One of an insurance broker’s many duties is to see that the client has not under-insured. A broker may not have to advise the client on the correct sum to be insured. That may, for instance, need the advice of an expert such as an auditor in the case of business interruption insurance. But the stated or unstated terms of a broker’s mandate require a broker to explain to a commercial client the need for business interruption insurance, how the loss is calculated, what information is needed to enable the broker to insure the loss, and the consequences of under-insurance and average that may be applied.

In PFC Foods CC v Three Peaks Management the broker left the business interruption cover at R600 000 for years when the sum insured should have grown to R1.8 million. This left a claim shortfall of over R350 000 because average was applied.

In addition, the FAIS Act requires the advice given by the broker to the client to be carefully recorded. Anything that the broker is not willing or able to do for the client must be carefully explained and noted.

There is a useful article by Professor JP van Niekerk on the case although you will need a subscription.