An insurance broker has a duty to act in good faith and inform third parties who are not clients, but who suffer damages as a result of inaccurate information provided by the broker about an insurance product. That’s what the Quebec Court of Appeal confirmed in a recent decision that recognizes duties that go beyond the ones brokers owe strictly to their clients.
The facts: Mr. Lefebvre wanted to buy Mr. Robinson’s house but the parties could not agree on the sale price given the significant difference ($200,000) between the offer and counter-offer. Looking for a solution, Mr. Lefebvre consulted an insurance broker who recommended a prepaid insurance policy on Mr. Robinson’s life made payable to the latter’s estate. The broker then made an offer to Mr. Robinson on behalf of Mr. Lefebvre which would see most of the sale price paid out on the transaction date; the balance would be paid within five years and Mr. Lefebvre would take out an universal life insurance policy on Mr. Robinson’s life with index-linked death benefits made payable to the latter’s estate. Mr. Robinson accepted the offer.
Following the statements made by the broker on behalf of Mr. Lefebvre and the insurer indicating that the premiums had been “fully prepaid” and “prepaid for life” by Mr. Lefebvre via an annuity contract, Mr. Robinson opted not to take out a surety that would have secured the payment of the insurance premiums. The parties signed the deed of sale in 1992.
Thirteen years later, in 2005, as a result of poor returns on investments, the accumulation fund was no longer self-sufficient to cover the premiums. The insurer requested over $200,000 in order to maintain the policy in force. The broker, going through Mr. Robinson’s accountant, offered to buy the policy back for $400,000 without explanation. He never put the offer in writing as requested. Mr. Robinson’s accountant only found out three years later, in 2008, that premiums were due on the policy.
Mr. Robinson formally gave Mr. Lefebvre notice to pay the premiums to maintain the policy in force and comply with their agreement. Given the latter’s inaction, Mr. Robinson paid the premiums himself in order to avoid the forfeiture of the policy. It was also anticipated that the premium would increase every year for the rest of his life. As a result, Mr. Robinson claimed against Mr. Lefebvre, the broker and the brokerage firm for the premiums that he had paid and for an amount equivalent to the death benefits.
The Superior Court found that Mr. Lefebvre failed to pay all the premiums as required by the offer and ordered him to pay all the damages claimed by Mr. Robinson. Even so, it held that the broker misled him on the nature of policy, thereby breaching his duties to inform and advise his client Mr. Lefebvre.
Furthermore, relying on the decision rendered by Supreme Court of Canada in Bail, the Court held that the broker owed a duty of good faith to Mr. Robinson and a duty to inform him even though he was not his client. It held that the broker failed to recommend an insurance product that met Mr. Robinson’s needs and kept on providing incomplete and inaccurate information. The broker had a duty to provide accurate information or at least, refrain from providing information that he knew was inaccurate or false. The Court also considered that Mr. Lefebvre and Mr. Robinson would have never bought the policy had they known that substantial premiums would be required later in order to maintain it.
The Court ruled that the broker was liable toward Mr. Robinson for the whole along with his client Mr. Lefebvre. Meanwhile, Mr. Lefebvre had filed an action in warranty against his broker. The Court held that the latter was contractually liable toward the former and as a result, had to indemnify him from all amounts paid to Mr. Robinson by virtue of the judgment.
The broker, his firm and Mr. Lefebvre appealed the Superior Court decision, but the Court of Appeal dismissed the appeals, confirming the broker’s extra-contractual liability toward Mr. Robinson while emphasizing that this case involved particular circumstances.
And indeed it did, considering that the broker made express representations to a third party about an insurance product. Still, the lesson to be drawn from this decision is that professionals can engage their extra-contractual liability when they provide incomplete or inaccurate information to third parties.