(Strategic Property Holdings No 3 Pty Ltd v Austbrokers RWA Pty Ltd [2013] NSWSC 178)

Background

Strategic Property Holdings No 3 Pty Ltd (Strategic) was the owner of a property in the Australian Capital Territory known as the Australian Defence Academy. The Insured Property was one of a number of property assets owned by Strategic and managed by Eclipse Property Group (Eclipse). Eclipse also managed Strategic’s investments.

RWA Pty Ltd (Austbrokers) was the insurance broker for Strategic and Eclipse. In 2005, Strategic and Eclipse accepted Austbrokers’ recommendation to obtain an Industrial Special Risks (ISR) insurance policy issued by Suncorp Metway (Suncorp) to cover all of Strategic’s properties.

Pursuant to the ISR policy, the Insured Property was listed with a declared value of $22 million, an indemnity limit of $30 million for material loss or damage but was subject to a sublimit of indemnity for “accidental damage” in the sum of $200,000.

The Claim

On 30 January 2006, the roof of one of the buildings at the ADA site collapsed causing significant damage. The cause of the collapse was due to design issues associated with the roof trusses. Strategic lodged a claim with Suncorp, which accepted the claim but relied on the policy definition for “accidental damage” and applied the indemnity sublimit of $200,000. The cost of rectifying the damage was far greater than this amount. After an unsuccessful challenge to Suncorp’s decision to apply the sublimit, Strategic and Eclipse brought proceedings against Austbrokers in the Supreme Court of the Australian Capital Territory.

The Proceedings

It was alleged by Strategic and Eclipse that Austbrokers breached its retainer and duty of care by:

  1. arranging the policy with an accidental damage sublimit which was inadequate, having regard to the value of the ADA site;
  2. failing to advise Strategic and Eclipse as to coverage limitations; and
  3. failing to follow instructions to obtain the broadest possible coverage.

Strategic claimed the difference between the amount indemnified by Suncorp and the actual loss suffered as well as consequential loss. 

The Judgment

Justice Stevenson found that it was an implied term of the retainer between Strategic and Austbrokers that Austbrokers would provide advice in relation to:

  • the adequacy of the cover proposed;
  • the availability of different levels of cover;
  • the nature of any exclusions and limitations of the cover; and,
  • the material risks associated with the level of cover.

His Honour also accepted that this implied term informed the scope of Austbrokers’ duty of care.

Relevant to this finding was expert evidence given to the effect that central to the provision of broking services was knowing a client’s business, understanding the risks faced by the business and ensuring that the client understands the protection offered.

Austbrokers argued that the sub-limits were clear on the face of the policy documents and it was not therefore necessary to provide specific advice unless a query from the client was raised.

Justice Stevenson disagreed, finding that Austbrokers’ duty required it to ‘at the very least’ read the policy documents and see what was said about the sub-limits. Whilst the duty did not necessarily extend to “expounding the law to the insured”, it did include advising. Strategic that despite the ‘declared value’ for the site of $22 million, there was an ‘accidental damage’ sub-limit of $200,000.

Concluding that Austbrokers’ failure to advise on the sub-limit was both a breach of retainer and duty of care, Justice Stevenson awarded damages in the form of Strategic’s uninsured loss together with the costs of Strategic’s failed proceedings against the Suncorp.

Implications

This decision confirms the high standard of care to which brokers are subject and that it is incumbent on brokers to familiarise themselves with the policy and to advise on the practical implications for clients if terms of the policy are enlivened.

‘Hindsight’ reasoning is difficult to avoid in brokers negligence cases and whilst this Court expressly sought to avoid this, it nonetheless observed how ‘very simple’ it would have been for advice on sub-limits to be given. The difficulty for brokers remains however how to identify which aspects of cover need to be expressly drawn to the client’s attention beyond the provision to the client of the policy documentation.