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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