The Financial Ombudsman Service (FOS) recently released its report detailing its approach to insurance broker disputes.
It seems that consumers most often lodge disputes with FOS alleging that their broker failed to arrange adequate insurance or failed to fully inform them of the terms of the cover.
FOS’s report is informative in explaining its approach to resolving key issues in disputes between insurance brokers and consumers.
Broker's Duty of Care
FOS makes the following observations in this regard:
- Brokers are required to exercise reasonable care and skill when arranging an insurance policy for a consumer;
- It is generally accepted that a broker must ensure that the policy covers the risk necessary to the consumer’s disclosed or ascertained needs;
- A broker should ensure that the cover is sufficient and meets the consumer’s needs. If an exclusion impacts upon a consumer’s disclosed or ascertained needs or the sum insured is less than required, the broker is required to properly inform the consumer of this. However, FOS accepts that it may be impractical or unreasonable for a broker to go through all exclusions, conditions or limitations of a policy;
- When considering whether a broker has exercised reasonable care and skill, FOS considers whether reasonable efforts were undertaken to ascertain the consumer’s needs and specifically inform the consumer of a relevant policy exclusion or exemption. What is considered “reasonable” will depend on the facts and circumstances of each individual case; and
- FOS asserts that it is important that a broker can provide clear details of instructions obtained from a consumer and of any discussions held. To consider this issue, FOS will generally require copies of the fact find/needs analysis forms, all financial services guides provided and copies of all correspondence and file notes of conversations between the broker and consumer.
Establishing a Loss
If FOS determines that a broker failed to inform a consumer of relevant policy exclusion/s, FOS will then consider whether that failure caused the consumer to suffer loss.
FOS’s approach is to identify a probable series of events that would have occurred if not for the broker’s failure and compare whether this would have left the consumer in a more favourable position financially. If so, FOS will award an appropriate remedy that will, as much as possible, restore the consumer to the position they would have been in if not for the broker’s breach of care.
In relation to the specific issue of whether cover was available for the relevant risk, FOS will generally require evidence of research of availability of cover and correspondence and file notes of any conversations with relevant insurers as to available cover. FOS will generally adopt the following approach:
- If the cover is relevantly uncontroversial, FOS will readily infer that such cover was available;
- If the cover could have been conceivably available in the insurance market, FOS will accept that such cover was available unless the broker leads evidence to the contrary; and
- If the cover was unlikely to be available, FOS will not accept that the cover was available unless the consumer leads evidence to the contrary.
FOS’s approach largely reflects well established principles of law regarding the duty of care owed by professionals, and more specifically brokers, causation and loss.
FOS has also emphasised that the facts and circumstances relevant to each FOS dispute are unique and therefore the approach can only be used as a guide.
However, FOS’s approach will certainly assist brokers, their insurers and their respective legal representatives to better understand how FOS reaches decision about key issues. This should allow the parties to focus on these key issues with a view to resolving disputes in an efficient and timely manner.