The Relationship

Between Brokers,
Insureds, and
Insurers

Brian G. Sunohara
July 2013
Rogers Partners LLP
 Overview

1. Duties of brokers to insureds

2. Duties of brokers to insurers

3. Duty of insurers to provide advice to an

insured when the insured is represented by a
broker
 Role of Agents and Brokers
• Outside of Ontario, the terms “insurance agent”
and “insurance broker” are used
interchangeably.

• In Ontario, an agent is only permitted to

represent one insurer.

• In Ontario, a broker is a part of a self-regulating

professional body, and is able to place insurance
with multiple insurers.
 Dual Agency
• Brokers are intermediaries – they are “middle
men” between the insurer and insured who will
owe contractual and common law duties to both
insured and insurer

• Depending on the particular role undertaken by

the broker in any given transaction, a broker
may be found to be acting either as agent of the
insured for certain functions (completing and
filing the application for insurance) or as agent
of the insurer (binding coverage).
 Broker’s Primary Duty
• The broker’s primary duty is to the insured.

• Registered Insurance Brokers of Ontario: brokers

represent their client's best interests when
negotiating a contract between the client and the
insurer.

• RIBO sets out a code of conduct for brokers, but

generally those obligations are less stringent
than the duties recognized at common law
 Duties of Agents and Brokers
to Insureds
• Brokers’ professional duties to their clients
(insureds) are quite onerous:
– Understand nature of insured’s business
– Ascertain/assess risks
– Advise of proper coverage
– Place proper coverage or advise of unavailability
– Explain gaps/exclusions in coverage

• Customers rely on brokers’ expertise

 Duties of Agents and Brokers
to Insureds
• Brokers must ensure that insureds are protected
against all foreseeable, insurable risks: Fine’s Flowers
v. General Accident, ONCA (1977).

• In Fine’s, insured’s request was for “full coverage”

• Court commented that a broker must have a full

understanding of the nature of the insured’s business
and be able to properly assess the risks to offer the
brokerage service
 Duties of Agents and Brokers
to Insureds
• “Stringent duty to provide both information and
advice” if customer relies on it: Fletcher v.
Manitoba Public Insurance Corporation, SCC
(1990).

• Need for clear communication with client and

insurer, proper analysis of risk, presentation of
available products and procurement of cover
appropriate to needs.
 Recent Broker’s Liability Decision
• Godina v. Tripemco Burlington Insurance Group Ltd. and
Mitchell, ONSC (2013)

• Plaintiff did not purchase optional Income

Replacement Benefits (IRBs).
• Plaintiff involved in serious motor vehicle accident.
Permanently disabled.
• Broker had explained the availability of optional
benefits and asked plaintiff whether basic benefits
would be sufficient.
 Recent Broker’s Liability Decision
• Plaintiff argued that broker should have inquired
about other income continuation plans and
recommended/quoted optional IRBs.
• Judge found that broker met standard of care by
having explained availability of optional IRBs.
• Evidence showed that plaintiff only wanted minimal
coverage and low premiums in the past.
 Recent Broker’s Liability Decision
• Zefferino v. Meloche Monnex Insurance Company,
ONCA (2013)

• Broker did not offer optional Statutory Accident

Benefits and was found negligent
• But the plaintiff did not prove that the broker’s
negligence caused the loss – that is, the court
found that the plaintiff would not have
purchased optional benefits in any event.
 Authority to Bind

• Dual agency scenarios generally occur when the

broker has authority to bind the insurer:
1126389 Ontario Ltd. v. Dalton, ONSC (2000);
Piggott Construction (1969) Ltd. v. Saskatchewan
Government Insurance Office, Sask. C.A. (1985).

• Authority can be: express, implied or

apparent/ostensible
 Authority to Bind

• The particular terms of the express authority

given to a broker by the insurer are generally set
out in the contract dealing with procurement of
business

• Implied authority may arise from a pattern of

conduct by broker to which insurer has
acquiesced – for example, ratification by the
insurer of previously unauthorized acts by the
broker.
 Authority to Bind

• Apparent/Ostensible authority can arise

through direct dealings with the insured –
where the insured is led to believe by the
conduct of the insurer that the broker has
authority

• The insurer must honour commitments by

intermediaries when they are made in the course
of express, implied or apparent authority
 Brokers’ Duties to Insurers

• Broker owes a duty of good faith to insurer.

• Brokers can potentially be held liable to insurers
for failing to:
– Convey material information from the insured
– Discover facts relevant to insurability/risk
– Follow instructions to transmit information to
insured
– Act in way which does not compromise the insurer’s
rights to deny coverage or rely on defences and
exclusions
 Example – Broker’s Failure to Make
Inquiries of Insured
• Gore Mutual v. Barton, Black and Robertson, BCSC
(1979).

• Mobile home was insured.

