed to make proper enquiries to determine who, in fact, owned the restaurant.
There have also been a number of cases where the client was held responsible for a loss or found to have contributed to a loss. These cases are usually where the client:
- failed to make proper inquiries of the broker/agent;
- failed to disclose information; and
- failed to read the policy.
In summary, to ensure that your interests are properly protected and to avoid sharing any blame if a loss occurs and your insurance company refuses to pay, you, the client, should:
- Have a frank discussion with your insurance agent and fully inform he or she as to all of your operations;
- If there are any changes, immediately contact your insurance agent/broker;
- If you have any unusual property or risks, ask your insurance agent to visit your premises and ensure that your insurance agent/broker understands these risks;
- If you have any contracts where you are required to carry insurance, be sure to provide copies of these contracts to your insurance agent;
- Ensure that your agent knows who owns the property and if there are any changes, advise your insurance agent immediately;
- Read the insurance policy once you receive it; and
- Take notes when dealing with your insurance broker/agent.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.