This is an Australian case which concerns legal duties that a broker owes to its client (the insured) and the burden of proof that lies with the insured in showing whether brokers breached their legal duty.
The broker provided the client with insurance brokerage services for over 30 years. The broker had obtained all-inclusive building and content insurance cover for the client.
In 2012 the broker advised the insured to transfer her building and contents cover to a new insurer, as it offered better premiums. Unbeknown to the insured, the new cover contained an exclusion in respect of the pool.
The insured emptied her pool during 2012 due to a leak. She failed to take any further steps to investigate the leak and left the pool empty. The pool was built with three hydrostatic valves and was capable of being safely left empty for a time, but only if the valves were functioning correctly. One valve broke and the pool lifted.
The claim against the insurer failed based on the exclusion. The insured took issue with the services of her broker.
The court held that, in order for the insured to succeed with her claim, the following enquiries had to be answered:
Was the insured adequately advised and was the exclusion brought to her attention?
If yes, was the broker in breach of his legal duty by failing to adequately advise the insured of the scope of the exclusion?
Were there other policies available in the market which offered cover for loss arising from accidental damage to the pool and pool enclosure?
Was causation proved?
On the first two enquiries the court held that the broker failed to adequately advise the insured of the exclusion and was indeed in breach of his legal duty.
It held that the broker owed a client a duty to draw to their attention any onerous or unusual terms or conditions and should also explain their nature and effect.
On the third enquiry, on the broker’s own evidence, it was established that there were several other insurance companies who quoted on the insurance without the exclusion. Although the premiums were higher, it was held that the insured’s intentions was always to indemnify the entire building – especially the pool as it increased the property value.
The court, however, also enquired into the general provisions in homeowners (building and home contents) policies. One such provision is that an insured must take reasonable precautions against damage or loss.
The court held that the insured failed to take the reasonable precautions which her previous policy and those which offered like cover, required regarding the leak and the emptied pool.
Despite proving the existence of the relevant duty and breach of that duty by the broker, the insured failed in establishing that but for the breach the client would have been covered.
The principles laid in this case are not substantially different in South African law.
Brokers, in defending any professional indemnity claim, should remember to consider investigating not only the existence and breach of the relevant alleged duty, but whether the cover which the insured should allegedly put in place was available, at what cost, and whether it would have been purchased by the insured, and whether even if the cover had been in place on the relevant facts would the indemnity have been paid. when advising a client, consider, among other things – the terms, conditions and exclusions of the policy, and the insured’s compliance of its obligations under the policy.