An insurance broker has a duty to act in good faith and inform
third parties who are not clients, but who suffer damages as a
result of inaccurate information provided by the broker about an
insurance product. That's what the Quebec Court of Appeal
confirmed in a recent decision that recognizes duties that go
beyond the ones brokers owe strictly to their clients.
The facts: Mr. Lefebvre wanted to buy Mr. Robinson's house
but the parties could not agree on the sale price given the
significant difference ($200,000) between the offer and
counter-offer. Looking for a solution, Mr. Lefebvre consulted an
insurance broker who recommended a prepaid insurance policy on Mr.
Robinson's life made payable to the latter's estate. The
broker then made an offer to Mr. Robinson on behalf of Mr. Lefebvre
which would see most of the sale price paid out on the transaction
date; the balance would be paid within five years and Mr. Lefebvre
would take out an universal life insurance policy on Mr.
Robinson's life with index-linked death benefits made payable
to the latter's estate. Mr. Robinson accepted the offer.
Following the statements made by the broker on behalf of Mr.
Lefebvre and the insurer indicating that the premiums had been
"fully prepaid" and "prepaid for life" by Mr.
Lefebvre via an annuity contract, Mr. Robinson opted not to take
out a surety that would have secured the payment of the insurance
premiums. The parties signed the deed of sale in 1992.
Thirteen years later, in 2005, as a result of poor returns on
investments, the accumulation fund was no longer self-sufficient to
cover the premiums. The insurer requested over $200,000 in order to
maintain the policy in force. The broker, going through Mr.
Robinson's accountant, offered to buy the policy back for
$400,000 without explanation. He never put the offer in writing as
requested. Mr. Robinson's accountant only found out three years
later, in 2008, that premiums were due on the policy.
Mr. Robinson formally gave Mr. Lefebvre notice to pay the
premiums to maintain the policy in force and comply with their
agreement. Given the latter's inaction, Mr. Robinson paid the
premiums himself in order to avoid the forfeiture of the policy. It
was also anticipated that the premium would increase every year for
the rest of his life. As a result, Mr. Robinson claimed against Mr.
Lefebvre, the broker and the brokerage firm for the premiums that
he had paid and for an amount equivalent to the death benefits.
Superior Court1 found that Mr. Lefebvre failed to
pay all the premiums as required by the offer and ordered him to
pay all the damages claimed by Mr. Robinson. Even so, it held that
the broker misled him on the nature of policy, thereby breaching
his duties to inform and advise his client Mr. Lefebvre.
Furthermore, relying on the decision rendered by Supreme Court
of Canada in Bail2, the Court held that the broker owed
a duty of good faith to Mr. Robinson and a duty to inform him even
though he was not his client. It held that the broker failed to
recommend an insurance product that met Mr. Robinson's needs
and kept on providing incomplete and inaccurate information. The
broker had a duty to provide accurate information or at least,
refrain from providing information that he knew was inaccurate or
false. The Court also considered that Mr. Lefebvre and Mr. Robinson
would have never bought the policy had they known that substantial
premiums would be required later in order to maintain it.
The Court ruled that the broker was liable toward Mr. Robinson
for the whole along with his client Mr. Lefebvre. Meanwhile, Mr.
Lefebvre had filed an action in warranty against his broker. The
Court held that the latter was contractually liable toward the
former and as a result, had to indemnify him from all amounts paid
to Mr. Robinson by virtue of the judgment.
The broker, his firm and Mr. Lefebvre appealed the Superior
Court decision, but the
Court of Appeal3 dismissed the appeals, confirming
the broker's extra-contractual liability toward Mr. Robinson
while emphasizing that this case involved particular
And indeed it did, considering that the broker made express
representations to a third party about an insurance product. Still,
the lesson to be drawn from this decision is that professionals can
engage their extra-contractual liability when they provide
incomplete or inaccurate information to third parties.
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