In Ontario civil litigation, actions concerning coverage disputes and uninsurable losses can dominate the legal landscape, specifically concerning the interpretation of the duties and obligations of an insurance broker.
There are generally two defence positions that may arise in a coverage dispute:
- the insurance company assuming the position that the policy was enacted explicitly per the broker’s instructions, and
- conversely, the broker’s position that the policy was enacted pursuant to the customer’s request.
As such, it is critical for both insureds (individuals or companies with insurance policies) and brokers to understand the specific duties and obligations that are required in a customer-broker relationship. Insureds should expect their broker to do more than simply provide a policy, and to ensure their attention is drawn to any critical gaps in the coverage. Conversely, brokers should be diligent in understanding their duties and obligations to ensure their business practices reflect the stringent duties imposed by the Courts.
But, what are the specific duties and obligations that the parties should be mindful of?
“We provided you information about all the available coverage”
Sometimes, the role of an insurance broker is interpreted as simply providing all available coverage to their customers. However, that is simply not enough. The Courts have affirmed that it is reasonable and appropriate to impose upon insurance brokers a duty not only to convey information to their client, but to also provide counsel and advise: insurance brokers have a duty to advise about which forms of coverage would be required to meet the client’s needs, not just the available coverage.[1]
Occasionally, an insured might only request “full coverage” instead of identifying specific coverages required for their business. In this situation, or when a customer provides no specific instructions but instead relies on the broker to ensure they are protected, the broker must inform themselves about the client’s business in order to assess the foreseeable risks and insure the client against them.[2] It critical that a broker understand the client’s business so they can provide specific and foreseeable coverage.
Unfortunately, a customer may suffer a loss and find that the necessary coverage was not included on their policy. The customer may be accused of not reading their policy properly and not noticing the missing coverage. However, the Courts have highlighted that an insured not reading the policy or asking questions about the policy does not absolve the broker of the responsibility to advise the insured about any gaps in the policy.[3][4]
Perhaps the broker could not obtain the adequate coverage requested by the customer and/or satisfy their expectations for “full coverage”. However, the broker must advise the customer of the gaps in coverage so that the customer may take steps to protect themselves elsewhere and/or provide the customer advice on how to avoid the coverage gap.[5][6][7]
“We gave you the coverage you requested that was available at the time”
Conversely, it may be that the customer did actually request specific coverage instead of “full coverage”. However, the desired coverage may not have been available at the time of the request. When faced with this issue, insurance brokers should be mindful that their obligation is to use a reasonable degree of skill and care. If they are unable to obtain the specific coverage, their obligation is to inform the client promptly in order to prevent the client from suffering loss by relying on the broker’s transaction.[8]
An insurance broker certainly has an obligation to know what the insurance company is providing, but it is also true that a broker has an obligation to discover the areas that may give rise to disputes and either arrange for the coverages or makes certain the customer is aware of the exclusions and/or limits of that coverage.[9][10] Essentially, the broker must go a step further: if the requested coverage is not available, the broker should try to provide the appropriate coverage, and/or ensure the customer is aware of the relevant exclusions and what it will mean for their business.
As the customer-broker relationship progresses, a new exclusion may become available. In these circumstances, the parties should be mindful that a failure to highlight exclusions on renewal letters may result in a broker being held liable.
As such, it will be necessary for a broker to maintain contemporaneous notes relating to (1) significant discussions concerning the policy and coverages (2) their actions in drawing the customer’s attention to any gaps in coverage and areas that may give rise to a dispute and (3) their efforts to arrange for that coverage or ensure the customer was aware of the limits of that coverage.
“You did not advise as to the specifics of your business and/or ask the right kind of questions”
It may be argued that the customer did not properly advise the broker of their coverage needs, resulting in the proper coverages not included in the policy. However, the parties should be aware that it is the duty of an insurance broker to ensure that their clients are protected against all foreseeable, insurable risks.[11] Given that duty, the Courts have imposed a responsibility upon a broker to become familiar with the client’s matters for the purposes of giving proper coverage advise.[12]
If it comes to light that the required coverage to fill the gap in the policy was available at the time of loss, and the customer would have reasonably purchased that coverage, a broker may be found to have breached their duties.[13] A failure to provide this notice, and an opportunity for a customer to locate additional protection for their business, may constitute an act of negligence in of itself.
Takeaways
Ultimately, insurance brokers have a stringent duty to advise about which forms of coverage would be required to meet the customer’s needs, not only provide information about available coverages.
Insurance brokers should be mindful of the reasons corporations, and individuals, initially seek out the service of brokers: to inform their business practices. Insureds should ensure to monitor whether their brokers are fulfilling the obligations throughout the relationship in order to protect themselves and their businesses against uninsurable losses.
As affirmed by the Court: the broker is a professional with specialized knowledge and the insured is entitled to rely on that expertise.[14] To expect the customer to have the same expertise as the broker, assess their own coverage needs, and ask the ‘right questions’ is against the very existence of an insurance broker.
[1] Fletcher v. Manitoba Public Insurance Corporation (1990, SCC)
[2] Fine’s Flowers v. General Accident (1977, ONCA)
[3] Shaeen v. Meridian Insurance Group Inc. (2011, ONSC)
[4] Elevli v. Crain & Schooley Insurance Brokers Ltd. (2018, ONSC)
[5] Fine’s Flowers
[6] CIA Inspection (2010 ONSC)
[7] Alvaro v. InsureBC (Lee & Porter) Insurance Services (2019 BCSC)
[8] Fine’s Flowers
[9] Fine’s Flowers
[10] 2049390 Ontario Inc. (2020, ONCA)
[11] Fine’s Flowers
[12] Ostenda v. Miranda (2012, ONSC)
[13] CIA Inspection
[14] Alvaro