• Broker advised by insured of address change.
• Broker assumed mobile home was still at same
trailer park when, in fact, it was moved to new
location.
• Mobile home damaged by wind.
 Example – Broker’s Failure to Make
Inquiries of Insured
• Insurer paid claim and sought recovery from
broker.
• Insurer said it would not have insured mobile
home at new location – material change.
• Judge: breach of broker agreement to advise
insurer of any change affecting the risk.
• Broker found liable to insurer for damages.
• Broker should have asked insured if mobile
home was in new location.
 Example – Broker’s Failure to
Communicate Risks to Insurer
• MacLean v. Canadian General Insurance, NBQB
(1990).
• Insured owned music club.
• Applied for insurance on house where band
members would generally stay 3 – 4
nights/week; otherwise empty.
• Told broker of this.
• Broker advised insurer that house was “tenant
occupied”.
 Example – Broker’s Failure to
Communicate Risks to Insurer
• Band members complained of not enough heat.
Damaged electrical panel.
• House empty for about 50 days during repair.
• Fire occurred while house empty.
• Judge: insurer was required to pay insured.
• However, broker had to pay insurer.
• Broker should have advised insurer about
special risk.
 Example – Broker’s Failure to Advise
Insured of Limitations Under Policy
• G.R. Young Ltd. v. Dominion Insurance, BCSC
(1979).
• Insured wanted fire insurance on an actual cash
value (ACV) basis.
• Insurer only prepared to issue policy with
wreckage value endorsement (value of materials
of building and structures).
• Policy issued, but agent (broker) did not advise
insured of endorsement.
 Example – Broker’s Failure to Advise
Insured of Limitations Under Policy
• Fire occurred.
• Judge: insurer responsible under policy for ACV
since insured was not advised of wreckage value
endorsement.
• However, broker had to indemnify insurer for
amount in excess of wreckage value.
• “Clear” that broker had duty to insurer to advise
insured of limitation under policy.
 Brokers’ Duties to Insurers
• The duties owed to insurers must be considered
in light of the knowledge expected of the
underwriter.
• Presumption that the underwriter will have
taken the necessary steps to obtain information
available to it: Adams-Eden v. Kansa General
Insurance, Man. Q.B. (1995).
• Therefore, the court will not look highly on an
insurer’s blind reliance on a broker.
 Interplay Between Brokers and
Insurers: Ostenda
• Ostenda v. Bahena-Miranda, ONSC (2012)
• Trucking company insured by insurance policy.
• Ostenda was employee of trucking company.
• Ostenda lost both legs in motor vehicle accident
in United States.
• Defendant driver had minimal liability limits.
• Policy did not have OPCF 44R family coverage
protection endorsement.
 Ostenda - Facts

• Prior to insuring trucking company, and prior to

renewals, insurer conducted risk assessments.

• Insurer provided risk assessment reports to

company.
 Ostenda - Issue

• Did insurer stand exposed to liability in the

same manner as a broker, having regard to its
dealings with the trucking company?

• Plaintiff argued that insurer had a duty to advise

trucking company of potential gaps in coverage
because insurer had provided advice to
company on risks.
 Case Relied On - Drader

• Drader v. Sebastian, Sask. C.A. (2009)

• Homeowner’s policy.
• Swarovski figurines not covered under policy.
• Insureds sued broker and insurer.
• Court: when an insurer receives an application
for insurance from a broker, there is no general
duty on the insurer to review the insured’s
insurance needs, absent a specific request by a
broker.
 Case Relied On - Boudreau
• Boudreau v. Ontario Soccer Assn., ONSC (2012)
• Serious soccer injury. Plaintiff became a
quadriplegic.
• Under insurer’s policy, only $40,000 for
quadriplegia.
• Plaintiff sued insurer, broker, and soccer
association.
 Case Relied On - Boudreau

• Judge: when dealing with an experienced

broker, the insurer owes no personal duty
directly to the insured.

• The insurer’s only obligation is to issue a policy

in accordance with the application submitted.
 Judge’s Findings in Ostenda
• No evidence that trucking company relied on
insurer for insurance advice.

• Insurer’s risk assessments were to assess the

risks from an underwriting standpoint and to
reduce the potential for claims.

• Logical that insurer had to understand

company’s operations in order to assess the risk.
 Disclaimer Clause

• In insurer’s risk assessment reports, there was

particular wording.
• “By delivery of this Report, the insurer does not
assume any responsibility for discovery,
notification or elimination of hazards or risks”.
• “Neither the insurer nor its representatives shall
be liable…for any loss [or] damage” in
connection with the report.
 Public Policy Reasons

• Brokers are part of a regulated industry with

codes of conduct and specific obligations.

• To impose the same duties on insurers would

result in considerable duplication of effort and
would increase premiums.
 Agency

• Plaintiff argued that insurer was liable for

mistakes of the broker due to principal/agent
relationship.
• Judge did not agree.
• Evidence did not show that broker had legal
authority to affect insurer’s position.
• Broker was an intermediary, not an agent. Did
not have authority to bind the insurer.
 Lessons Learned from Ostenda

• If an insured asks for advice on insurance

requirements, it is probably best to refer them to
the broker. Let the broker do its job.
• Court could find that duty of care on insurer
arises if insurer starts to provide advice on
coverage needs.
• Consider a disclaimer clause in risk assessment
reports.