Explaining the scope of cover

AFCA has confirmed that the duty of an insurance broker includes explaining the scope of cover. Where a policy exclusion or limitation impacts the client’s needs, the broker is required to properly inform the client. This does not mean that a broker must explain all policy exclusions or limitations. What is reasonable will depend on the facts and circumstances of each individual case.

BY MARK RADFORD

Principal, Radford Lawyers

The Complainant’s Case

The complainant submitted that: • on 7 March 2019, he phoned the broker to tell him to lodge a claim – or at least of his intent to lodge a claim – regarding the bookkeeper dispute; • the broker had breached its duty of care by failing to: o lodge a claim with the insurer following the call; o advise the complainant to contact the insurer or to contact the insurer on the complainant’s behalf regarding the action by the bookkeeper; o explain that the policy would only respond if the complainant incurred expenses in proceedings before the FWC; and o advise the complainant that the insurer could manage / defend the action by the bookkeeper. • on several occasions between March and October 2019, he spoke to the broker about other matters and from time to time the broker inquired about the progress of the bookkeeper dispute.

This led the complainant to assume that the insurance company knew about the dispute and would only get involved after it was settled.

The complainant had no contemporaneous documentation to establish the purpose, content and context of the 7 March 2019 conversation or subsequent contact between the parties.

The Broker’s Case

The broker submitted that: • the complainant did not give express or implied instructions to contact the insurer during the 7 March 2019 conversation. Instructions were not provided until 23 October 2019 when

the claim was lodged; and • between March and October 2019, the complainant mentioned the bookkeeper dispute “possibly twice” before lodging the claim but sought no further guidance advice or action in relation to the policy.

The broker provided a statutory declaration and its file notes for the period between March and October 2019 as evidence. However, there was no note of the key 7 March 2019 conversation or the discussion with the complainant when the claim was lodged, only an email of that date discussing whether the bookkeeper might or might not be an employee.

The AFCA decision

AFCA was not satisfied that the broker breached its duty of care.

AFCA held that: • it did not accept that the broker’s duty of care required it to tell the complainant that the policy would only respond if the matter were heard by the FWC. The substance of the remedy sought by the bookkeeper was employment benefits and, the policy would not have responded to the complainant’s principal claim. This was so, regardless of the forum in which the proceedings were heard or the way the claim was settled by negotiation; • it was not satisfied that a reasonable broker in the circumstances would have lodged a claim with the insurer or notified the insurer of the bookkeeper dispute. Such an action would have been premature; • it was satisfied that the complainant did not ask the broker about coverage in the event the dispute was dealt with in some other way, and the circumstances did not oblige the

broker to canvass the matter, pending further contact from the complainant; • the complainant did not take the broker’s advice or consult the broker as he was invited to do during their correspondence; instead, the complainant sought legal advice and handled the dispute independently of the broker.

However, AFCA did note that: • the broker did not meet good industry standards by not recording the particulars of the 7 March 2019 conversation or confirming any advice with the complainant. The emails provided did not detail any advice provided by the broker or the particulars of the conversation.

Despite this, AFCA did not find that the broker had breached its duty of care; • the broker did in the email of 7 March 2019 misadvise the insured by stating that the policy would cover penalties imposed by FWC or legal expenses. This was because loss in relation to employee benefits were excluded from the policy.

Nevertheless, the complainant neither relied on this breach in his submissions nor shown how it may have caused any loss. This meant the broker was not liable for the claimed loss.

Lastly, AFCA concluded that the complainant failed to establish that he suffered loss because he failed to establish that he: • would have been covered for the principal loss, being the sum paid to the bookkeeper; • would have allowed the insurer to manage the bookkeeper dispute on his behalf in a hearing before the FWC; • would not have incurred legal fees or would have been covered for them under the policy; and • would have suffered the stress and inconvenience of the legal action.