If a broker fails to obtain full coverage for all eventualities for an insured the broker could be liable for damages.
The plaintiff developer's application for summary judgment against the defendant insurance brokers was allowed where the Court held that the insurance brokers failed to ensure that the insurance obtained provided full coverage, as instructed by the plaintiff.
The plaintiff was a developer building a condominium project in Toronto. The defendant insurance brokers, (Best) obtained insurance for the project. A fire occurred and the insurer refused to pay more than 80% of the loss. The plaintiff sued Best and the insurers for recovery of the "uninsured" loss. Prior to trial, the plaintiff brought on a summary judgment application against Best.
Best had provided insurance to the plaintiff over the five years it was working on the project. For the initial policy, Best was able to place the risk on a subscription basis with a number of insurers. A group of insurers ("Encon") agreed to assume limits of 80%. Best found two other insurers, CIC and Kingsway, who agreed to assume coverage for the remaining 20%. It was Encon's practice to bill Best directly for premiums. The invoice for the original policy indicated that Encon was billing for 100% of the premiums due all subscribing insurers who had assumed the total risk encompassed by the policy. Best wrote to Encon indicating that the invoice was incorrect as Encon was only responsible for 80% of the risk. The invoice was ultimately corrected by Encon. Subsequently, Encon sent a letter attaching a policy endorsement which purported to set out the subscribers to the policy. This endorsement had no reference to CIC or Kingsway and it appeared from the document that Encon subscribers were purporting to assume 100% of the risk associated with the project. Encon was contacted and a representative advised that the endorsement was in error and that no further policy endorsements were necessary.
At the time of the policy renewal, a representative of Encon agreed to extend the policy and sent an email to Best confirming the policy extension and the amount of the additional premium. The premium charged was commensurate with the assumption of 100% of the risk associated with the project. As a result, Best assumed that Encon would be assuming 100% of the risk and that the participation of CIC and Kingsway was no longer necessary. The policy continued to be renewed on this same basis until the date of the fire.
The Court held that Best owed a duty of care to the plaintiff which required Best to use a reasonable degree of skill and care in obtaining the requested insurance. The Court noted that as far as the plaintiff knew, its contract continued with the subscribing insurers and the plaintiff had no knowledge that two of the subscribing insurers had been told by Best that their subscriptions were no longer necessary. Best made assumptions based upon the premium charged by Encon that Encon was providing total coverage. Best made this assumption without taking any steps to confirm its correctness with Encon. The Court held that Best was negligent in the exercise of its duty by failing to ensure that the assumption concerning Encon assuming 100% of the risk was correct.
Best argued that it was not appropriate to grant summary judgment in a case against an insurance agent prior to a determination that there was a deficiency or gap in the policy. The Court rejected this argument noting that it was "plain and obvious" that Best had breached its duty to the plaintiff. However, the Court did acknowledge that Encon, in its turn, may be liable to Best for the obligation to pay damages to the plaintiff and that this summary judgment decision in no way determined the issues between Encon and Best.
This case was originally summarized by jmeadows@harpergrey.com and originally edited by dpilley@harpergrey.com
