understand requests

TAKE REASONABLE CARE TO UNDERSTAND CUSTOMER REQUESTS

It is absolutely essential to confirm a customer’s instructions before proceeding with their requests. BY MARK RADFORD

Principal, Radford Lawyers

Facts

The complainants held an insurance policy arranged by the broker which insured a truck used in the complainants’ business.

The broker reduced the sum insured for the truck from $50,000 to $20,000. The truck was damaged and repaired at a cost of $26,501.45 and the sum insured did not cover the full cost of repairs.

The broker said it reduced the sum insured at the complainants’ request and the complainants denied this, leading to the dispute.

The Complainant’s Case

The complainants submitted that: • they had only asked the broker if they could insure the truck’s chassis and tray for separate amounts ($30,000 and $20,000 respectively, and not the whole truck for $20,000); • they did not ask for the truck’s sum insured to be reduced to $20,000; and • the market value of the truck was about $60,000.

The Broker’s Case

The broker submitted that: • the broker emailed the complainants saying the policy was due for renewal and the complainants called on two separate occasions and asked to reduce the truck’s sum insured to $20,000; and • the market value of the truck was between $20,000 and $30,000; and • the complainants could have queried a refund they received in March 2019, and could have reviewed the certificate of currency they received in June 2019 that had the sum insured.

The AFCA Decision

AFCA was satisfied, based on the evidence provided, that: • In relation to whether the complainants asked to reduce the sum insured: o there were no recordings of the two phone calls where the complainants allegedly asked for the sum insured to be reduced; o it can be inferred from the insurer’s assessment and from evidence of online advertisements for similar vehicles that the truck’s market value was closer to $50,000 than $20,000, and the complainants knew this so it was unlikely they would have asked to reduce the sum insured from $50,000 to $20,000. • In relation to the broker reducing the sum insured: o the broker did not confirm the complainants’ instructions before reducing the sum insured. The broker’s internal email said the complainants wanted to reduce the sum insured to $20,000 “to see if there is a significant reduction in premium”, but the broker did not ask the complainant’s whether saving $598.23 in premium was worth reducing cover for; o an updated invoice showing the reduced sum insured was not sent until after the truck was damaged; o the broker did not email the complainants to confirm the reduction in the sum insured like it did previously when the sum insured was reduced from $60,000 to $50,000; o a competent and experienced broker would have realised that reducing the sum insured from $50,000 to $20,000 was an unusual and risky request because a truck does not normally lose 60 per cent of its value in one year and it could cause a financial loss of up to $30,000; o the broker should have explained the risks of underinsurance; o the broker should have clearly informed the complainants that the change had been made. • In relation to the complainant’s knowledge of the reduction: o the complainants paid the amount quoted for the policy with a sum insured of $50,000. The broker later refunded the complainants $598.23 but did not tell them the refund was for reducing the truck’s sum insured; o the complainants asked the broker for a certificate of currency to forward to a client. The complainants received the document and forwarded it to their client without reading it. • AFCA concluded that the broker breached its duty of care to the complainants because it: o misunderstood the complainants’ instructions; o did not confirm the instructions before reducing the sum insured; o did not tell the complainants that the sum insured had been reduced; o did not take reasonable steps to determine whether lowering the sum insured was suitable for the complainants’ needs. • The broker was liable for any loss the complainants suffered because of the breach. • The complainants were entitled to recover $20,000 (less the excess) from the insurer and compensation from the broker in the sum of $5,903.22 (ex

GST) plus interest.