Claims Examples Errors and Omissions Agents and Brokers

Transcription

1 Claims Examples Errors and Omissions Agents and Brokers 1. Broker Failed to Increase Policy Limit as Instructed by Client ENCON Group Inc Blair Place Ottawa, Ontario K1J 9B8 Telephone Facsimile Toll Free Following a previous small claim, the insured s client (the claimant) realized that his building was underinsured and, therefore, instructed the insured broker to increase his limit from $200,000 to $500,000 immediately. The insured broker agreed to increase the coverage to the higher limit but had no binding authority with the insurer. The following week the building collapsed under the weight of ice and snow and sustained severe damages. The claim was reported to the building s insurer who applied the co-insurance clause and paid according to the limit of $200,000. The claimant brought a claim against the insured alleging the broker was responsible for the insufficiency of coverage. The insured admitted to us that the request to increase the coverage was prepared but never sent to the insurer. The insured was clearly facing exposure in this matter. ENCON retained an adjuster to investigate. The investigation revealed that the building had numerous structural deficiencies, was badly built and did not meet the building code. The investigation also revealed that, had the limit been increased to the limit of $500,000, the claimant would have still been underinsured and, therefore, would have suffered a coinsurance penalty. This was taken into consideration in settlement negotiations. ENCON argued that the claimant contributed to the negligence as the building was not up to the standard building code. The file settled for $150,000 and investigation expenses were just above $10,000. The insured had a deductible of $2,500 that was applicable towards indemnity. 2. Broker Fails to Carefully Review Documents Leading to Omission of Sewer Back-up Coverage The insured broker added a second location to an existing homeowner policy at the request of his client. The client suffered a sewer back-up loss and discovered there was no sewer backup coverage on the policy. The insurer denied coverage, and, as a result, the client issued a demand letter to the insured. The demand letter alleged that the insured failed to include the sewer back-up coverage endorsement despite the fact that the client faxed him a copy of his previous policy, which included sewer back-up coverage. The client claimed damages in the amount of $42,000 plus costs. Our investigation revealed the client had faxed a copy of his previous policy to the insured but the insured had failed to thoroughly review the documents as there was sewer back-up coverage on the previous policy ENCON Group Inc. 1 of 7

2 ENCON also determined that the client had come into the insured s office to review the policy and signed off on the policy before it was issued. The client had failed to notice at that time that sewer back-up coverage was not included. This was a matter of credibility, and we negotiated a settlement to avoid litigation. The matter was settled for $21,000, inclusive of the broker s $2,500 deductible towards indemnity, and investigative costs were approximately $12, Insurance Broker s Failure to Update Policy Wording Leads to a Claim Pertaining to a Boat Loss The insured broker sold a homeowner policy to the client. The client wanted his boat covered under the policy, and the broker advised that he could obtain replacement cost value (RCV) coverage for five years from the date of purchase. The policy was issued by the insurer. The client s boat was damaged in a windstorm. The insurer indemnified the client for the actual cost value (ACV) of the boat which was appraised at $45,000, instead of RCV. Consequently, the client served the broker with a Statement of Claim, alleging that the broker negligently failed to explain the proper policy wording and failed to provide adequate coverage on his boat. The client claimed the difference between the RCV and the ACV of the boat plus litigation costs. ENCON retained an independent adjuster, and our investigation revealed that the insurer had revised the policy wording for boat coverage under a homeowner policy. The policy now provided for actual cost value. Six months prior to the client s policy inception, the insurer had advised the broker of the changes to the wording on at least three occasions. The liability of the broker was clear, as the broker had failed to update the policy records, despite three notices that had been issued by the insurer. Due to the broker s exposure, informal settlement negotiations ensued and a significant first offer was made. This was an excellent strategy as the client accepted the first offer thus negating further litigation costs. The settlement amounted to $36,500, and defence costs totaled $14,300. The broker had a $5,000 deductible that was applicable towards indemnity. 4. Broker Fails to Explain Disability Policy Limitations The insured broker was retained to obtain a disability policy for a client. The client completed the disability policy application and disclosed a previous injury to the shoulder. Based on the application, the insurer issued a policy containing an impairment rider which excluded coverage for the client s left shoulder. A few years later, the client fell and suffered severe injuries, including damage to his shoulder. The insurer paid disability benefits until all the injuries were healed, except for the shoulder. As such, a Statement of Claim was served on the broker and the insurer, wherein the plaintiff alleged that the broker failed to disclose and explain the policy limitations. The plaintiff also alleged that the broker failed to recommend alternate insurance or make any attempt to have the impairment rider removed. ENCON retained a lawyer to defend the insured broker s position. During the course of litigation, an expert was retained to review the insured s file. The expert concluded that the insured breached the standard of care by failing to explain the limitations of the impairment rider to the client. As a result, ENCON realized the insured likely faced exposure and liability for the loss. The insurers paid a negotiated settlement of $34,500 all inclusive and just over $20,000 in defence costs ENCON Group Inc. 2 of 7

