Lawsuits Against Insurance Brokers: When Policy Exclusions Are Not Discussed
Important reasons for judgement were released last month by the BC Court of Appeal making it clear that insurance brokers can be sued for professional negligence if they fail to properly advise clients of the limits of their insurance policies.
In last month’s case (Beck v. Johnston, Maier Insurance Agencies Ltd.) the Plaintiff’s home was intentionally burned down by her husband in a tragic murder/suicide. The home was insured however the policy had an exclusion for losses that occurred as a result of “intentional acts by named insureds“.
The Plaintiff’s estate sued the insurance broker claiming they were negligent in failing to discuss this exclusion when the policy was renewed (which last occurred after the Plaintiff split up with her husband). The claim succeeded at trial. The insurance brokers appealed arguing the claim should be dismissed as this damage was not forseeable. The BC Court of Appeal dismissed the appeal and in doing so provided the following reasons which should ring as a caution to insurance brokers when selling policies of insurance:
[17] Members of the public purchase insurance to protect themselves and their property from unforeseen events. Policies of homeowner’s insurance, rented dwelling insurance and tenant’s insurance are invariably written by insurers, who describe the coverage that they are prepared to provide and the exceptions to that coverage in the policies they write. They then quote the premium that they require to provide the coverage….
[21] Both Mr. Sache, an insurance broker retained by the appellant and Mr. Pat Anderson, a licensed insurance broker retained by the respondent agreed that it is standard practice for brokers to explain the intentional act exclusion in a homeowner’s policy to a customer when insurance is first placed for that customer….
[25] While Ms. Beck may not have had any knowledge or belief that Mr. Beck intended to harm the home at the time her insurance coverage was renewed in July of 2007, such knowledge was not the issue. The issue was whether her insurance broker ought to have discussed her insurance needs with her when it was clear that she and her husband had separated….
[27] The summary trial judge was bound to accept, as she did, the uncontradicted evidence before her of the standard of care to be expected on an insurance broker. In areas where the courts lack expertise with respect to a particular field of endeavour, it is necessary to rely on expert evidence of standard practice of those in that field of endeavour in order to determine whether the requisite duty of care has been met. In ter Neuzen v. Korn, [1995] 3 S.C.R. 674 at para. 39 Sopinka J. referred with approval to the following statement by Professor Fleming in The Law of Torts(7th ed. 1987) at p. 109:
Conformity with general practice, on the other hand, usually dispels a charge of negligence. It tends to show what others in the same “business” considered sufficient, that the defendant could not have learnt how to avoid the accident by the example of others, that most probably no other practical precautions could have been taken, and that the impact of an adverse judgment (especially in cases involving industry or a profession) will be industry-wide and thus assume the function of a “test case”. Finally, it underlines the need for caution against passing too cavalierly upon the conduct and decision of experts.
[28] It was unnecessary for the respondent to prove that Ms. Beck foresaw that Mr. Beck Sr. represented a “real” or an actual risk of intentionally damaging the home. On the evidence, Ms. Beck’s change in circumstances presented a foreseeable new risk to be considered vis a vis her insurance needs…
[33] The summary trial judge was clearly of the view that, when a renewal of insurance coverage is required, the broker similarly has a duty to provide relevant information about the types of coverage available to the client, to meet any change in needs that the client may have as a result of any changes in his or her circumstances of which the broker is or should be aware. There was ample evidence upon which the trial judge could make that finding, and no basis upon which this Court can interfere with it.