O.J. No. 1690
2011 ONSC 1969
Ontario Superior Court of Justice
B.A. Conway J.
April 12, 2011
The insured brought a professional negligence claim against a broker and the brokerage firm alleging that the broker misrepresented to the insured that its wholesale inventory was covered by insurance while in storage.
The insured was a supplier of wholesale pharmaceutical products to the Main Drug group of stores. The insured operated out of the basement of one of the Main Drug locations (the “Pharmacy”). The insured and the Pharmacy were owned by separate corporate entities. A theft occurred at the Pharmacy and pharmaceutical products worth $207,638.98 were stolen from the insured’s storage area. The insured claimed that it was advised by its broker that its wholesale pharmaceutical products were covered by the Pharmacy’s retail insurance policy while the products were stored at the Pharmacy. The Pharmacy’s insurer denied coverage as the stolen products were the property of the insured supplier, not the Pharmacy, and the Pharmacy’s insurer had not previously been notified of the wholesale operation in the basement of the Pharmacy.
The insured claimed that it had contacted the broker to inquire about general coverage for its wholesale operation and advised the broker that coverage was needed for products while in storage and in transit. The insured testified that the broker advised that the products in storage were covered by the Pharmacy’s retail insurance policy and that all the insured needed was a transportation policy.
In contrast, the broker testified that the insured called him and inquired solely about a transportation policy. The application was not properly filled out by the insured so the broker attended at the Pharmacy to assist the insured with filling it out. The broker testified that while he was being taken downstairs he noticed some boxes. The insured explained that they were going to be shipped out to other Main Drug locations. The broker testified that he advised the insured that this was a wholesale operation and that it was not covered by the Pharmacy’s retail insurance policy. Further, the broker advised the insured that the transportation policy would only cover the products while in transit and not while in storage on the Pharmacy’s premises. The insured responded that he was not concerned because the products were always received at the Pharmacy and shipped to other locations on the same day. The insured denied this meeting ever took place.
The court found that the broker was only retained to obtain specific transportation coverage. The scope of the broker’s duty was to obtain only that coverage and he fulfilled his duty.
However, the court went on to find that even if the broker had been retained to provide full coverage, he did not breach his duty. When a client is seeking full coverage, a broker’s duty is to ensure that the client is adequately covered. If a broker cannot obtain coverage, he or she must advise the client of the gap in coverage so that the client can take steps to protect himself or herself elsewhere.
The court preferred the broker’s evidence and found that the broker did verbally advise the insured that the Pharmacy’s retail insurance policy did not cover the products while in storage on the Pharmacy’s premises. The court held that while it may have been more prudent to put the advice in writing, the broker’s failure to do so was not a breach of duty. As a result, the court dismissed the insured’s claim.