There were once again very few reported decisions in Canada involving insurance broker's negligence in 2018. Of those that were decided, however, it was a decidedly good year in the courts for brokers. Here are three cases that may be of interest to insurance litigators and insurance brokers alike.
2049390 Ontario Inc. v. Leung, 2018 ONSC 5759
The plaintiff in this case owned a three-story building on Queen Street West in Toronto, and had duly taken out property insurance over the building through the defendant broker. After the building burned down, though, the plaintiff asserted it was significantly underinsured, as the replacement cost of the building allegedly exceeded the building limit. The owner sued its broker, arguing she should have recommended that the plaintiff's principal obtain a professional estimate of the rebuild costs before deciding on limits (which the broker claimed she in fact did).
The plaintiff's claim came on for trial some 5 ½ years later. After a 10-day judge-alone trial, the trial judge handily dismissed the plaintiff's claim. Justice Favreau ruled it was not necessary to decide whether the broker was under a duty to recommend the insured seek a professional estimate of rebuild costs, because the plaintiff had in any case failed to prove:
- that the plaintiff's principal would have followed the advice;
- that any such estimate would match the amount he now said was required; and
- that the broker had failed to give the advice in question (His Honour accepted the broker's evidence that she in fact did).
Adding insult to injury, the trial judge found that it was not reasonable for the plaintiff to have awaited the outcome of the trial before starting to rebuild given its principal had the resources to do so earlier, and thus even if liability had been established, the plaintiff had failed to mitigate its damages.
There are two key takeaways from the case from a legal perspective:
- It serves to remind plaintiff's counsel that while the law continues to hold brokers to a "stringent" standard, making out all elements of a claim can be an evidentiary gauntlet – failure on any one of which will be fatal to the claim; and
- In brighter news for the
plaintiff's bar, the case also strongly suggests that in the
right circumstances the duty of care will require a broker to
recommend obtaining expert assistance in determining the proper
limits. As His Honour noted at paragraph 40:
...there is no dispute between the parties that insurance brokers are not qualified to give replacement cost advice to clients. They also both agree that it is, at the very least, a best practice to advise clients about the need to obtain expert advice on this point. The disagreement between them appears to be whether recommending the services of a cost consultant is necessary in all circumstances [emphasis added].
From a practical perspective for brokers, the morals of the story are similar:
- There is no harm in recommending your client obtain a professional estimate to determine rebuild costs – and the standard of care may actually require it, particularly if your client is unsophisticated; and
- Brokers should record such advice in writing, or else it will literally come down to "he said, she said" in court.
Elevli v. Crain & Schooley Insurance Brokers Ltd., 2018 ONSC 6666
The plaintiff Mustafa Elevli purchased a rental property on Grenon Avenue in Ottawa in 2005, and obtained property insurance through the defendant Crain & Schooley Insurance Brokers. In October 2006, the insurer learned that the property was vacant, and contacted the broker, who in turn contacted the insured. The insured advised the broker that his tenants had moved out, and that he expected the property would be rented out again by November 1, 2006.
The broker explained that the insurer cared about vacancies because such properties were more prone to fires and vandalism, but did not explain that the insurer might deny coverage if a loss occurred after a vacancy of more than 30 days. However, a letter later sent by the broker to the insured did mention the vacancy exclusion and another letter noted the need to inform the broker of any vacancy.
The property in fact remained vacant until June 2012, when a fire rendered it a total loss. The insurer denied coverage on account of the vacancy, and the plaintiff sued the broker alleging inter alia that she ought to have advised him of the gap in coverage in respect of vacancy. The broker moved for summary judgment dismissing the action, and the plaintiff cross-moved for summary judgment allowing the claim.
The court allowed the defendant's motion and dismissed the action. In doing so, it reiterated two principles:
- The duty to report material changes in the property or the use to which it is being put rests with the insured, not the broker. As such, it is not the broker's duty to actively monitor the nature of the risk during the term of the policy; and
- Depending on the circumstances, a form letter setting out the details of any exclusion may, or may not, be sufficient to discharge the broker's duty to warn of gaps in coverage.
The decision is odd in two respects, however. First, neither side appears to have delivered an expert report, despite both having moved for summary judgment. The court was thus deprived of expert assistance as to what the standard of care required (or so it appears, as the reasons make no mention of expert testimony).
Second, the motion judge expressly found the broker had failed to discharge her duty of care in the October 2006 conversation by failing to warn the insured of the potential loss of coverage after 30 days of vacancy, but seems to have found the standard form letters to have absolved the broker of this breach. This reasoning is open to question. The author respectfully suggests that the court should have gone on to consider what would have happened had the broker warned the insured about the 30-day vacancy rule in the October 2006 conversation. One would think there would be a strong argument that, had that occurred, the insured would have changed his behaviour, and avoided the loss. The broker's negligence would thus have caused the loss and liability would have been established regardless of whether the standard of care was met in other respects.
National Industries Inc. v. Kirkwood, 2018 ONSC 1490
The plaintiffs in this case alleged that their broker, Marsh Canada Limited, failed to advise them as to what they ought to have disclosed when taking out and renewing Directors & Officers insurance. The Statement of Claim made express allegations about the broker's conduct in the years 2010 and 2011. In 2016, the plaintiffs sought to amend the Statement of Claim to add, among other things, express allegations of negligence in 2008 and 2009. The broker opposed the amendments on the basis they were now statute-barred, and the master agreed, which decision was upheld by the Divisional Court.
The crux of the motion was whether the amendments amounted to new causes of action or whether they were merely particularizing the claim that had already been advanced. Both levels of court concluded that even on a fair and generous reading of the Statement of Claim, the factual basis for which the plaintiffs had sought relief was the 2010 and 2011 acts and omissions – not those from 2008 and 2009. The proposed amendments were accordingly out of time and could not be advanced.
This case is a sobering reminder that while pleadings are interpreted generously, limitation periods are applied mercilessly. The decision will encourage counsel to thoroughly investigate the facts of the case – including when the alleged negligence occurred – at the earliest possible opportunity. It may also incentive plaintiffs to advance more broad-based allegations of negligence in their Statement of Claim to preserve the limitation period, and narrow their cases as the evidence emerges throughout the litigation process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
