The recent case of Marchand v Jackson before the High Court of New Zealand serves as a reminder for brokers to ensure that they get the basics right.
In 2009, the Claimants instructed an insurance broker to obtain house, contents and business insurance. The Claimants told the broker that they had been ‘dumped’ by their previous insurers but did not explain that this was because one of the Claimants had criminal convictions. The broker submitted the proposal form, completed by the Claimants and which did not mention the previous convictions, to an insurer who replied with an offer of cover. Despite informing the Claimants that cover had been arranged, the broker failed to follow up with the insurer and arrange the house and contents cover leaving the Claimants uninsured.
When the Claimants made a small claim on their “insurance”, the broker tried to cover up his failure to obtain cover by paying the claim himself. Despite this, he still failed to obtain cover.
In 2010, the Claimants’ house was severely damaged by the Christchurch earthquake. The broker subsequently made attempts to arrange cover by submitting a proposal that was backdated to before the earthquake. The broker completed the proposal form himself and stated that the Claimants did not have any previous convictions despite being aware of them at that point.
Cover was ultimately not procured and the Claimants claimed against the broker. The broker relied on the following alternative defences:
- The Claimants had not disclosed the previous convictions to him and, had they done so, they would not have been able to obtain cover.
- Had the Claimants disclosed the previous convictions to him and had he obtained cover, the insurer would have avoided the policy for non-disclosure.
- The cover would have been limited to certain levels of cover.
- Contributory negligence.
The broker was found to be in breach of duty for failing to place the Claimants’ insurance. The court held that, with full disclosure, the Claimants would have been able to obtain insurance so the broker was unable to rely on causation defences. Further, the broker had not taken all the necessary steps to elicit the information relating to the cancellation of the previous insurance policy. The Claimants had therefore lost the chance to obtain insurance and were entitled to damages to put them in the position they would have been in had the insurance been obtained. The Claimants were not held to be contributorily negligent having relied upon the Defendant to obtain the insurance. The broker was held liable for the full amount of the claim.
Like Environcom (click here to see our previous Law-Now on this decision) before it, this case establishes a broker’s duty to obtain all the necessary information to place the insurance. In this case, the broker was clearly negligent in failing to procure the home and contents cover in the first place. The broker then only served to worsen the position by seeking to cover up his mistake, first, by paying out on a claim and, secondly, by fraudulently seeking to obtain insurance cover after the second claim. While the broker was able to escape liability in Environcom on the basis that the insured was uninsurable, here, unsurprisingly, the Court found that the Claimants would have been able to obtain insurance and the broker was liable. What is interesting, however, is that the Claimants were able to recover the full amount of the claim from the broker with no discount for contributory negligence or other factors.