Andrew owns a printing business. The business pioneered a specialist printing process which prints ink directly onto product surfaces rather than onto labels. Andrew used an insurance adviser firm to manage his insurance needs from year to year.
In 2019, Andrew signed a contract to print labels directly onto 20,000 high-end clay products. Unfortunately, Andrew used a recent shipment of ink that was already seven years old and past the ‘use by’ date. As a result, the ink did not set on the product correctly. Andrew’s customer contacted him after receiving the goods to say that the ink had fallen off and they were rejecting the goods.
Andrew made a claim on his insurance policy to cover the costs he incurred to print on the first 20,000 clay products, and the projected costs to produce 20,000 replacements. Andrew’s insurer declined the claim. Andrew contacted his adviser for assistance, but the adviser considered there was nothing they could do.
Unhappy with the adviser’s response, Andrew complained to FSCL.
Andrew complained that his adviser provided poor service and the insurance policy that the adviser had arranged did not meet his needs. Andrew also said that if his adviser had placed a policy which included ‘property worked on’ cover, the insurance company would have accepted his claim.
In general, ‘property worked on’ clauses will cover the damage a company causes to third party property which they work on or handle. It is an optional clause and will cost extra as most ‘off the shelf’ third-party liability policies exclude this type of damage.
Finally, Andrew felt that his adviser had not ‘gone into bat’ for him during claim time.
The adviser initially said there could not be any claim because, to their knowledge, the clay products had not suffered any damage when the ink was cleaned off. A ‘property worked on’ clause required the products to be ‘damaged’ before the policy would provide assistance.
Once we started our investigation, it became clear that the adviser had misunderstood aspects of Andrew’s claim. The adviser was not aware that all the clay products had been rejected due to damaged surfaces. This meant the adviser’s original position that the issue was a quality issue rather than a damage issue was not correct. The adviser considered this new information may help to overturn the insurer’s decision if Andrew complained to the insurer’s external dispute resolution service. The adviser reviewed his file again and said he did not consider his firm had caused Andrew’s loss, but agreed they could have done better. As a result, the adviser said he would speak to his firm’s professional indemnity insurer.
We did not have the adviser’s full file but, based on the information we did have, we did not think that the adviser would ultimately be held responsible for all of Andrew’s loss. The primary cause of Andrew’s loss was the faulty ink supplied to him, which was a civil issue between him and his supplier (who was un-cooperative).
If we had proceeded to fully investigate the complaint, we may have looked at whether the adviser contributed to Andrew’s loss, in the event the insurer considered that the ‘property worked on’ clause would have covered the claim. In addition, we would have looked at whether Andrew contributed to his own loss by failing to check the ink’s age.
The adviser’s firm successfully claimed from their professional indemnity insurer and the complaint was settled, meaning we did not need to conduct a full investigation. The adviser paid $40,000, to cover Andrew’s initial costs, and, in return, would be entitled to recover a percentage of any money Andrew succeeded in recovering from action against the ink supplier.
Andrew then discontinued his complaint.
Insights for advisers
You should fully assess and understand your client’s business and their production processes to scope appropriate liability cover and decide whether they need cover for production or manufacturing issues.
We consider that assisting clients with claims is part of the work advisers are paid for through the commissions they earn. If FSCL considers an adviser did not do enough to help their client at claim time, we may award compensation to the consumer for stress and inconvenience.
This complaint is also a timely reminder that advisers should make clients aware that they can challenge an insurer’s decision through the insurer’s dispute resolution scheme.