Insights for participants
Insurance brokers have legal obligations to protect their client’s information by not disclosing the information to third parties without the client’s permission. Brokers may be liable to compensate their clients if unauthorised disclosure of information causes the client financial loss.
What happened?
Mark operated a motel business. His insurance broker assisted with the placement and renewal of the motel’s business insurance policies. As part of an insurance renewal process, the broker asked Mark whether the motel had any contracts with the Ministry of Social Development (MSD) for MSD tenants to be at the property. Mark (correctly) said they did not. The broker recorded that information on their file.
Around the same time, the broker was also advising a different client – Mark’s landlord – about building insurance for the same motel premises. During a discussion with the landlord, the broker disclosed that Mark had advised there were no MSD contracts or MSD tenants at the motel. The broker did so without first obtaining Mark’s consent.
The landlord then issued Mark with notices to cancel the motel lease. One of the grounds the landlord relied on was that he thought there were MSD contracts for the motel, and that Mark had lied to his broker. If Mark had lied, then the landlord’s insurance would be prejudiced too.
Mark subsequently incurred significant legal costs in taking steps to successfully prevent his landlord from cancelling the motel’s lease. Mark sought to recover those costs from the broker.
What were the parties’ views?
Mark complained that the broker had unlawfully shared information with his landlord, contrary to Code Standard 5 (Protect Client Information) of the Code of Professional Conduct for Financial Advice Services.
The broker argued they had not breached Code Standard 5 because the information about MSD contracts and MSD tenants was relevant to Mark, his landlord, and their respective insurers. The information should have been within the reasonable knowledge of both Mark and his landlord as part of the landlord-tenant relationship. The information was information about the premises rather than “client information”.
What was FSCL’s view?
Our initial view was that the broker had breached Code Standard 5.
- The information was “client information” under the Code because that includes all information about the client collected by the person who gives financial advice.
- While we agreed that the information was relevant to the landlord and their insurer, that did not create a reasonable excuse for the broker to disclose the information without first speaking with Mark to obtain his permission.
- Finally, the information relayed by the broker was inaccurate. Mark’s response to the broker’s question differed from the information the broker gave to Mark’s landlord.
What was the outcome?
FSCL facilitated settlement discussions. The broker offered an ex-gratia payment of $20,000 towards Mark’s legal costs. We thought this was a fair outcome in the circumstances because the broker’s actions accounted for some but not all the reasons that Mark’s landlord had issued notice to cancel the motel lease. Mark accepted the offer and the complaint settled.
