- Insurance Agents Have Duty to Explain Policy to Clients
- April 2, 2013 | Author: Jeffrey A. Hand
- Law Firm: Singleton Urquhart LLP - Vancouver Office
A recent Ontario Superior Court of Justice appeal decision gives insurance agents cause for concern. In this case, Newbigging v. M. Butler Insurance Brokers Ltd., the Court found that an insurance agency was negligent in failing to explain to its client the coverages and exclusions found in an insurance policy.
In this instance, the policy holders, Mark and Erin Newbigging, owned a boarding house for which they sought to arrange insurance coverage through an insurance agent. Mr. Newbigging told the agent that the property was a boarding house and, in response, the agent advised him that he would require a policy specific for rental properties.
There were no further discussions about the policy between the agent and the owners. The policy was subsequently issued and sent to Mr. Newbigging, who never read it. He also never asked the agent about the coverage or any exclusions under the policy, either when it was first issued or during each of the renewals which happened in the following years.
A few years after the policy was first issued, the property, which was vacant at the time, sustained water damage as a result of vandalism. The policy contained an exclusion which stated it would not cover any losses that occurred while the property was vacant so the insurer denied the Newbiggings’ claim for the cost of repairing the damage to the boarding house.
The Newbiggings reacted to this decision by commencing a lawsuit against the agent, claiming that the agent had failed to make them aware of the vacancy clause in the policy. At trial in Ontario Small Claims Court, Mr. Newbigging gave evidence that he had never read the policy and had never asked any questions about the coverage available under the policy. In defending the claim, the agent argued that Mr. Newbigging’s ignorance of the vacancy clause was entirely his own fault for failing to read the policy for himself.
However, the trial judge rejected this position and held that the onus was on the agent. As an experienced insurance professional, the agent should have reviewed the policy provisions with Mr. Newbigging to ensure that he understood what the policy covered and in what circumstances coverage might not be available. The agent’s duty to his client existed regardless of whether Mr. Newbigging chose to read the policy or to ask questions of the agent. At trial, the agent was found liable and had to reimburse Mr. Newbigging for the cost of repairing the water damage that was not covered under the policy. The Superior Court judgment confirmed the earlier decision.
This case likely does not mean that insurance agents must review an entire policy line by line with their clients but it does suggest that they must make reasonable enquiries of their client to determine the nature of the risk being insured. In doing so, agents should bring potentially relevant policy provisions to the attention of their clients.
In this case the fact that the property was a rented dwelling should perhaps have alerted the agent to the possibility that the property might be vacant from time to time. Given this, it would be important for the client to know that the policy would not cover damage occurring during those vacancy periods.