PROFESSIONALISM / AFCA case study
ACTING APPROPRIATELY WHEN CANCELLING A POLICY This Determination involved a complaint against the insurer and broker. AFCA found in favour of the broker and against the insurer.
BY MARK RADFORD
Principal, Radford Lawyers
Lessons
Some key lessons for brokers based on AFCA’s Determination are: • Be clear on any request from a premium funder to cancel a policy and the authority/right to do so – improper cancellation can leave the broker exposed; • Where requested to cancel by a premium funder, clearly notify the customer of the consequences of nonpayment and cancellation and whether you will cease to act on their behalf (at least more than once); and • Take good file notes and keep documentation as evidence to counter any assertions of the complainant contrary to your own.
Facts
The broker placed a number of policies with the insurer on behalf of the complainant which were premium funded. The broker cancelled the policies following the request from the premium funder as part of the funder’s attempt to recoup costs due to non-payment of the funding contract loan. The broker had sent emails to the complainant’s employee on numerous occasions clearly explaining that the consequences of further non-payment. The broker lodged a claim on behalf of the complainant for tenant related loss and damage to the complainant’s property (E). A second claim was lodged by the complainant for tenant related damage to property (Y) after the broker ceased to act for them. The claims were denied by the insurer who said the policies had been cancelled due to non-payment of premium and as a result refused the claim because the damage did not occur in the period of insurance. The complainant lodged a complaint against the broker, insurer and premium funder.
The Complainant’s Case
The complainant submitted that the broker failed its duty of care due by: • creating incorrect policies (there were a variety of different policy numbers) and duplicate policies (as listed in the funding schedule); • avoidance in communication and delays/mistakes in lodging and handling the claims (they believed the broker was aware of before ceasing to act, and should have lodged claim Y); • non-transparent contracts and excessive commissions; • funds misappropriated and policies cancelled without authority.
The Broker’s Case
The broker submitted that: • In terms of coverage and premium issues: o the broker acted in the best interest of the complainant to provide adequate coverage for the complainant’s trailer; o the broker explained to the complainant that it is not uncommon for start dates to vary given the policies started at separate times and with many different insurers. • In terms of commission, the broker submitted commission received was consistent with industry standards and not excessive. • In terms of premium funding: o monies received from the funding contract loan from the premium funder were paid to the insurer and not misappropriated; o after the complainant defaulted on the funding loan contract, the premium funder requested the broker to cancel the policy mid-term. • In terms of claim lodgement, the broker was not aware of the potential
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claim to property (Y) before it ceased to represent the complainant and cancelled all policies and thus did not have any obligations in that regard.
The AFCA Decision
AFCA was satisfied, based on the evidence provided, that: • the broker did not breach its duty of care when arranging policies and did not arrange duplicate or unsuitable policies for the complainant’s requirements; • the explanation for the variation of policy start dates was reasonable; • the complainant had the opportunity to review the policies and elect whether to proceed with cover and the commission received was consistent with industry standards and not excessive; • the broker did not misappropriate funds and provided a remittance from its bank account showing the transfer of the funds to the insurer; • the broker acted appropriately when cancelling the policies; • any claims and re-insurance became the responsibility of the complainant after the broker’s resignation; • the large delay in the claim was a result of the complainant’s failure to actively pursue the claim following the resignation of the broker due to the non-payment of premiums. The broker’s conduct did not justify any award of compensation for non-financial loss. In relation to the insurer, as the insurer had adequate information available to show property (E) was damaged within the period of insurance and it took 33 months from the date of the claim being lodged to the claim being accepted by the insurer, AFCA found that the insurer had to pay the complainant $2,000 for compensation for non-financial loss.
