Stuart’s insurance problem
Stuart has a contracting business requiring his employees to drive vehicles 24 hours a day. Stuart’s employees sometimes leave work as late as 2am so he allows employees to take work vehicles home.
A couple of employees left Stuart’s employment leaving him without any drivers holding full driver licences. Stuart realised his existing insurance policy would not cover drivers on learner or restricted licences, so rang his insurance broker, Nathan, for advice.
Nathan’s insurance solution
Nathan said he could help and emailed Stuart saying he could arrange a policy where: “…anyone you want to drive the vehicles can”. Nathan arranged a meeting with Stuart to go through the policy. Stuart’s life insurance broker, Alexander, was also at the meeting.
Nathan and Stuart discussed the advantages of the proposed policy. As well as providing cover for learner and restricted drivers the policy had an ‘invalidation clause’. The invalidation clause provided cover for Stuart if one of his employees was driving illegally, without his knowledge. In effect, if an employee was drunk, on drugs, or had taken a vehicle without Stuart’s knowledge, the insurer would cover the loss.
Stuart’s mistaken belief
Stuart left the meeting believing the insurance policy would cover all drivers on learner and restricted licences, regardless of whether or not they were driving in accordance with their licence provisions. Stuart immediately advised Manaia, a driver on a learner licence, that he could drive while at work, and take the vehicle home with him at the end of the day. Stuart was aware that Manaia would be driving in breach of his licence provisions, but was not concerned, believing he would be insured against any loss.
At about 10pm one evening Manaia remembered he needed to collect work keys from a colleague before work the following day. While driving to the colleague’s house Manaia was involved in an accident, when a person ran in front of the car Manaia was driving. To avoid hitting the person Manaia swerved, and crashed into a bollard, writing off the vehicle. The police determined that Manaia had contributed to the crash, by turning around to check his child in the car’s back seat at the time of the accident.
The insurance claim is declined
Stuart lodged an insurance claim. The insurer declined the claim on the grounds that Manaia was driving in breach of his licence conditions, and should have had a supervisor with him in the car. In the insurer’s opinion, if a supervisor had been present the accident would not have occurred because the supervisor would have reminded Manaia to keep his eyes on the road.
Stuart complained to Nathan’s employer, and then to FSCL, that Nathan had misled him about the terms of the policy. Stuart said that if he had known the policy only covered learner and restricted drivers when driving within the terms of their licence, he would never have allowed Manaia to drive. Stuart considered Nathan’s misleading advice caused his loss. Stuart referred to the invalidation clause, claiming that the policy would cover the illegal actions of his employees.
In addition, although Stuart acknowledged that he never read paperwork, he said Nathan did not give him a copy of the policy either at the meeting or with the invoice.
Nathan did not agree he had misled Stuart. Nathan said that when he met Stuart he explained that drivers must be licensed to drive, and be driving within the terms of their licence. Nathan said he gave Stuart a copy of the policy wording at the meeting, and posted the policy wording to Stuart with the invoice.
Nathan gave us a copy of his handwritten note, made during the meeting with Stuart, which noted, among other things:
- discussed invalidation clause. Confirmed. Stuart to advise D/L details
- drivers must be licensed to drive
- left policy wording.
Alexander confirmed Nathan’s recollections.
It is not unusual for us to have to determine the likely content of a conversation that took place sometime earlier. We were satisfied that Stuart believed that learner and restricted licence drivers would be covered by the policy, regardless of whether or not they were driving within the terms of their licence. However, we were not convinced that Nathan was responsible for Stuart’s misunderstanding.
We took into consideration:
- the conversation and email leading up to the meeting
- notes taken at the meeting
- the recollections of Stuart, Nathan and Alexander
- the parties’ actions.
Before the meeting
Before the meeting, it seemed to us the parties were talking at cross purposes. When Nathan told Stuart that anyone could drive, it would never have occurred to him that Stuart might condone employees breaking the law. However, we could see how Nathan’s advice might have led Stuart to believe the policy would cover those driving in breach of their licence conditions.
Notes made at the time
In forming this view, we placed considerable weight on Nathan’s notes of the meeting. We were satisfied the notes were genuine because they looked visually similar to other notes on file and were not embellished, and contained other information not just about the complaint.
Recollections of those at the meeting
Memories of events that occurred some time previously are less reliable. Although less persuasive, we also took into consideration Alexander’s recollections that Nathan had explained the drivers must be driving within the terms of their licence, and left the policy with Stuart.
The parties’ actions
Subsequent actions can sometimes be helpful to determine what was likely said. Stuart asked why he would have cancelled his existing insurance and accepted the new cover if Nathan had not represented to him that learner and restricted drivers would be covered. However, as the policy did provide greater cover than that provided by Stuart’s original insurer, this seemed like an satisfactory explanation for Stuart’s actions.
Policy likely provided
We were satisfied that it was most likely that Nathan did give Stuart a copy of the policy. By Stuart’s own admission, as he does not bother to keep or read paperwork, we considered it likely that he did not read it.
Most people would not expect their insurer to insure an illegal act. However, the invalidation clause in this policy provided an employer with cover should an employee be driving illegally without their knowledge. The critical failure for Stuart’s claim, is that he knew Manaia was driving in breach of his licence conditions.
We recommended that Stuart discontinue his complaint about Nathan. Although Stuart believed the policy would cover Manaia, Nathan was not responsible for Stuart’s misunderstanding.
While we were satisfied that Nathan did not mislead Stuart, this complaint highlights the importance of clear and unambiguous communication. It raised the question of how deeply a broker is obliged to delve into a client’s understanding about cover, especially when a policy provides unfamiliar cover, such as an invalidation clause.