February 9, 2018
JANUARY 2018 FOS / INSURANCE BROKER OVERVIEW
2017 saw a significant increase in insurance disputes go to Financial Ombudsman Service FOS (28% increase) and the appointment of three extra insurance Ombudsmen. This is in part due to insurers outsourcing claims management (either overseas or through external companies) and increased natural disasters such as Cyclone Debbie and the inevitable spate of claims that follow (particularly against brokers following floods).
Nine claims were brought against insurance brokers which proceeded to FOS determination last calendar year, of which, consistent with figures of previous years, only two found against the broker for breach, causation and loss. However, a new trend has emerged with an award of a small amount of damages for “non financial loss” made in two matters (overviewed below).
As well as an increased trend towards awarding “non financial loss”, we have noticed a disappointing trend of FOS accepting disputes against insurance brokers where there has not been a complaint made directly to the insurance broker prior to the FOS claim. These are expensive for an insurance broker to deal with. A broker may have done nothing wrong, but will still have to pay expensive FOS fees. Furthermore, a claim for $20 will still incur thousands of dollars in FOS fees. FOS seems to be accepting any statement by an Applicant that they have complained to their broker, even when it is abundantly clear on the Application that the Applicant has complained to the insurer, not the broker, but is bringing a claim against the broker. We suggest that all brokers try to point out to FOS when this occurs, as it is a disappointing trend increasing costs and clogging FOS with claims that could readily have been resolved prior.
The other trend which we have seen is a trend for FOS in claims against insurers (not brokers) to be willing to separate heads of loss within a policy to separate a number of heads of damages into what it calls “different claims” to overcome jurisdictional limits. A recent example is FOS Case No. 445605 jurisdictional decision in 2016 in which FOS found that a claim under one policy for home building, home contents and loss of income (there was a home business), which was denied based on 1 exclusion, could be divided into three separate claims because there were three separate limits in the one policy, and that each individual claim fell within FOS’ jurisdiction (although together the claim exceeded the jurisdictional limit).
The significant issue affecting FOS is that it will be replaced by the Australian Financial Complaints Authority (AFCA), which is likely to come into effect late this year, with FOS being wound up within 12 months thereafter. For an overview on the AFCA click here.
The following is a brief summary of the more significant FOS determinations in relation to brokers in 2017.
1. Case No. 446435, 26 June 2017– “Non-Financial Loss”
The Applicants had a farm insurance Policy arranged by the broker which did not include flood cover. The Applicants’ home was inundated with water following severe weather events associated with tropical cyclone Marcia in February 2015.
FOS found that the Applicants were clearly informed the policy did not provide flood cover and did not take any further action in relation to that issue. However, FOS found the broker’s employees misled the Applicants to believe their claim would be covered under the Policy and, as a result, the Applicants took certain remediation measures based on the broker’s advice. FOS found that these measures minimised the damage to the subject property and, therefore, they did not suffer financial loss as a result of the breach by the broker, but that having been denied the opportunity to determine which approach they wished to take to minimise the loss, FOS awarded the Applicant $1,000 as compensation for “non-financial loss”.
FOS’s justification for awarding “non-financial loss” was that the Applicants may have sought lower cost providers or attempted to minimise the cost of temporary accommodation rather than using the limit allowed under the Policy. This is a questionable finding of “non-financial loss” as the stated basis is that if the broker had given correct information, the Applicant could have saved money by obtaining cheaper prices. In our view, this is more accurately described as damages, being financial loss.
2. Case No. 474205, 25 September 2017 – “non-financial loss”
The Applicant met with the broker and incepted a policy for the insured vehicle which was subsequently damaged in a fire. The insurer denied the claim on the basis that the Applicant failed to disclose his full driving history.
In this case, it seems that both sides were considered somewhat dishonest by FOS. The Applicant apparently had convictions for failure to undergo a breath test, had an interlocker fitted to the car and had firearm convictions. The Applicant says he disclosed these to the broker. The broker initially said that no convictions were disclosed to him, and then stated that only DUI convictions were disclosed to him and that he told these to the insurer who said those readings were not relevant. In FOS’ eyes, this represented a change in the broker’s the version of events. Furthermore, contrary to the broker's second version of events, the Applicant did not have DUI readings, he failed to undertake breath analyses at all. This cast further doubt on the broker’s version of events. The broker also initially indicated he did not know if a record of answers on the proposal was sent to the Applicant and signed, then said that it was but failed to provide one to FOS. Further still, the broker acknowledged that he did not write down or document everything that was said between himself and the client, which FOS stated is a breach of the broker’s duty to exercise reasonable care and skill.
Based upon these matters, FOS found that the broker was told of previous convictions and failed to pass them on to the insurer.
The Applicant provided a copy of a subsequent policy and said that if the first insurer had been told of the convictions and refused to write a policy, he would have gone to the subsequent insurer (who he has gone to anyway now) and obtained cover. FOS noted that the new insurer was not informed by the Applicant of the two licence disqualifications or the denial by the current insurer. FOS found that if full disclosure had occurred, no insurer would have insured the Applicant. It is interesting that despite the Applicant’s non disclosure to the new insurer, FOS believes that the Applicant made full disclosure to the broker the subject of the claim.
This Decision highlights the requirement for good record keeping and to be careful in any Affidavits provided to FOS.
FOS found that even if the broker had disclosed the Applicant’s convictions, the Applicant would not have got a policy and therefore would have saved the premium. Accordingly, it ordered that the broker refund the premium to the Applicant. FOS went on to find that the Applicant suffered significant stress, inconvenience and hardship due to the denial of the claim, which is consequent upon the breach by the broker and ordered that the broker pay the applicant $3,000 for non-financial loss.
3. Case No. 421723, 12 January 2017
The Applicant alleged the broker is liable for damage to his commercial motor vehicle as it did not effectively renew the policy in December 2014. The broker mailed renewals a month before renewal was due however, the Applicant alleges the broker should have contacted him by phone, email or fax to follow up when renewal did not take effect.
The policy was initially incepted in December 2009 and was renewed annually until December 2014. Each previous renewal notice had been by letter only and had resulted in renewal and payment. In November 2014, the broker sent the Applicant a letter attaching the renewal invoice for the following 12 months period and advised, if there are no changes, to pay the premium by 15 December 2014. The broker did not receive any response and the premium was not paid by 15 December 2014. Several days later, the broker renewed the policy through the insurer’s online system to ensure cover for an interim period to protect the applicant and on 15 January 2015 the broker sent the applicant a reminder by mail that his premium remained outstanding. On 5 February 2015 the policy was cancelled effective 15 December 2014 as the broker had heard nothing further from the Applicant. On 6 February 2015 the broker sent the applicant a cancellation notice by mail.
The Applicant maintained he did not receive any of the notices and had the broker attempted to call, email or fax he would have attended to payment. FOS agreed that in some circumstances, such follow up would have been appropriate but that here past patterns of behaviour were consistent with renewal notices being sent by mail and the premium being paid. FOS noted there had been little other contact between the broker and Applicant during the six year relationship and FOS determined that in light of the patterns of past behaviour the broker could believe that the applicant received the notices. FOS found in favour of the broker, saying that where an insured person is provided with renewal documents containing clear instructions as to the action required to complete the renewal process, there is no general obligation on a broker to make follow up contact with the person to confirm whether or not they wish to renew the policy.
Past accepted patterns of behaviour and communication will be considered by FOS in determining fair notification and follow up and/or lack thereof.
If you have any questions or concerns about anything mentioned or any other Insurance matters please do not hesitate to contact Principal Keely Graham, of McInnes Wilson Lawyers Insurance Team.