AN INSURANCE BROKER’S ONGOING DUTY TO APPRISE AND ADVISE
Insurance brokers owe a duty of care to their clients to place coverage that meets their needs. This duty is ongoing, beginning with the issuance of the first policy and continuing with each renewal thereafter. Accordingly, where the broker learns of a potential gap in policy coverage, it must inform the client of the gap and recommend coverage options to address it.
The scope of this duty was recently addressed by the BC Supreme Court in Alvaro v. InsureBC (Lee & Porter) Insurance Services Inc., 2019 BCSC 2017. In Alvaro, the plaintiffs sued their insurance broker for failing to place adequate insurance coverage on a rental property and failing to bring a vacancy exclusion clause in the policy to their attention. The plaintiffs had used the defendant broker for a number of years to insure their properties. While renewing the policy for the subject property, the broker learned that it was being used as a rental property but failed to advise the plaintiffs that the policy contained a vacancy exclusion. After the policy was renewed, the plaintiffs evicted the tenants and the property was left untenanted. While the property was vacant, a fire occurred for which coverage was ultimately denied.
In finding the broker liable, the Court awarded the plaintiff $165,000, being the amount the policy would have paid out had coverage remained in effect at the time of the fire. In coming to its decision, the Court emphasized that:
- A broker has an ongoing duty to the client to investigate any gaps in coverage, ensure the client is aware of such gaps and provide appropriate recommendations to remedy them;
- A broker should communicate relevant information directly to the client rather than through supplementary policy materials; and
- To the extent a broker relies on any supplementary materials, it is incumbent on the broker to ensure that they cast important information in the clearest of terms.
The Court rejected that the plaintiffs were contributorily negligent for failing to read their policy, noting that they were not in a position to fully understand the impact of the vacancy exclusion on their coverage. Further, the damage flowed from the broker’s failure to inform and advise on coverage and not from the failure to read the policy itself.
Insurance brokers may face unexpected recourse from their clients when coverage under a policy is denied or is insufficient to cover the full extent of losses. To mitigate against this risk and meet their duty to their clients, brokers should:
- Carefully go over the insurance policy with the client before placement and upon each renewal;
- Keep up-to-date with material changes that may affect the client’s policy needs;
- Obtain written confirmation from the client that they are aware of and understand the contents of the policy and any relevant exclusions; and
- Clearly identify and draw attention to relevant provisions in the policy in any supplementary materials.
Should you have any questions about your specific circumstances, please do not hesitate to contact any of our Insurance Group lawyers.