In January 2017, a public power outage affected Marian’s small business which required constant refrigeration. Marian’s business lost a day’s worth of trade. Marian submitted a claim to her insurer, under her business interruption policy ($2,250). The claim was declined because there was a 48-hour deferment period for power outage claims.
Placement of cover
The policy was placed in August 2015 with the assistance of a broker. In July 2015, the broker spoke on the phone with Marian’s personal insurance adviser, (who was providing information to Marian) and Marian.
Marian said she specifically told the broker that the business needed a zero-rated deferment period for loss of power, because of the crucial refrigeration issue.
The broker said this was not discussed. Also, the broker said he sent a quote to the personal adviser which noted a 7-day deferment period for power outages. Marian said she never received that email, and always assumed she had a zero-rated deferment period. The broker also said there was no cover available in the market which would provide a zero-rated deferment period, in any event.
An invoice the broker sent after the policy was placed did not note any deferment period for loss of power. The broker said the deferment period was not on the invoice but on the schedule which he had, in error, not sent to the complainant.
A year after the policy was placed, it came up for renewal. The broker emailed the policy to Marian, with the new schedule. The new schedule showed the deferment period for loss of power had reduced to 48 hours. Marian did not see this, and the broker did not point it out.
Marian asked whether there were any policy changes from the year before. The broker said there had been some improvements, but the cover was essentially the same as the previous year.
Marian emailed the broker and said ‘OK, I was just worried that I had made some verbal agreements about the cover when it was placed, and wanted to check that carried over’. There was no further communication until the power outage 6 months after the policy renewed.
Marian asked the broker to pay for her loss caused by the power outage. When the broker declined to do, Marian complained to FSCL.
We asked an independent broking firm whether, in August 2015, there was cover available in the market for zero-rated deferment periods for power outages. The independent broking firm advised that unless there was a bespoke or niche policy written, there would unlikely be a policy with a zero-rated deferment period. The most common deferment period would have been 24 hours, in any event.
Marian never knew about the original 7-day deferment period
We said there was insufficient evidence that Marian was aware of the 7-day deferment period. We did not accept the broker’s argument that Marian must have seen the email he sent to the personal adviser noting the 7-day deferment period, because he did not send it directly to Marian.
It was impossible to know what was discussed in the July 2015 telephone call. It was disappointing the broker had no file notes of the discussion. It seemed that Marian probably did ask for a zero-rated deferment period for loss of power because refrigeration was crucial to her business.
In any event, whatever was discussed in the telephone call, the broker should have contacted Marian after the cover was placed to discuss the terms, and ensure the cover met her requirements. He needed to better ‘know his client’. The broker knew the nature of Marian’s business and should have been alive to the fact that constant refrigeration was a key consideration.
Also, the broker never sent any paperwork to Marian stating there was a 7-day deferment period. It was reasonable for Marian to hold the view, in August 2015, that the cover had been placed with a zero-rated deferment period.
The independent broker’s view
However, it was clear from the independent broker’s view there would have been no cover in the market available, even if Marian did ask for a zero-hour deferment period. This meant there was no financial loss because a claim would never have been paid by any insurer.
When the policy renewed, Marian asked the broker whether there were any policy changes. Although the broker was correct that the policy benefits were more favourable, he should have pointed out the changes to the power outage deferment period. This would likely have resulted in Marian becoming aware there was a 48-hour deferment period and she could have taken steps to self-insure in the event there was a power outage in the future. It would also not have come as such a shock when her claim was declined.
We considered the broker provided Marian with poor service causing her inconvenience and stress. We noted there was some contribution from Marian to her situation because she did not check the 2016 schedule showing the 48-hour deferment period.
We formally recommended that the broker pay Marian $1,000 for the inconvenience his poor service caused her. Marian accepted this as a fair resolution of her complaint.
Key insight for brokers
It is a critical for a broker to know their client. If the broker in this case had taken time to really understand the critical aspects of Marian’s business, and ensured there was a detailed discussion about power outage policy benefits, the complaint could have been avoided.