Courts to consider what is required of an insurance intermediary to ensure a client’s policies are adequate

In 2008, thieves stole approximately $2 million dollars worth of jewellery, including two Stanley Cup rings, from the home of Paul and Judy Bronfman. As it turned out, the couple’s insurance policy contained sub-limits of $10,000 for jewellery and $1,500 for cash. These sub-limits fell short of the loss. The Bronfmans subsequently sued their insurance broker for $3 million dollars alleging the broker was negligent for failing to ensure their coverage was adequate in light of their standard of living.

The broker countered that the couple was well aware of their coverage limits. Last November, the Ontario Superior Court ruled in favour of the Bronfmans. The judge ruled that the broker was indeed negligent for failing to review how many valuables the Bronfmans kept in their home and for failing to advise them to upgrade their coverage. As reported in The Globe and Mail, the brokerage is challenging that decision in the Ontario Court of Appeal.

It is interesting to note that one of the criticisms being put forward by the broker’s lawyer is that, in reaching her decision in favour of the Bronfmans, the Ontario Superior Court judge relied on ‘common sense’. In her appeal, the broker’s lawyer further contends that the judge was wrong in citing the Bronfman’s wealth as a factor in her decision not to rely on a previous insurance case. That case held that a form letter outlining coverage limits constituted adequate notice.

Although the ultimate outcome of this case will not be known until the appeal is heard, the decision of the Ontario Superior Court to side with the Bronfmans should send a signal to insurance intermediaries, especially independent insurance brokers as they battle the encroachment of direct writers in personal lines business. Granted the Bronfmans are by no means your standard Canadian homeowners. Nevertheless, even regular homeowners experience changes that might take them beyond their coverage limits or that might be construed as a material change in risk. For example, they buy or inherit valuable goods or property, their children become licensed and start driving the family car, or they start businesses that are operated from the family home.

I am not aware of a precedent that holds a direct writer to a lower standard of care than an independent broker. But if independent brokers, especially those in large urban centres, wish to differentiate themselves from direct writers, one way to do so would be to initiate a formal review of coverages from time to time. Even if the client doesn’t wish to have his or her coverages reviewed, the fact that someone from the broker’s office tried to hold a discussion would help in defending an Errors & Omissions lawsuit. It would also breathe life into the slogan of the Insurance Brokers Association of Canada that ‘Your Best Insurance is an Insurance Broker’.

After living out west for ten years, I moved back to Toronto fifteen years ago. In those fifteen years, I have had occasion to call my insurance broker’s office a number of times. Whenever I call, they pick up the phone or return my message. But not once in fifteen years has anyone from the broker’s office called me to discuss coverage. If I don’t call my broker, it would seem my broker is content to sit back and collect the renewal commission income. The brokerage does sent out brochures and form letters in advance of each renewal, but I would likely receive the same level of service from a direct writer. I am sure there are brokers, especially in smaller communities, who make a point of keeping in touch with their clients. Nevertheless, in speaking with friends and business colleagues, it seems my experience is all too common.

The proof of the pudding is in the eating. If brokers wish to be seen as providers of superior advice and service and to insulate themselves from errors and omissions lawsuits, I believe they need to do a better job of ensuring their clients’ coverage meets their current needs.