The Ontario Superior Court of Justice's recent decision in a
case called Ostenda v. Miranda 2012 ONSC 7346 will be
of interest to insurers which use brokers as their distribution
channel. The court had to grapple with the issue of whether an
insurer is independently or otherwise liable for its broker's
negligent insurance advice given to an insured client. It also
had to address the issue of whether an annual "risk
assessment" conducted by the insurer and resultant report
exposed the insurer to liability to the insured for inadequate
insurance coverage. The court decided on the particular facts
of this case that the insurer, Zurich, was not liable for its
broker's failure to recommend that the auto policy be endorsed
with an OPCF 44R Family Protection Endorsement nor did the risk
assessment conducted by Zurich expose it to any liability to its
The plaintiff Ostenda was a truck driver for Synergy
Transportation. He was catastrophically injured in a motor
vehicle accident in Illinois which was caused by a third party who
had "very modest insurance coverage" which would be
insufficient to cover the anticipated tort damage award.
Synergy's fleet automobile insurance coverage was provided by
Zurich. This policy was underwritten through a
broker. For some inexplicable reason, that policy was not
endorsed with an OPCF 44R endorsement. Accordingly, Ostenda
would not have access to any underinsured motorist coverage from
which to seek recovery of his tort damages not paid for by the
third party's insurance coverage. Ostenda sued the broker
for its negligent advice. He also sued Zurich. He alleged
that Zurich owed him a duty of care independent of the broker to
ensure that Synergy and its employees' insurance needs were
met. He also alleged that Zurich was liable to him because it
had commissioned several risk assessment reports over the years
which failed to point out the lack of underinsured motorist
The court dismissed the claims against Zurich. It made the
Although a broker owes a duty of care to its clients to procure
adequate insurance coverage (as recognized by the courts in the
Fine's Flowers and Fletcher cases), an
insurer acting through a broker owes no similar and independent
duty of care to those clients. The insurer's only
obligation to the insured is to issue a policy in accordance with
the application submitted by the broker. The only exception to
this principle would be if there was evidence that the insurer
knowingly and willingly undertook the responsibilities of a broker
in the same fashion as a broker. There was no evidence of this
in this case.
The court also pointed out that, to impose a similar duty on
insurers as that imposed on brokers to advise on a client's
insurance needs, would result in considerable duplication of effort
and lead to unnecessary expense which would be passed on to the
Finally, the annual risk assessments which were conducted by
Zurich were done from the perspective of understanding and
assessing the risk from an underwriting standpoint, i.e. to reduce
the potential for claims and reduce the insured's insurance
costs. The fact that the insurer commissioned these risk
assessment reports did not create any liability to Zurich. The
court also placed specific reliance on the disclaimer clauses
contained in the risk assessment reports which clearly indicated
that Zurich was not assuming any responsibility for discovery,
notification or elimination of hazards or risks.
This decision is important for all insurers which employ
independent brokers as their distribution channel or who commission
risk assessment reports for their insureds. Insurers do not
owe a duty of care to the insured to advise as to adequacy of
insurance coverage where a broker is involved on behalf of the
client. Further, the fact that an insurer may perform risk
assessments of their insured's property or business or other
activities will not necessarily mean that the insurer will be
liable for failing to identify gaps or inadequacies in insurance
coverage. In this regard, it is important that insurers employ
appropriate exculpatory clauses in the risk assessment reports
provided to their insureds.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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