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In 2049390 Ontario Inc. v. Leung, 2018
ONSC 5759, the plaintiff sued its insurance broker for $1.8 million
following a fire at a commercial property in Toronto, Ontario. The
claim was dismissed.
Facts
In January 2009, the owner of the corporate plaintiff, James
Kan, contacted an insurance broker, Doris Leung, to inquire about
finding new insurance for a commercial property on Queen Street
West in Toronto.
Ms. Leung made arrangements for a new insurance policy. The
policy included coverage for the building in the amount of
$850,000. By 2012, with adjustments for inflation, the building
limit was $1,107,764.
In October 2012, a catastrophic fire destroyed the building. The
insurer took the position that the plaintiff was underinsured
because the cost of the reconstruction would exceed the building
limit. The insurer paid out the full policy limits.
The plaintiff sued the insurance broker on the basis that the
broker should have provided advice to consult with a building
reconstruction expert to obtain an accurate estimate of the value
of the building.
The broker stated that she told Mr. Kan that he should consult
with a cost consultant or professional appraiser during their
initial meeting and again at the time of each renewal. Further,
documentation was provided to Mr. Kan with a recommendation to
review the value of the property with an appraisal company.
Applicable Law
Justice Favreau provided an overview of the duty of care owed by
insurance brokers.
Insurance brokers have a stringent duty to provide both
information and advice to their customers. The service they provide
is highly personalized, concentrating on the specific circumstances
of each client.
An insurance broker must clearly communicate the limits and
absence of coverage.
Trial Decision
The action proceeded to a two week trial. Experts who testified
for both sides agreed that insurance brokers are not qualified to
give replacement cost advice to clients. The experts agreed that,
at the very least, a best practice is to advise clients of the need
to obtain expert advice on this point.
Justice Favreau found the owner of the corporate plaintiff, Mr.
Kan, to not be a credible witness. She accepted the evidence of the
insurance broker that the plaintiff was advised to verify that the
amount of coverage reflected the value of the property and that the
plaintiff should get advice from a cost consultant.
In addition, the warnings that were contained in the written
communications to the plaintiff were not hidden or buried in
lengthy documents. It would be fair to expect Mr. Kan to read and
pay attention to the documents. Mr. Kan was a real estate agent and
a mortgage broker, which suggested a high level of
sophistication.
Justice Favreau held that the insurance broker was not negligent
or in breach of any contractual obligations.
Even if the insurance broker failed to advise Mr. Kan to retain
a cost consultant, Justice Favreau was not satisfied that the
plaintiff would have acted differently. It was evident that Mr. Kan
was primarily motivated to seek out less expensive insurance. He
did not demonstrate that he would have retained a cost consultant.
As a result, Mr. Kan failed to prove causation.
Moreover, the plaintiff did not produce an expert report
addressing the advice a cost consultant would have provided at the
relevant time.
Conclusion
Insurance brokers have a stringent duty to provide information
and advice to their clients on insurance coverage and gaps in
coverage.
Insurance brokers need to understand the nature of their
clients' business and assess risks.
In areas where brokers do not have expertise, such as assessing
the replacement cost of a building, they should recommend to their
clients retaining other specialists.
Insurance brokers should keep detailed records of the advice
provided to clients. When advice is provided orally, it is a good
practice to follow up with written correspondence.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Dentons LLP has recently become embroiled in a coverage dispute with its insurer over an approximate 1.7 million dollar loss after falling victim to an email scam.
There were once again very few reported decisions in Canada involving insurance broker's negligence in 2018. Of those that were decided, however, it was a decidedly good year in the courts for brokers.
