What Can Happen If An Insurance Advisor Makes a Mistake Involving An Error or Omission?

Insurance Agents and Insurance Brokers Owe a Strict Duty to Act Diligently When Providing Information and Advice and May Be Liable For Errors Arising From Negligence.

Understanding That Insurance Advisors Owe a Duty of Care to Clients and May Be Liable For Failure to Properly Advise

Insurance Claim Document As professionally trained experts, insurance brokers owe a duty of care to clients to diligently arrange insurance coverage and shop for competitive pricing.  If an insurance broker is unable to source adequate coverage or competitive pricing, the insurance broker must properly inform the client of coverage gaps, special underwriting challenges and requirements such as mandate to install security systems or utilize certain risk management strategies.  An insurance broker must also make effort to shop the insurance market for various quotations or to let the client know that the broker was unable to shop around. If the broker was unable to shop around, the broker must inform the client that better coverage and pricing may be available.  If the broker fails in these duties, the broker may face an errors & omissions claim.

Failure to Arrange Adequate Coverage

When a lack of insurance coverage situation arises it is common for insurance clients as unfortunate laypersons to immediately point the blame for coverage protection shorfall towards the insurance company; however, oftentimes the insurance broker may be at blame - afterall, it is the insurance broker that tells the insurance company what the needs of the client are.  If the insurance broker fails to identify a coverage need, and subsequently fails to arrange the insurance coverage, or advise the client of such an absence of coverage, it is the insurance broker that is at blame.  This duty of care was established in the precedent case of Fine's Flowers Ltd., et al v. General Accident Assurance Co., 1977 CanLII 1182 (ON CA).

Failure to Provide Adequate Information or Advice

Additionally, even where an insurance broker points out that coverage may be lacking for specific concerns, such as by the common practice of providing a standard cover letter that states certain types of property may be excluded or limited, where the insurance broker would reasonably know, or ought to know, that the policy is insufficient, a cover letter to encourage the client to initiate a deeper review fails to negate the duty of the insurance broker to initiate the deeper review.  More simply said, if a reasonably thinking insurance broker would realize that there are likely gaps in coverage, then the insurance broker has a duty to do more than just provide a warning within a cover letter.  To properly fulfill the duty owed to the client, the insurance broker must make actual effort to inquire about the concerns that fall within those likely gaps in coverage.  This duty was stated within the case of Bronfman v. BFL Canada Risk, 2013 ONSC 5372 where it was said:

[91]  Even if I am considered to be wrong in that determination, I nevertheless would decline to apportion any liability against the Bronfmans given the facts of this case. Bonnay testified that few clients read the policies and even fewer understand them, a proposition which I accept in the circumstances of this case. The covering letters are in the nature of “form letters” and are not straightforward or easily understood. The policies themselves contain language and provisions which are complicated and contradictory to the lay reader (and arguably even to someone with a legal background). It is far from probable that Paul would have clearly understood the implications of those letters and policies or that they would have necessarily triggered any questions or concerns.

[92]  Further, Goldsmith is the insurance professional who is being compensated for his brokerage role. It is his duty to make such investigations that would have permitted him to discover an obvious coverage gap of this nature and to ensure the Bronfmans were aware of it and provided with appropriate recommendations to remedy it (see: Cosyns v. Smith, 1983 Carswell Ont. 797 (Ont.C.A.). The real failure of Goldsmith in this case was his lack of appreciation of the likelihood that the Bronfmans owned valuable jewellery worth well in excess of $20,000.00 and his failure to ascertain the true extent of their possessions and to provide them with advice as to how much special coverage they needed, where they could get it and how much it would cost them. This is the proper role of a professional insurance broker and it is Goldsmith’s failure to discharge that role which is fully causative of and responsible for the damages suffered by his clients, the Bronfmans.

In addition to advisements regarding coverage availability, the Supreme Court articulated a "stringent duty" upon insurance brokers to provide information and advice whereas it was said in Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191 at paragraph 57:

In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers.  They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers.  Their service is highly personalized, concentrating on the specific circumstances of each client.  Subtle differences in the forms of coverage available are frequently difficult for the average person to understand.  Agents and brokers are trained to understand these differences and to provide individualized insurance advice.  It is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice.

