Dylan owned a clothing shop. Having decided to open a new store in another city, he asked his broker to review his insurance. As Dylan would not be physically present in the new store, he had identified staff theft as a business risk. Dylan reviewed the insurance package the broker recommended and saw that he was covered for $50,000 for theft.
Four years later Dylan discovered an employee in the new store had stolen approximately $60,000 from the business. Dylan immediately contacted the broker who said the claim was unlikely to be accepted because Dylan was not insured for staff theft. Dylan submitted an insurance claim, and an insurance assessor came to discuss the loss.
The assessor left Dylan with the impression that the claim was unlikely to be accepted, and suggested Dylan pursue the employee. The employee, who was still working for Dylan, wrote a letter of apology, agreed he had stolen $20,000 and offered to pay Dylan back. Dylan received $900, but when the employee disappeared Dylan contacted the broker again.
A more senior broker within the firm resubmitted the claim. The insurer declined the claim and Dylan complained to us about the broker’s service.
- he told the broker he needed insurance to cover employee theft at his new store, and believed the policy would cover him for this
- the broker did not provide sufficient support during the claims process, and actively discouraged him from making a claim.
The broker’s response
The broker said that Dylan had not mentioned that employee theft cover was important to him. The broker referred to the renewal documentation sent every year which noted that employee theft cover was available but not selected by Dylan. In any event the broker considered it was unlikely the insurer would have covered Dylan’s claim because the insurer had the following concerns when it assessed Dylan’s claim:
- the employee continued to work for Dylan after the theft was discovered
- Dylan had not reported the theft to the police
- Dylan had declined a full interview with the insurance assessor
- the date of the theft was uncertain.
The broker considered he, and his firm, had provided reasonable support to Dylan during the claims process. The broker was being realistic when he advised Dylan that it would be a waste of time submitting a claim. Dylan had not selected employee theft cover, so the insurer was unlikely to accept the claim. After the employee disappeared, a more senior broker became involved doing all he could to have the claim assessed quickly.
Regrettably there were no notes of Dylan’s instructions to the broker when arranging the cover. We encourage brokers to keep notes made at the time of any interaction with clients. It is extremely difficult, years after an event, to determine what might or might not have been said without a reliable, written record.
When there is no record, our only option is to look at the surrounding evidence to try to determine what might have been said. We noted that at renewal time Dylan was alerted to the fact that employee theft cover was available, but he had not selected it. We also asked for information about the cost of employee theft cover. Dylan was paying premiums of $450 a year and employee theft cover would have cost between $800-$1,000 more for $50,000 worth of cover. In our opinion, Dylan may well have decided the additional cost was an expense his business was unable to afford.
We considered the broker could have given Dylan more information about the claims process, but did not consider his actions had caused Dylan any direct loss and the inconvenience was minor.
We suggested to Dylan that he discontinue his complaint.
We encourage all advisers to keep records of their interactions with their clients. If the broker had kept records, and was able to jog Dylan’s memory about his instructions and the broker’s advice, Dylan’s complaint may well have been more satisfactorily resolved.