A 10-year long insurance lawsuit over a burned down Halifax pub has concluded with the broker and insurer found not liable and their legal expenses covered.
The Nova Scotia Court of Appeal ruled that the North End Pub owner won’t receive a claim payment because the proprietor told its broker the building was of masonry construction and was equipped with sprinklers when it wasn’t.
The ruling is in contrast to a previous trial court decision that found the broker,
Marsh Canada, was 50% liable.
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Neil Colville-Reeves, a lawyer with the Toronto firm Samis+Company, who specializes in insurance related and general civil litigation, said the case is one that may see the brokerage community breathe a sigh of relief.
“Whenever appellate level cases are released that address standard of care issues, it forces those affected to review their best practices with a view to doing more rather than less to ensure compliance with the standard of care,” Colville-Reeves said.
“Given that it is not realistic that every risk that is underwritten is seen by a broker, it is important for well documented communication between broker and insured. Brokers should ensure that there is a clear record requesting relevant information from the insured, and that appropriate information is provided about available coverage and which forms of coverage the insured requires.
“In this case, the trial judge concluded that a ‘broker of reasonable competence’ would have made inquiries of the insured to ensure information was complete and accurate for the purpose of completing applications, and ensuring the insured was aware of the consequences of not providing accurate information. As an example he suggests that the broker could have recommended that an inspection of the premises be done.”
But there are circumstances where the broker can be found liable in a similar situation depending on how dense the insurance language is in relation to how capable the insured is.
“Interestingly, the trial judge notes that what would be expected of a broker is different depending on whether it is a larger complex risk (where direct information may not be known by the applicant) as opposed to a smaller, personal risk (where direct information would presumed to be known by the applicant),” Colville-Reeves said. “As a result, the trial judge considered that a ‘reasonable’ broker would have pressed the insured’s representative by recommending inspection to ensure that the information was accurate. The effect of the trial judge’s decision was that larger, more complex risks would demand a higher standard on the broker than a smaller, retail risk.
“However, the appellate court clearly viewed the dynamic between insurer and insured differently. In short, they viewed the insured as a sophisticated party who failed to inform themselves about issues that they should have known about in order to answer questions accurately on the application for insurance. The insured was forced to wear the consequences of the non-disclosure as opposed to their broker.”
In another circumstance with an unsophisticated insured, a similar ‘misrepresentation’ may have resulted in a different outcome. If a broker had established a pattern of inspecting the insured’s property then “there may be an argument that the obligation continues,” Colville-Reeves said, but that wasn’t present in this case.
A client’s carelessness or withholding of information could pose a legal liability for a broker if the insured is elderly, for example and the broker knows or should know that the information is unreliable. But each case is fact specific.
As far as the original ruling going against Marsh Canada, Colville-Reeves said the trial judge ruled the broker shouldn’t assume that the property owner knows everything about their fire safety, a ruling that was overturned.
“The trial judge appeared to approach the question of liability through the opposite side of the lens of the Court of Appeal. The trial judge noted that in cases where there is a sophisticated insured with a portfolio of properties (as in this case), the broker should necessarily not assume that the individual providing details about the risk would have all of the necessary details,” Colville-Reeves said.
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