3 5. Broker Fails to Properly Explain Policy Exclusions and Restrictions The insured broker s client bought an insurance tenant policy. After a heavy rainfall, a wall collapsed in the basement occupied by the client. The insurer denied the claim on the basis that the loss was due to a peril, flood and/or faulty workmanship that was excluded under the tenant s policy. A Statement of Claim was served on the broker and insurer. It was alleged that the broker failed to explain the exclusions and restrictions of the policy, and $100,000 was claimed from the broker and the insurer. ENCON retained legal counsel to defend the insured broker s interest. At the pre-trial conference, the judge advised the plaintiff client that the landlord should be included in the action and stated that the true liability fell with the landlord. The client did not bring the landlord into the action. The matter proceeded to trial and the judge rendered a decision in favour of the client for the full amount of the claim. In addition, the judge awarded the insurers full costs against the broker. The judge accepted the client s evidence that they never received a copy of the policy nor were the exclusions under the policy explained by the broker. The total indemnity paid to the client was $67,000. Defence costs were $40,000 and the insurers costs taxed against the broker were $34, Broker Wrongfully Cancels Residential Policy A client had long held a number of policies with the broker. The policies provided coverage for multiple commercial properties, a personal residence, an automobile and the client s life. The client agreed to cancel all of the individual commercial property policies and to replace them with one policy. Inadvertently, the broker cancelled the client s residential policy along with the commercial property policies; however, the client s premiums for the residential policy continued to be accepted. Consequently, the client was unaware of the cancellation of the policy. The client suffered a fire loss at his residence. The insurer denied coverage as a result of the cancellation of the residential policy. A demand letter was issued by the client, alleging that the broker was negligent in the wrongful cancellation of his residential policy and that he had breached his duty as an insurance broker by not realizing that he had cancelled the policy and thereby allowing for a significant gap in coverage. The client s claim for damages was for $75,000. An adjuster was retained by ENCON to review the broker s file. The file settled out of court for $48,000. The insurer and the broker each contributed 50 per cent towards the settlement. The investigation costs were $7, ENCON Group Inc. 3 of 7

