An insured was advised by its broker that the broker had arranged for the excess insurer to provide umbrella insurance coverage for the insured's vehicles; however, the broker failed to advise there was a gap in excess coverage with respect to the insured's long-term leased vehicles. Following an accident involving one of the insured's long-term leased vehicles, the insured sought coverage from the excess insurer, but was denied. The insured successfully brought an action in negligence against the brokers for their failure to properly advise the insured with respect to the umbrella coverage obtained for the vehicles.

[2015] O.J. No. 854

2015 ONSC 1036

Ontario Superior Court of Justice

M.L. Edwards J.

February 18, 2015

An employee of the insured allegedly caused a serious motor vehicle accident, giving rise to at least two civil actions against the insured for serious personal injury. The alleged at fault vehicle was leased by the insured from Ryder Truck Rental Canada Ltd. (the “Ryder vehicle”). The Ryder vehicle was insured under a primary insurance policy for coverage up to $1 million. The insured believed the totality of the two or more civil actions would exceed the primary policy, and sought to rely on the coverage it believed it had purchased from AXA Insurance, the excess insurer, for claims up to $10 million. The insured claimed that it engaged brokers, Gifford Associates, to arrange various policies of commercial insurance with the excess insurer, including umbrella insurance over and above the primary policy limits on the Ryder vehicle.

Following the accident, the excess insurer denied coverage to the insured. The insured brought an action against Gifford Associates, as well as the individual broker engaged ("broker L"), (collectively the “brokers”), alleging that the brokers failed to arrange adequate insurance coverage for the Ryder vehicle. The brokers commenced third party proceedings against the excess insurer, asserting that the policy included umbrella coverage for the Ryder vehicle.

At summary trial, the insured claimed that its employee specifically advised broker L that it leased vehicles from Ryder, and that the vehicles were used for making deliveries. The insured’s employee also asserted that he told broker L about the primary insurance coverage it had for the Ryder vehicle, and that broker L advised him that the umbrella insurance they discussed would provide additional insurance over and above the primary coverage they had for the Ryder vehicles. Broker L denied that the insured had requested coverage for the Ryder vehicle, and claimed that she never represented to the insured’s employee that the umbrella policy would extend over the Ryder vehicle. However, the brokers admitted in their statement of defence that “it was always the intent and expectation of the [insureds] that the Umbrella coverage would extend to risks arising out of the [insureds’] operation of both its owned and leased motor vehicles”. This admission contradicted the much of the evidence provided by broker L. The brokers unsuccessfully attempted to withdraw this admission both before a master and at appeal, and were legally bound by the admission.

The brokers handled all communications with the excess insurer concerning the placement of coverage. In the proposal to the excess insurance provider for umbrella insurance, broker L did not include the primary insurance policy which covered the Ryder vehicle as an underlying policy. Also, broker L did not advise the insured that the umbrella policy included a long-term leased vehicle exclusion. Broker L did not ask the insured’s employee for a copy of the primary insurance policy for the Ryder vehicle before the accident.

After the policy was bound, the insured was asked to complete an application for umbrella coverage. The insured was unaware that these applications are ordinarily completed prior to insurance being bound. The insured delivered the application to the brokers, but the brokers never provided the application to the excess insurers.

At summary trial, the judge held that the excess insurer’s policy did not provide coverage to the insured. The judge went on to consider whether the brokers had breached their professional duty and standard of care to the insured. He determined on the evidence that the brokers were aware of the necessary facts concerning the Ryder vehicle prior to the accident and that they should have ensured that the Ryder vehicle had umbrella coverage to protect the insurance needs of the insured.

By their own evidence and admissions, the brokers realized there was a gap in coverage. The judge held that the broker owed the insured a duty of care to advise of that gap and to take all reasonable efforts to ensure that the insured was properly protected. Therefore, the brokers were liable for the insured’s losses arising out of the brokers' failure to properly advise the insured and provide adequate insurance coverage to the insured.