PROFESSIONALISM / AFCA Case Study
THE IMPORTANCE OF CLEAR COMMUNICATION WITH CLIENTS ABOUT COVER Insurance brokers should make clients aware of sub-limits applicable to particular types of loss and have detailed records of engagement and instructions on such matters.
Key lessons
In these specific circumstances, the broker was not found liable to cover the complainant’s loss arising from an allegedly inadequate business insurance policy where: • the loss arose out of the client’s own failure to adequately inform the broker about their needs; • the client had raised no concerns about the extent of the policy’s coverage prior to the loss suffered after being given the opportunity to do so; and • the evidence (despite there being no contemporaneous file notes) supported the view that the broker had incepted the policy in accordance with the client’s instructions given at the time. To seek to avoid such disputes, brokers could consider how they make customers aware of sub-limits applicable to particular types of loss and/or better record engagement and instructions on such matters.
Facts
The complainant was a service station operator who had arranged business insurance through the broker. On two separate occasions the service station suffered a robbery of stock tobacco and money, leading to the complainant lodging claims with his insurer. Although the claims were accepted by the insurer they were restricted by the monetary limits allowed by the business insurance policy which the complainant alleged were insufficient for his needs and this led to the dispute.
The complainant’s case
The complainant alleged that: • The broker did not incept the policy in accordance with his wishes or needs and had instead provided incorrect information about the cover which had resulted in the complainant’s loss.
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• The policy provided cover for “Property in your physical or legal control” for up to $250,000 and the complainant said this led him to believe he was covered for hundreds of thousands of dollars. However, the insured amounts for Theft were limited to $5,000 for Contents and stock and $20,000 for Tobacco. The policy also limited cover for money on the premises outside business hours to a maximum of $2,000. • The complainant also said that the broker told him it would cover “hundreds of thousands of dollars” worth of stock under the policy. There was no contemporaneous written evidence regarding this discussion.
The broker’s case
The broker submitted that: • It had not failed to properly discharge its duty to the client and that in the telephone discussion: o the complainant was advised of the various covers in Business Insurance policy and the complainant instructed the covers he required and the relevant sum insureds; o relevant questions were asked to determine the level of cover required such as the total amount of stock he would have in store at one time and also maximum amount of stock vulnerable to theft/burglary incidents; o different claim scenarios were explained and the complainant instructed the broker the sum insured they required for each type of cover; o the complainant confirmed that he did not need money cover for outside business hours as he would not leave money on premises after business hours. o the complainant was premium conscious and instructed those levels
BY MARK RADFORD
Principal, Radford Lawyers
of cover which would fall under his affordable premium limit. • The quotes were sent out the following day and the broker wrote to the complainant noting that he needed to read the quotations carefully to ensure it met his needs; and • No amendments to the policy were requested by the complainant. There were however no contemporaneous notes regarding any conversations with the client.
The AFCA decision
Despite there being no contemporaneous file notes of the conversation with the client, AFCA found that the broker had fulfilled its duty in asking relevant question to the complainant and incepting the cover based on his instructions because: • There was no evidence the broker represented the cover applied in the manner suggested by the complainant • There was no evidence from the complainant that: o he outlined to the broker a specific need for increased cover for contents and stock, or money on the premises; o the cover offered did not meet the needs he outlined in the discussions with the broker. There was no evidence as to what these needs specifically were or that he made his needs clear to the broker at any time prior to the loss. • In contrast, the broker’s recollections were consistent with the documents issued and the fact no concern was raised by the complainant about the various sums insured. Finally, ACFA noted that even if the broker had not incepted the policy in accordance with the complainant’s wishes, there was not enough evidence to suggest that he incurred a loss which exceeded the amount paid by the insurer.