4 7. Insurer Accused of Breaching Insurance Contract and Broker Accused of Negligence The broker was retained to provide a personal lines auto policy to a client. The client was involved in a collision and sustained a total loss to the vehicle. The insurer s investigation revealed that the client had been using his vehicle for the commercial purpose of snowplowing. Consequently, the insurer denied coverage for the loss as a commercial policy would have been required. The client served the insurer and the broker with a Statement of Claim, alleging that the insurer breached the insurance contract and that the broker had been negligent. It was argued that the broker had been aware of the snowplowing operation and had failed to provide adequate coverage. The amount claimed was $40,000. ENCON retained counsel to defend the insured broker. The broker argued that he was never told about the snowplow operation; however, the client contended that he had been informed and that, even if he had not, given how well known it was in the community that the client conducted a snowplow operation, the broker should have been aware of its existence. Notably, the broker was also exposed to liability as the vehicle had never been inspected. A settlement was reached at mediation. The insurer contributed on a costs basis in the amount of $3,000. The broker contributed $27,000 for a total settlement of $30,000. Legal costs incurred to defend the broker were $24, Broker Sells Vacancy Permit Excluding Water Damages The insured broker had a request from a client for a vacancy permit for a house that was being renovated. The insured sold the client the permit but in so doing failed to mention that the permit excluded coverage for water damages. The house suffered water damages in the amount of $90,000. The client served the broker with a Statement of Claim, alleging that the broker negligently failed to explain the exclusion. After being notified of the situation, ENCON retained a lawyer to defend the insured s position. The broker admitted to his lawyer that the failure to mention the exclusion was an oversight on his part. The lawyer negotiated a favourable settlement in the amount of $75,000 and the defence costs were approximately $8, Client Sued Broker for Gap in Coverage The client s residential policy was up for renewal. The broker failed to process the renewal and, as a result, the client had a gap in coverage. The client s home suffered a total loss by fire. The home policy had not been renewed and there was no coverage in place at the time of the loss due to the broker s negligence. The claim was opened as a result of a demand letter received. An adjuster was hired to assist the broker in resolving the situation. Liability in this matter was assessed high at 80 to 100 per cent. We investigated the agency agreements with regard to renewal notices. In this case, the client was overlooked during the renewal process. There was minimal contributory negligence attributed to the client. The insurer maintained that there was no coverage in place. However, the insurer had not forwarded the lapse notice in a timely manner ENCON Group Inc. 4 of 7

5 Due to the liability in this matter, a cost effective settlement was reached. The value of the home was appraised at $183,000. The claimant accepted a slight reduction. The insurer, on a good faith basis, contributed on a 50/50 split with the broker. To avoid litigation, a negotiated settlement was reached of $135,000 all inclusive. The broker s E&O policy contributed $67,500 towards the settlement. The policy contained a $2,500 deductible applicable to indemnity payments. Investigation costs were just under $11, Broker Failed to Inform Client of Policy Cancellation The client completed two applications for auto and residential policies. The policies were issued but the insurer cancelled the residential policy because the initial payment was returned NSF. A registered letter was sent by the insurer to the client indicating that the residential policy was cancelled. Premiums continued to be taken from the client s account for the auto policy. The client suffered a total fire loss to his residence. The insurer denied coverage for the loss because the residential policy had been cancelled. The client commenced an action, alleging that the broker failed in his duty to properly notify the client of the cancellation and negligently failed to notify the client in due course. Counsel was retained for defence. The broker had not followed up with the client after the cancellation notice was sent although the broker maintains that it is their policy to follow up with their clients when a cancellation notice is issued but had no records of telephone conversations or written documentation. The client assumed that his residential policy was in place as premiums were still being deducted from his account. The liability assessment came down to an issue of credibility. The original policy limits on the home were $155,000 structure and $124,000 for contents. During Examination for Discoveries, the client submitted that he had reviewed his bank account at one point and thought that the insurance payments were low but never followed up with the broker to inquire regarding the discrepancy. The premium amount for the residential policy was $90 per month. There was a four-month period between the time the residential policy was cancelled and the time of the fire. The client also submitted that he never received a letter from the insurer. The insurer stated that the letter was never returned but they could not produce a signed receipt form for the registered letter. The insurer maintained it was the duty of the broker to follow up with policy cancellations in any event. The broker submitted on Discoveries that they were aware of the cancellation and did try to follow up with the client on several occasions but their records do not reflect these assertions. In fact, the broker had very little on record with regard to the client s policies and conversations that allegedly took place. A voluntary mediation was conducted. The insurer surprisingly agreed to contribute to half of any settlement. The mediator was successful in convincing the client that there were problems with his case and that a reduction should be considered. A settlement was concluded in the amount of $210,000 plus legal fees. The broker s contribution (from his E&O policy) was $128,000. The broker had a $10,000 deductible applicable to settlements. Defence costs totalled $32, ENCON Group Inc. 5 of 7