Failure to Notify of Possibility of Better Pricing

Furthermore, courts have clarified or expanded the duty to provide information and advice to include the duty to inform a client of the possibility of better pricing where it was said in Canada Brokerlink Inc. v. Patterson, 2006 CanLII 50894 (ON SCDC):

[16}  It was submitted on behalf of Brokerlink that a decision finding Ms.  Martin negligent would amount to imposing a duty on the broker to find adequate coverage for the absolute cheapest premium.  It is contended this would constitute an unreasonable expansion of the duties imposed on brokers.

[17]  I am not persuaded that this case is about whether Ms.  Martin ought to have found the least expensive policy providing the requisite coverage for Ms.  Walsh.  Rather, it is about whether there was a duty on Ms.  Martin to advise Ms.  Walsh of the possibility of obtaining coverage with Equine before advising her to take the Sports-Can coverage.  Based on Fletcher, I conclude that there was such a duty.  Ms.  Martin breached that duty by not informing Ms.  Walsh of this possibility.  The trial judge’s conclusion to the contrary was incorrect.

[18]  The evidence is clear that had Ms.  Martin told Ms.  Walsh about the possibility of Equine Ms.  Walsh would have directed Ms.  Martin to make further inquiries.  There was ample time to do so.  It is reasonable to infer that the result of those inquiries would have been the placing of coverage with Equine.

In the case of Wilkinson v. Sneddon Insurance Brokers, 2014 CanLII 78266 (ON SCSM), an insurance broker breached the duty of care as owed to ensure that a client was properly informed that the broker was unable to shop the market of available insurers and therefore the client may find better pricing elsewhere.  The judge in this case stated:

[9] What is the duty of care owed by an insurance broker?    The answer lies in part in the self-description by the Defendant Ensurco Insurance Group Inc.  in its web site which was Exhibit 2.  Ensurco describes itself in part as follows:

“As an independent broker, our relationship is with you, our client.  We take great pride in offering comprehensive insurance coverage at reasonable rates.  It is our responsibility to survey the insurance market on your behalf and determine which company best suits your needs.  Finding the right company, offering the right service  at the right price is what we do best”.  Emphasis added.

While the web site may not have been available in 2007, none the less it is an accurate self-description of the obligation of an insurance broker.

[10] Moreover the Registered Insurance Brokers Act, R.S.O.  1990, CH.  R.  19, Section 1 defines an insurance broker to include the following:

“Insurance broker means any person who for any compensation, commission or other things of value, with respect to persons or property in Ontario, deals directly with the public and, property in Ontario, deals directly with the public and,

(a) acts or aids in any matter in soliciting, negotiating or procuring the making of any contract of insurance or reinsurance whether or not the person has agreements with insurers allowing the person to bind coverage and countersign insurance documents on behalf of insurers,


(d) holds himself, herself or itself out as an insurance consultant  or examines, appraises, reviews or evaluates any insurance policy, plan or program or makes recommendations or gives advice with regard to any of the above;”.

[11] The Registered Insurance Brokers of Ontario Code of Conduct was Exhibit 4.7.  The preface states in part that “The Code of Conduct...provides rules that are intended to set a standard of professional conduct for registered insurance brokers in the Province of Ontario.  The provisions of the Code of Conduct must be followed both in letter and spirit”.  Paragraph 4 - Advising Clients under the title Disclosure of Markets states in part as follows:

If you can offer only one company’s quote to a prospective client then, there is a duty upon you to make this limitation known before accepting and placing any business on his or her behalf.  Similarly an obligation exists to be open and honest with your client where you are able to place insurance with only a single insurer or with a limited number of insurers that may not be representative of the entire market.  Since these facts may influence the judgment of a prospective client, disclosure is required”.

Summary Comment

With the duties owed by an insurance broker so significantly clarified in recent years, it seems that exceptional due diligence is necessary to ensure that clients, and the public as a whole, are thoroughly provided with the advice and information necessary to make coverage and pricing choices.  When an insurance representatives fails to meet the standard of care expected of a reasonable insurance representative liability may arise.  The duty to provide reasonable care, as a fiduciary duty requiring the insurance advisor to act in the best interests of the client, includes the requirement of due attention and diligence when providing advice on coverage available, coverage options, and pricing options including the possibility that a competitor may offer better coverage or even better pricing.

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