By “simply telling a client, here is the insurance policy documentation; be sure to read it and check it meets your requirements is not good enough” according to the Royal Court in Jersey, which awarded £528,500 to a café owner against their insurance broker who neglected to fully explain the implications of a warranty that had been imposed upon their commercial policy.
The following case also highlights the exposures to brokers when using automated quote engines to generate insurance quotes for clients.
The incident in question was in relation to a fire caused by an overheating deep fat fryer, at Café de Lecq in Jersey. AXA were the insurer and rejected the insurance claim due to the fact that their warranty had been breached: there should have been a thermostat fitted and an automatic cut out when the fryer overheated.
The café successfully sued its insurance broker, RA Rossborough for the repudiated AXA claim, due to them not making the requirements of the warranty clear to them and by not highlighting key areas of non-compliance.
Rossborough used the defence that the placing insurance consultant was experienced and that they had made it clear within correspondence that the insured had to review the policy documents- this was rejected by the court. In this particular situation, it highlights to brokers the significance of explaining the full extent of cover and warranties in a clear and concise manner.
The Royal Court also highlighted the risk to brokers of relying on automated quote platforms. AXA had Rossborough installed AXA’s quote engine onto their computer system which enabled them to generate a quote without referring back to the insurer. The broker simply had to input the risk information into he quote engine in order to receive a quote or to print off documents.
Whilst the system contained default settings, which made the quote process simple and efficient, it does mean that the end product could be incorrect if the client has failed to highlight mistakes made upon the documents, putting the responsibility on their shoulders and putting cover at risk.
This judge in court therefore argued that the quote system transferred “responsibility for getting things right to the client, thereby draining the broker’s role of much of its raison d’être,” and unfair to leave the onus upon that of the customer, who is relying upon a broker’s expertise.
“Many brokers are using automated systems to speed the insurance buying process for themselves and their clients and under pressure from insurers to utilise these transactional channels.” said James Burgoyne, Director, Brunel Professional Risks. “This case may call into question the viability of such systems if unacceptable exposures remain with the broker, due to the Court’s reluctance to acknowledge a more limited scope of duty of the broker to its clients in such situations. Brokers need to make absolutely sure that they have effective procedures in place to ensure to ensure that the right cover is in place and warranties have been properly explained.”