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Consumer says broker mislead him about insurance cover

Phillip owned a franchise business, which had a number of insurance policies (material damage, public liability and commercial vehicle cover) arranged by a broker. In mid-2021, Phillip was looking to change insurers because he wanted to reduce his premiums. A friend recommended another broker to him.

Phillip had a detailed phone conversation with this broker in June 2021, and emailed him the invoice schedule for his current policies. The broker said he would arrange quotes for Phillip.

The broker obtained quotes from another insurer for material damage, public liability and commercial vehicle cover, which he passed on to Phillip.

Phillip and the broker met several months later to discuss the insurance.

The following day, the broker contacted the insurer to say that Phillip wished to proceed with cover for material damage, public liability and commercial vehicle cover. The broker also asked for a quote for Directors & Officers insurance with cover up to $200,000. The insurer provided a quote, which Phillip accepted. 

However, delays occurred, and Phillip did not become a client of the new broker until June 2022.  The policies were set up at that point. During the delay period, Phillip renewed his original policies through his existing broker. He did not take out Directors & Officers insurance at this time. 

In October 2022, the franchisor notified Phillip of his view that Phillip had breached the franchise agreement. Phillip and the franchisor were not able to resolve matters and in December 2022 the franchisor terminated the franchise agreement.

In December 2022, Phillip contacted the broker to advise of the dispute and asked whether the Directors & Officers policy would cover the business’ legal costs in challenging the franchisor’s action. 

The broker advised that the policy would not cover these costs. 

Phillip wanted to make a claim, and the broker assisted him with the claims process. 

The insurer advised Phillip that his claim was not covered by the Directors & Officers policy. The policy provided cover for directors and officers of a business from loss in the event a legal claim was made against them while carrying out their duties for the business. No legal claim had yet been made against the business, by a customer or other party. The franchisor was not taking court action against Phillip. 

Phillip complained that the broker had told him during their first conversation that the Directors & Officers policy would cover him for any dispute arising out of any legal or other problems with the franchisor. He sought compensation of $200,000 from the broker to pay to challenge the franchisor’s decision in court.

The broker said that Phillip had not told him of any difficulties with the franchisor, and declined to pay compensation. 

Phillip asked FSCL to investigate his complaint. 

Dispute

Phillip said he explained his insurance needs during the first conversation with the broker, but the broker failed to arrange insurance that was suitable for those needs. He said he spent some time explaining to the broker the serious problems he had had with the franchisor over several years, including a threat by the franchisor made a year earlier to terminate the franchise agreement. Phillip asked for insurance in case he needed to take legal or other action against the franchisor in the future. While he was interested in reducing the cost of premiums at the time, it was also very important to him to get cover for any difficulties with the franchisor. Phillip said the broker told him that the Directors & Officers policy would provide the cover he wanted, and so he took out the policy. Phillip also said the broker had delayed in putting the policies in place.

The broker said Phillip did not tell him about any difficulties he had with the franchisor. If Phillip had done so, the broker would have told him there was no cover available for this type of situation. The broker also said Phillip was responsible for the delays in the policies being set up. 

Review

We were satisfied the broker had not misled Phillip about the cover under the Directors & Officers policy. There was no information to show that Phillip had told the broker about his difficulties with the franchisor prior to December 2022. Further, there was no information to show that Directors & Officers cover was discussed in the first conversation. After that conversation, the broker had obtained quotes for material damage, public liability and commercial vehicle cover, but not for Directors & Officers cover. It was not until the later meeting that Directors & Officers cover was discussed, and it was the broker who suggested the cover because Phillip’s business was involved in the construction industry.

Further, while Phillip said it was important to him to get insurance cover in case he had further difficulties with the franchisor, we noted he had not disclosed these difficulties to his previous broker or insurer when he renewed his policies. 

In any event, there was no insurance policy that would provide cover for the situation Phillip described. The broker would not have been able to arrange a policy that would have covered Phillip for the costs of challenging the franchisor’s termination notice. 

In terms of the delay, the emails between Phillip and the broker recorded it was Phillip who had delayed the setting up of the policies until June 2022.

Resolution

We suggested that Phillip discontinue his complaint. However, we did comment that the broker should have kept better notes of his calls and meetings with Phillip. 

Phillip did not respond to our preliminary decision on his complaint, and we closed our file. 

Insights for participants

In this case, the broker had a lot of information about his dealings with Phillip. He had all the emails between himself and Phillip, as well as the emails with the insurer. The broker also had all the documentation about the quotes and the policies. However, he had not taken detailed notes of the calls and meetings with Phillip. Had the broker made full contemporaneous notes, this may have led to the complaint being discontinued at any early stage or prevented a dispute being made to FSCL at all.