Broker met duty of care, can’t be an ‘expert in all things’

A recent decision dealing with a commercial building destroyed by fire clarifies the standard of care owed by an insurance broker when providing coverage to a client, Toronto insurance defence lawyer Heather Vaughan says.

“It is an interesting case because the court confirmed there are stringent duties on the broker — but not for every single thing that could go wrong,” says Vaughan, partner with Benson Percival Brown LLP.

The matter involved the plaintiff’s commercial property, which was destroyed in a fire in 2012. Following the fire, the plaintiff was advised by the insurer that the building was underinsured and then paid out the face value of the policy.

The plaintiff claimed that the defendant insurance broker and company breached their contractual obligations and were negligent in failing to advise him that he should obtain an estimate of the cost of reconstruction from a professional to ensure there was sufficient coverage.

‘Not an expert in the cost of reconstruction’

“[The defendant broker] says that she advised [the plaintiff] on a number of occasions that she was not an expert in the cost of reconstruction, and that he should get a reconstruction estimate if he wanted an accurate estimate,” the decision states.

“The defendants claim that, in any event, [the plaintiff] was a sophisticated real estate agent and mortgage broker, and that he should have known to take necessary measures to ensure that the building was not underinsured, but that [his] primary concern was to keep his costs down,” it continues.

In dismissing the action, Ontario Superior Court Justice Lise Favreau found that the plaintiff did not demonstrate that the defendants breached any contractual obligations or were negligent in the advice they provided about his insurance needs and coverage.

As well, she ruled the analysis involved in assessing whether an insurance broker met his or her obligations in any given case is contextual.

Favreau found that the broker did advise the plaintiff that she was not in a position to provide accurate advice on the replacement cost value of the building and that he should obtain a professional opinion if he wanted an accurate assessment.

“It was made clear to the plaintiff through [the broker’s] words and through the documents sent to the plaintiff that the plaintiff was responsible for ascertaining the value of its property. The defendants were not negligent nor were they in breach of any contractual obligations, and I would dismiss the claim on this basis,” the judge wrote.

Brokers provide advice about coverage

Vaughan, who was not involved in the matter and comments generally, says an insurance broker is required to provide advice about what types of coverage will meet the needs of their clients, but they can’t be an expert in all matters.

“They need to communicate to the client about what limits are available under the policy, but they’re not responsible to tell the insured how much they will need,” she says. “In this case — although there were some factual disputes — the broker advised the plaintiff he needed coverage for this particular risk but that he should consult an expert regarding valuation.

“An insured has the obligation of knowing the limits they require,” Vaughan says. “You can’t delegate that responsibility to the broker and then say, ‘We don’t have enough insurance and it’s your fault.’ An insured who needs expert advice for valuation should go seek it, and if they don’t, they will have to deal with the consequences of being potentially underinsured.”