Insurance Broker Liable for Failing to Ensure Full Coverage and Warn Client of Lack of Insurance

Insurance Broker Liable for Failing to Ensure Full Coverage and Warn Client of Lack of Insurance



Insurance Broker Liable for Failing to Ensure Full Coverage and Warn Client of Lack of Insurance

The case of Fine’s Flowers Ltd v General Accident Assurance Co involved a claim against an insurance agent and broker who failed to obtain full insurance coverage for the plaintiff business, despite their specifications for him to do so. The plaintiff was a business that operated a greenhouse which serviced a number of their retail stores. The owner of the business, Mr Fine, had dealt with the company “Ault” for a number of decades and had engaged them to set up his insurance policy in regards to his greenhouse business. He had given the instructions to Mr Campbell, the broker and agent with whom he had placed all of his considerable amount of insurance matters with, to ensure “full coverage” of the greenhouse business. Mr Campbell placed the policy with the defendant insurance company.

The circumstances which brought about the proceedings were that the heating system in the greenhouse shut down after a water pump seized as a result of normal wear and tear and the crops were consequently destroyed. Mr Fine then sought to place a claim under the insurance policy but found that he was not covered for that particular type of incident. Mr Fine therefore brought proceedings against the insurance company and Mr Campbell, as his broker and agent, for failing to provide adequate insurance coverage as requested.

The trial judge held that the insurance company was not liable, as the loss was not covered by the insurance policy, however the broker  was held liable for breach of contract and negligence (professional negligence). Damages were awarded for breach of contract and the agent appealed.

Professional Negligence and Breach of Contract

The issue for determination on appeal was whether  the broker and agent was liable even though there was no actual contract between the parties requiring the agent to secure full coverage. The determining of the issue of whether a contract existed was circumvented by the court on appeal by focussing on the finding of professional negligence.  Letters given in evidence at trial between the insurance company to Mr Campbell proved that he must have at least been aware of the existence of the pumps (one of which lead to the damage) as well as the lack of coverage for any of the pumps. Further it was clear that the insurer and Mr Campbell were aware that the pumps operated in conjunction with the boilers and that it would be reasonable and expected that the plaintiff would assume the boiler policy applied to the pumps as well unless told otherwise, which he was not. The letters also suggested that Mr Campbell would have been aware of the critical importance of the service pumps to the heating system.

Mr Campbell argued that even if he had included the pumps in the insurance contract, the exclusion of damage caused by “wear and tear” would have prevented the plaintiff from recovering anyway. However the court on appeal held that this was not a valid defence as it was Mr Campbell’s duty to either procure such coverage or draw Mr Fine’s attention to his inability to do so. This failure constituted professional negligence and breach of duty and Mr Fine was therefore entitled to damages and the appeal was dismissed.

The important points that came from this case were that an insurance agent and insurance broker has a duty to act with a certain degree of care and skill when securing a policy for a client. When not given specific instructions on the type of policy required (as was the case here), but the agent or broker agrees to ensure “full coverage”, the broker then has a responsibility to familiarise themself with the business in order to assess all foreseeable risks and then adequately insure against them. When such a policy is unable to cover all foreseeable risks, the agent then has a duty to inform the client that they are not fully covered for such risks.

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