PROFESSIONALISM / AFCA Case Study
WHAT DOES AFCA CONSIDER IN A COMPLAINT AGAINST AN INTERMEDIARY? In considering whether a broker has acted reasonably, AFCA takes into account the requirements set out in the Insurance Brokers Code of Practice, as well as good industry practice.
Facts
The complainant was a motor car trader who had purchased an insurance policy for its vehicles at the recommendation of the broker. The complainant later lodged claims on this insurance policy for damage sustained by two of its vehicles. The damage had been sustained after the complainant had leased the two courtesy cars to E who had in turn rented them out to customers. However, these claims were denied by the insurer which stated that the policy would only cover ‘Loan Vehicles’ as defined in the policy. At the time of the incident, neither vehicle met this definition as consideration was charged for the use of the vehicles so they were not within the cover for Loan Vehicles.
The Complainant’s Case
The complainant submitted that: • in December 2015, the complainant engaged the broker, dealing with the individual V, to arrange the policies; • the policies were arranged on or around 7 February 2016 and the relevant documents were sent to the complainant; • the vehicles (a 2015 Lexus and a 2014 Hyundai i30) suffered damage on 13 March and 26 May 2016 respectively while allegedly being used under the policies; • the broker was aware of the complainant’s arrangement with E as: o the complainant had mentioned the arrangement with E to V in several conversations between December 2015 and January 2016, before the vehicles were damaged; o an email was sent to the insurer on 16 June 2016 which stated that ‘one
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service (the complainant) offer(s) is providing loan vehicles to repairers to be used as a courtesy vehicle for their customers’. • Hence, the broker had breached its duty of care towards the complainant by failing to recommend an adequate policy which would have mitigated this loss.
The Broker’s Case
The broker submitted that: • the complainant had not informed it of the rental arrangement and that it was not entitled to compensate the complainant for the losses incurred as a result of the two denied claims. The broker submitted a file note dated 22 December 2015 as evidence which merely stated “[J] advises there are four loan vehicles”.
The AFCA decision
AFCA set out its approach to insurance broker disputes: • At law, an insurance broker owes a duty of care when acting on behalf of its client. This includes exercising reasonable care and skill in the performance of its duties. • The standard of care in exercising this duty is that of a competent and experienced broker. • In addition, the broker provides services to its clients under an Australian Financial Services Licence (AFSL). This means it is required to do all things necessary to ensure those services are provided efficiently, honestly and fairly. It also requires the broker to act in the best interests of their customer. [We
BY MARK RADFORD
Principal, Radford Lawyers
note that AFCA did not qualify that the best interest duty under Part 7.7A of the Corporations Act only applies in relation to retail clients under the Act where personal advice is provided]. • In considering whether a broker has acted reasonably, AFCA takes into account the requirements set out in the Insurance Brokers Code of Practice, as well as good industry practice. • The broker will only be liable for the costs incurred by the complainant if: o the broker breached its duty to the complainant, and o the broker’s breach of duty caused the complainant to incur a loss. Based on the provided evidence, AFCA concluded that the email was contradictory to the complainant’s claim that it notified the broker of its rental arrangements. Thus, AFCA decided that: • it did not accept that the broker had breached its duty of care towards the complainant by arranging the policy; • the evidence provided failed to show that the complainant disclosed the specific rental arrangements to the broker when having the policy arranged or prior to the damage; and • the email dated 16 June 2019 refutes the complainant’s claim and the contemporaneous records did not support it either. AFCA stated that the broker had not breached their duty of care towards the complainant as they had exercised reasonable care and skill while arranging the policy. The broker was not required to take any further action and was not liable to compensate the complainant for the loss.
