AFCA Case study

LETTER OF APPOINTMENT AND A BROKER’S DUTY OF CARE

This determination involved an allegation against an insurance broker that it had followed the instructions of an unauthorised representative to the client’s detriment. BY MARK RADFORD

Principal, Radford Lawyers

BACKGROUND FACTS

The complainant engaged the broker to arrange several policies, which included a policy to cover the complainant’s fleet of trucks. On 5 February 2018, the broker was instructed by DP, an alleged representative of the complainant, to remove 24 vehicles from this policy. The broker followed these instructions before reinstating these vehicles on 13 March 2018. However, on 7 March 2018, one of the vehicles had been involved in an accident. The complainant sought to lodge a claim under the policy, but failed as the vehicle had not been covered by the policy at the time of the accident.

The complainant claimed that DP was not an employee or someone who was authorised to provide instructions to the broker and so, claimed that the broker acted without proper instructions and breached its duty of care towards the complainant.

The complainant sought compensation from the broker for the loss suffered from being unable to make a claim on the vehicle that had been involved in the accident.

The broker submitted that it had not breached its duty of care towards the complainant as DP was authorised to provide instructions to it and it had followed these instructions. To support this argument, the broker noted that: • DP had signed a letter of appointment as the complainant’s authorised agent which had authorised the broker to act on the complainant’s behalf; • an endorsement had been completed in

June 2018 based on DP’s instructions; • an invoice renewal, PDS and FSG had been sent to DP via email in

August 2018; • DP had completed a financial loan application worth $224, 529.65 which also had DP as the main point of contact; • the complainant had raised no concerns over a public liability certificate that had been sent to DP and another representative of the complainant in

April 2019; and • an email had been sent to the complainant on 18 November 2019 which noted DP’s possible involvement on a particular point, which the broker claimed was indicative of DP being a representative of the complainant.

The complainant responded noting that: • the letter of appointment was not signed on the company’s proper letterhead; • the complainant had maintained a relationship with the broker prior to the signing of the letter of appointment; and • DP had not been employed or authorised by the complainant to act on its behalf.

There was no dispute regarding the validity of the loan agreement.

No evidence was provided to support the claim that there had been a relationship between the broker and the complainant before the letter of appointment was signed.

THE AFCA DECISION

AFCA confirmed its position regarding the duty of care owed by an insurance broker: • An insurance broker must exercise reasonable care and skills while performing their duties and the relevant standard that is expected of a competent and experienced professional insurance broker. o In determining reasonableness, the AFCA takes into account the requirements set out in the Code, as well as good industry practice. • As insurance brokers provide services under an AFSL, a broker must do all things necessary to ensure that their services are provided efficiently, honestly,

and fairly. It also requires brokers to act in the best interests of their clients. • To pursue a claim for compensation against a broker, a complainant must generally establish that the broker had breached a duty owed to the complainant and that the loss claimed was caused by the breach.

AFCA held that the available evidence showed that DP was authorised to act as the complainant’s representative. This was because: • there was not enough evidence to establish that the complainant had been in a relationship with the broker prior to the letter of appointment. • the available evidence was consistent with the broker’s claim in that it was only able to act for the complainant, based on the letter of appointment signed by DP as the complainant’s authorised agent. • of the loan application, which supported the view that DP was the complainant’s representative, because: o the amount financed was $224,529.65, which was a significant amount of money; o the application for this significant amount had been arranged by DP; o the application had DP’s contact details as the main point of contact; and o the complainant did not dispute the validity of the agreement. • the fact that the insurance documents (i.e. PDS and FSG) were sent to DP and the email from the complainant dated 18 November 2019 suggested that DP was the complainant’s representative.

AFCA held in favour of the broker, accepting that a broker exercising reasonable care and skill would have accepted that DP was authorised to act for the complainant in these circumstances.