When a party is denied on a claim by an insurer, a careful analysis of whether the denial is properly made is important. If the claim is analysed as properly denied it is also important to consider whether a claim might be established against the brokerage which secured the policy which was later denied. The recent decision of Alvaro v InsureBC (Lee & Porter) Insurance Services Inc., 2019 BCSC 2017 (CanLII) explores the potential remedy against brokers for failing to properly warn of exceptions in policies or to otherwise obtain the coverage sought by an insured.
In Alvaro, the plaintiffs had gone to the defendant insurance brokerage for many years to insure their several properties, including rental properties. Prior to the loss in question, the plaintiffs were having issues with tenants, who were eventually evicted. After the eviction the subject property was vacant for some time while renovations, repairs and cleanup occurred. It was during this time that the subject property was vacant that a fire occurred.
The insurer denied the claim on the basis that the insurance policy had a vacancy exclusion policy which applied. More particularly, the claim was denied on the following wording in the subject policy:
Section 1 Loss or Damage Not Insured
“We” do not insure:
(3) loss or damage occurring after “your” “dwelling” has, to your knowledge, been “vacant” for more than 30 consecutive days.”
…
“Vacant refers to the circumstances where, regardless of the presence of furnishings:
(1) all occupants have moved out with no intention of returning and no new occupant has taken up residence; or
(2) In the case of a newly constructed house, no occupant has yet taken up residence.
It did not appear to be strongly contested within the case that the vacancy clause applied; rather, the plaintiffs took the position that they discussed their issues with the tenants, the potential eviction and the potential renovations with a broker and, as such, the brokerage ought to discussed how such circumstances could have triggered the vacancy exclusion and put the plaintiffs’ coverage at risk. The plaintiffs asserted that the brokerage was negligent and sought to recover the equivalent value of their insurance benefits against the brokerage.
The court found that there was inconsistent evidence about whether the plaintiffs discussed the tenancy issues and potential renovations and vacancy with the brokerage and could not find on a balance of probabilities that such discussions took place. This did not end the case as the court analyzed whether, despite the specific conversations alleged not occurring, the brokerage had still satisfied its duty of care owed to the plaintiffs.
The Court reiterated the duty of care of insurance brokers as was summarized in Fine’s Flowers Ltd. et al. v. General Accident Assurance Co. of Canada et al. (1977), 1977 CanLII 1182 (ON CA), 81 D.L.R. (3d) 139 (Ont. C.A.) as follows:
It was the duty of the defendant agent to either procure such coverage, or draw to the attention of the plaintiff his failure or inability to do so and the consequent gap in coverage. Having done neither, the defendant agent is liable in negligence, whether or not the instructions to insure all “insurable” risks or to see that the plaintiff was “adequately covered with insurance”.
The court went on to cite a number of cases which emphasize that brokers need to provide both information and advice to insureds to ensure that such insureds either (a) obtain the right coverage for the risks they seeks to have covered or (b) are otherwise informed of gaps in their insurance policy. Brokers are under a duty to draw the attention of insured to those exceptions in their policies and how an insured might avoid the application of such exclusions.
The court in Alvaro discussed the duties of insureds to provide accurate information to the broker and proactively advise of a material chance of circumstances in order to avoid any material non-disclosure which could properly ground a denial of coverage, even where the non-disclosure is unrelated to the loss actually suffered and claimed for. I discussed the duties of insureds I a previous article,
The court noted that the renewal package did not urge the plaintiffs to review all of the attached conditions of the policy, it was unrealistic to expect a customer to read through a 54 page document to understand how their policy might be affected by the change in vacancy to the subject property, customers were entitled to rely upon the expertise of a broker to provide advise without a customer having to specifically ask for such advise and the policy’s wording provided little assistance for a customer understanding what a material change in circumstances which might vitiate coverage was.
Ultimately the court found that the brokerage knew that the subject property was a rental property and a reasonable and prudent brokerage would have advised its customers about what could be done to avoid a gap of coverage in the case of a vacancy. The duty to draw a client’s attention to the vacancy exemption was much more important in the case of a rental property. It was important to highlight the impact of vacancy on coverage. The court’s position was summed up as follows:
An insurance agent should communicate relevant information directly to the client. To the extent an agent relies on a standardized renewal package, it is incumbent on the agent to ensure that the materials cast important information in the clearest of terms. This would have included spelling out the impact of vacancy on coverage because that is a common concern and one that can void all coverage, particularly with rented dwellings. Where it was known that the dwelling being insured was a rental dwelling, it was particularly important to highlight the impact of vacancy on coverage.
…[I]t was an ongoing duty on the Defendant to investigate and point out any coverage gaps to ensure that the Plaintiffs were aware of them and were provided with appropriate recommendations to remedy any gaps.
The court found that the brokerage was negligent for having failed to conduct adequate fact finding and assessment of the plaintiffs’ insurance needs, failing to draw the plaintiffs’ attention to potential gaps in the policy and failing to include in its renewal materials highlights related to the vacancy exception.
The court held that the plaintiffs should have been put in the position they would have been if coverage had been extended as at the time of the loss less the amount of additional premiums that would have been paid for a vacancy surcharge to obtain the coverage the plaintiffs ought to have been informed was available and assessed damages accordingly.
Alvaro underscores the very strong duty that can be imposed on brokerages to obtain proper insurance for insureds and the ongoing duty to inform insureds of material concerns in their policy coverage. These duties are fact specific. While the question of whether an insurer is properly denying a policy remains a first concern in any insurance dispute, consideration should always be made as to whether fault might lie with a brokerage as well.