Victor ran a small business and asked his insurance broker to arrange suitable cover. The broker arranged cover for replacement assets, business interruption, public liability, statutory liability and employer’s liability. Over the years, different staff members from the broker were assigned to Victor’s account. The staff members recall that Victor was not particularly interested in his insurance cover, would decline to meet at renewal time, and was concerned at keeping his insurance costs down.
One of Victor’s employees took a personal grievance claim against Victor to the Employment Relations Authority. The Employment Relations Authority found that the employee had been unjustifiably constructively dismissed. The court action, including the award paid to the employee and Victor’s legal expenses, cost approximately $58,000.
Victor’s view
Victor did not have employment disputes liability cover and complained that his broker should have recommended employment disputes liability cover to him. Victor considered the broker had been negligent in their advice and had failed in their obligations to provide suitable insurance cover. Victor considered the broker liable for the $58,000 loss, less the cost of the employment disputes liability premiums.
Victor complained to FSCL.
Review
Brokers have a legal obligation to exercise the care, diligence and skill of a reasonable financial adviser. However, the obligation is not absolute. While a broker can be expected to make reasonable inquiries as to an insured’s needs, if nothing alerts a broker to specific needs, there is no breach of the broker’s duty.
Victor did not ask the broker for employment disputes liability, and neither did the broker suggest it. We understood that Victor had asked his broker to place appropriate insurance for his business, insuring against the most likely business risks.
We considered it finely balanced whether the broker had breached their duties to Victor by failing to mention employment disputes liability insurance. However, taking into consideration that:
- Victor employed six people, and the risk of employment disputes within such a small workplace seemed low
- the cost of employment disputes liability cover could be prohibitive for a small business, especially given Victor’s concerns expressed to the broker’s staff
- the insurance offered covered the usual risks to a small business
- Victor was reluctant to meet to discuss insurance needs and declined the offer to meet at renewal time
We considered it was reasonable for the broker to have omitted to recommend employment disputes liability cover, and the broker had not breached their duties to Victor.
Outcome
We suggested Victor discontinue his complaint about the broker and closed our file.
Our insight
Although we decided the broker had, in this case, provided its service with reasonable care, diligence and skill, a broker’s obligations depend on the specific needs of the client concerned. If the business had been different, or if the client had made more specific needs known, our decision could have been different.