6 11. Broker Failed to Submit Insurance Applications to Insurer The broker was retained to provide cargo liability insurance on a commercial risk. The client owned a cargo and storage facility. The broker inspected the site and conducted the usual inquiries into the client s business. The broker advised the client that he would submit an application to the insurer for cargo liability insurance. There was a subsequent theft at the client s premises where two cargo containers were stolen. The client submitted a claim but it was denied as the insurer had no record of a policy. The client was sued by the owner of the cargo and in turn brought a third-party action against the broker for indemnity. It is alleged in the third-party action that the broker negligently failed to submit the insurance application to the Insurer. Through the course of the investigation, it was established that the cargo was being stored in such a way that it would not have been covered by the policy in any event. It was determined that the cargo was being stored in containers that were detached from truck chassis and were left on the lot for an undetermined amount of time. In the cargo policy, the wording stated that damage due to loss was only covered while in temporary storage incidental to transportation but only in due course of transit. Further, an exclusion on the cargo policy stated that the policy did not cover the insured property while in or on any trailer or detachable truck body unless such trailer or body was actually attached to or loaded on the chassis of a vehicle owned, leased or operated by the insured. The client stated that this practice was explained to the broker but there are no written records to that effect. The broker claimed the client never advised him of this practice. This matter came down to credibility. However, as the negligence of the broker was indisputable with regard to not submitting the applications, a negotiated settlement was achieved at mediation. The value of the cargo had been established at $600,000. By assessing liability at 50 per cent and negotiating a slight reduction at mediation for costs, a settlement was reached at $480,000 inclusive of costs and interest. Defence costs totalled just over $57, Broker Explained Outdated Policy Wording to Client The broker sold a homeowner policy to the client. The client wanted his boat covered under the policy and the broker advised that he could obtain replacement cost value (RCV) coverage for five years from the date of purchase. The policy was issued by the Insurer. The client s boat was damaged in a windstorm. The insurer indemnified the client for the actual cost value (ACV) of the boat which was appraised at $45,000. The client served the broker with a Statement of Claim, alleging that the broker negligently failed to explain the proper policy wording and failed to provide adequate coverage on his boat. The client claimed the difference between the RCV and the ACV of the boat plus costs. Our investigation revealed that the insurer had revised the policy wording for boat coverage under a homeowner policy. It now provided for actual cost value. Six months prior to the client s policy inception, the insurer had advised the broker of the changes to the wording on at least three occasions. The liability of the broker was not in question. She had failed to 2009 ENCON Group Inc. 6 of 7

7 update her records with regards to policy changes despite three notices that had been issued by the Insurer. Informal settlement negotiations ensued. Due to the broker s exposure, a significant first offer was made. The client accepted the first offer negating further litigation costs. The settlement amounted to $36,500. Defence costs totalled $14,300. The broker had a $5,000 deductible that was applicable to indemnity. 13. Broker Failed to Add Sewer Back-up Coverage Endorsement The client requested that a second location be added to an existing homeowner policy. The broker added the location as requested. The client suffered a sewer back-up loss. There was no sewer back-up coverage on the policy. The insurer denied coverage. A demand letter was issued to the broker by the client, alleging that the broker failed to include the sewer back-up coverage endorsement despite the client faxing him a copy of his previous policy that included sewer back-up coverage. The client claimed damages in the amount of $42,000 plus costs. Our investigation showed that the client had faxed a copy of his previous policy to the broker but the broker had failed to thoroughly review it. There was sewer back-up coverage on the previous policy. It was also determined that the client had come into the broker s office to review the policy and signed off on the policy before it was issued. The client had failed to notice at that time that sewer back-up coverage was not included. This was a matter of credibility. We negotiated a settlement to avoid litigation. The matter was settled for $21,000, inclusive of the broker s $2,500 deductible towards indemnity. Investigative costs were approximately $12,000. These Claims Examples are for illustrative purposes only. Please remember that only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions ENCON Group Inc. 7 of 7