The Ontario Superior Court of Justice recently allowed a motion
for summary judgment against an insurance brokerage and the
individual broker for failing to meet their duty of care to arrange
adequate insurance coverage.1
The insured was involved in a motor vehicle accident while
operating his leased vehicle. The vehicle carried $1 million in
primary limits under a policy issued to the lessor. The insured
alleged that he had also provided a clear mandate to his broker to
ensure that there was umbrella coverage on the vehicle. Although
the broker had arranged umbrella coverage with limits of $15
million, the policy language contained an exclusion for long-term
leased vehicles. The umbrella insurer had advised the broker about
this exclusion but the broker had failed to advise the insured.
After the motor vehicle accident, the umbrella insurer relied on
this exclusion to deny coverage.
As a matter of contractual interpretation, the court held that
the exclusion applied and that coverage was not available. The
court then turned to a broker’s duty of care and confirmed
that they are obligated to advise an insured as to any gaps in
coverage and to make all reasonable efforts to ensure that the
insured was properly protected. The court rejected the assertion
that the breach of duty had not caused the insured any damage,
finding it inconceivable that the insured would not have taken
alternative steps to ensure the vehicle was properly protected had
it known of the gap in coverage.
Critical to the court’s analysis was an admission in the
statement of defence, which indicated that the brokerage had always
intended that there would be umbrella coverage. The court found
that this admission was inconsistent with the position taken
regarding the duty of care issue.
Insurance brokers who take an active approach in discussing any
known or potential insurance gaps with their insured will minimize
the likelihood of liability should their insured suffer any
uninsured loss. In addition, this decision illustrates the
importance of having a cohesive plan in defending insurance
coverage claims. Insurance brokers (and their lawyers) should
develop a cohesive and consistent defence at an early stage in an
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