Tom bought a jewellery store located within a shopping mall. The previous store owner’s insurance broker emailed Tom a new schedule of insurance in the name of his business. The schedule showed a sum insured of $150,000 for stock.
Eight months later, several armed offenders drove a vehicle through the mall’s gates, smashed through the jewellery store’s roller door, and stole most of the display jewellery, worth $98,100. No stock stored in the store’s locked safe was stolen. The next day, Tom contacted the broker to enquire about lodging a claim. The broker said the sum insured for stolen stock was $150,000.
Two days later, more armed offenders drove through the mall’s gates, broke through the store’s temporary door, and stole further items totalling $3,100. Tom lodged a second claim.
The insurer advised the total amount it would pay towards both claims was $52,500. This was because the policy had an endorsed sub-limit of $52,500 for stock stolen outside business hours from:
- outside a securely locked and approved safe
- a window display where the windows are unprotected.
This left a cover shortfall of $48,700.
Tom said this was the first he knew of the endorsement. It transpired the broker had mistakenly omitted including the endorsement on the schedule it sent Tom. Tom complained to the broker and, although it did not admit any liability, in the interests of resolving his complaint, it offered Tom $14,000. Tom did not accept the offer and complained to FSCL.
Tom said the broker should take responsibility for the $48,700 shortfall. According to the schedule, the sum insured was $150,000 and there was no limitation noted in relation to goods left outside a safe/in window displays. Had he known about the endorsement, he would have stored more stock in the safe.
Further, Tom said it is standard industry practice to leave items in display cabinets and in display windows after hours, when a jewellery store is located in a mall.
Tom also said that the items left in the window were lower value items, with individual values of less than $500.
The broker did not consider it was responsible for the shortfall. It said Tom would never have stored his stock any differently had he known about the endorsement before the burglaries. In support of its view, the broker said that:
- after the first burglary, Tom only put up a temporary wooden barrier at the store and continued to leave stock in the window display, and
- after both burglaries, Tom continued to store stock outside the store’s locked safe after hours, and this led to the insurer decreasing the cover under the endorsement from $52,500 to $25,000.
Moreover, the broker said it would never have been able to find insurance in the market which would have insured Tom for his business practice of leaving stock of the value of $50,000, outside a locked safe.
The broker also disagreed that it was standard industry practice to leave items in display cabinets and windows after hours, when a jewellery store is located in a mall. The broker said Tom failed in his obligations as the insured party, to take steps to mitigate his loss and take reasonable care of his stock.
We said the broker was negligent by not including the endorsement on the schedule, and this caused Tom’s loss. This was because:
- the policy cover anticipated that some stock would not be locked away in a safe after business hours, otherwise there would have been a blanket exclusion for all stock not locked away (rather than a policy sub-limit)
- without being told about the endorsement, Tom could not have known he needed to ensure that the value of the stock not stored in the safe and in the windows did not exceed $52,500
- we did not accept Tom’s business practices after the burglaries necessarily led to the conclusion that he would not have changed his business practices before the burglaries, had he known about the endorsement. There was no evidence Tom was leaving stock outside the safe after hours which had an aggregate value in excess of $52,500 after the burglaries.
- even if he did leave stock outside the safe with an aggregate value in excess of $52,500 after the burglaries, he did this at his own risk. However, he was not given the opportunity to consider whether he would take that risk before the burglaries, because he was not advised of the endorsement.
We considered that in relation to the first burglary, Tom took all reasonable steps to avoid a claim. He was not grossly irresponsible or reckless in leaving out the stock he did when, as far as he knew, he had cover of $150,000. This was supported by the fact the store was located within a mall with its own security measures in place.
However, we noted that after the first burglary there were only temporary doors in place at the store and the mall. We considered Tom could have locked away all his stock in the safe to minimise the risk of further loss, until the doors were repaired. We said Tom should bear the loss from the second burglary.
We suggested that the broker compensate Tom for the shortfall on the first burglary claim ($45,600). Tom and the broker accepted our view, and the complaint was resolved.
Insights for participants
This complaint highlights the importance of double checking paperwork sent to customers. A relatively simple error of leaving the endorsement off the schedule, resulted in a costly complaint for the broker.