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Farm business owner finds he is not insured for vehicle damaged in flood

Jason and his farm business had a long-standing relationship with an insurance broking firm who arranged all the business’s insurance needs, including cover for rural vehicles. He dealt with various advisers from the broking firm over the years. 

Under the policy, the insurer indemnified the business for all accidental loss to the vehicles declared to the insurer. The business declared eight vehicles, including tractors, diggers, and a sprayer. The policy also had an optional extension for unspecified vehicles. These were vehicles not specifically declared to the insurer and where the market value of each vehicle did not exceed $5,000. The total sum insured for the unspecified vehicle category was $20,000. 

When discussing renewing the policies for the 2019-2020 year, Jason asked for options to reduce the cost of the premiums. He said he had some of the specified vehicles revalued, and the values had reduced. Jason mentioned a tractor (whose value had dropped from $23,000 to $12,000) and the sprayer (previously valued at $15,000), and asked whether the sum insured for them under the specified category could be reduced, or if they could be included in the unspecified category.

The broker responded with updated quotes for premiums if the sprayer was removed from the specified category to the unspecified category and the sum insured for the unspecified category was increased to $25,000.

The rural vehicle policies were then renewed; the unspecified vehicle sum insured amount was increased to $25,000 and the tractor and sprayer were no longer declared in the specified vehicles category. 

The policies were renewed over the following years.

In January 2023, some of Jason’s business assets, including the sprayer, were damaged in a flooding event. Jason made a claim for the sprayer under the rural vehicles cover, with a repair quote of $11,000. 

The insurer declined the claim, saying that the sprayer had not been a specified vehicle and was not covered under the unspecified vehicles category because its value exceeded $5,000.

Jason complained to the broker saying they had told him the sprayer was covered under the unspecified vehicle category. The broker did not agree they had given this information. They also pointed out that Jason had cancelled the unspecified vehicle cover altogether in 2022. 

Jason did not accept what the broker had to say, and asked FSCL to investigate. 

Dispute

Jason said the broker told him in 2019 that he could remove the tractor and sprayer from the specified vehicles category and receive cover for them under the unspecified vehicles category. Further, he was led to believe the business would receive cover up to $5,000 for unspecified vehicles. Jason said the broker did not make clear to him that an unspecified vehicle with a value above $5,000 would not be covered.

Jason also said that he did not ask the broker to remove the unspecified vehicles cover from the rural vehicle policy in 2022.

The broker said the coverage under the policy was correctly set out in the renewal documents sent to Jason. Further, they did not think they had misinformed him about the unspecified vehicles category in 2019. They noted that Jason was attempting to reduce the premium costs at that time.

In any event, Jason had no coverage under the unspecified vehicles category when the flooding occurred in 2023 because he had removed that cover in 2022, again to reduce costs.

Review

We reviewed the renewal communications between 2018 and 2022. In 2018, the broker indicated that Jason could remove an item valued at $10,000 from the specified vehicles category to the unspecified vehicles category. They also said this category had a limit of “$5,000 per individual item”.

In 2019, the broker advised Jason of the premium change if the sprayer was moved from the specified vehicles category to the unspecified vehicles category. We had no information to show that Jason had told the broker the sprayer had been valued at less than $5,000. The broker had very limited records of their discussions with their client and, based on the records we had seen, we could see how Jason came to the understanding that vehicles could be included in the unspecified vehicles category with cover up to the value of $5,000.

In 2022, the broker issued two renewal documents, one in March and one in June.  This seemed to have occurred because the name of Jason’s business had changed and the business insurance policies were updated with the new name. While the March 2022 renewal document did not include cover for unspecified vehicles, the June 2022 included this cover. 

The broker had no records of discussions about the 2022 renewal. Given the broker’s professional record-keeping obligations and the potential implications for Jason with the removal of cover, we considered they should have made and retained file notes of their conversations with Jason, and of any advice given about the risks and benefits of the proposed change to his cover. 

Our view was that, given Jason’s understanding about how the unspecified vehicles category worked from the communications with the broker in 2018 and 2019, and the lack of evidence of an instruction to remove the cover, a fair outcome was for the broker to compensate Jason $5,000. This was the amount Jason understood he would have received had the unspecified vehicles cover been in place in January 2023. 

Resolution

Both Jason and the broker accepted our proposed resolution, and we closed the file.

Insights

For participants

It is important for insurance brokers to meet their professional record-keeping obligations.  Records of advice are essential to assist clients to understand the advice they are getting and making informed decisions. Further, they assist both parties in understanding what has been agreed between them. They may also assist broking firms in auditing their advisers’ communications with their clients. 

For consumers

Consumers should also read their policies to confirm they understand the cover they have, and that there have been no misunderstandings.