Do brokers & insurers owe continuing duties of care?

A recent case indicates that insurance brokers and insurers may owe a continuing duty to inform customers if circumstances change during the policy term.

This will be of interest to brokers and insurers who may have assumed that they need to consider their customers’ interests only at policy inception and renewal time.

This claim involved a house that was damaged in the September 2010 and February 2011 Canterbury earthquakes. The owner, Ms Brindson, had since 2001 insured the house under a sum insured policy with Vero Insurance, arranged by her broker, Mr Beazley. Prior to that, she had full replacement cover with a different insurer. Ms Brinsdon received annual renewal notices with key policy details, including the sum insured, which was automatically increased each year. Crucially, the renewal on 12 December 2010 took place between the September 2010 and February 2011 earthquakes.

Ms Brinsdon lodged claims with EQC and Vero for both events. EQC declared the claims over cap in August 2013. The cost of repairing the earthquake damage was found to exceed the sum insured in the policy. In March 2015, Vero offered to settle the claim for what appears to be a sum insured payment for the February 2011 event. The September 2010 event remained under the EQC statutory cap.

The claims

In September 2017, Ms Brinsdon sued Mr Beazley, claiming that her house was under-insured due to his defective advice at both inception and the renewal of her policy. She later joined Vero on the basis that it was vicariously liable for Mr Beazley’s failures. Both defendants applied to strike out the proceedings on the basis that they were out of time for statutory limitations purposes.

Ms Brinsdon accepted that her claims were brought outside the primary six year limitation period. However, she contended that the limitations period should be extended because of equitable fraud or because she had late notice of the claims. The Court recorded that the cause of action in negligence might be said to have accrued on 28 September 2014, when a building contractor provided Vero with its estimate of the cost to repair, which exceeded the sum insured. Prior to this, it could not have been said that she had suffered any loss, as it was not known whether her sum insured was inadequate.

Duties owed by brokers and insurers

Both Mr Beazley and Vero accepted that there was an arguable case that Mr Beazley (and Vero vicariously) owed Ms Brinsdon duties of care on the inception and renewal of the policy. However, they denied that those duties continued after renewal, and said that this meant that the claims were out of time:

…they take issue with the contention that there is an arguable case of ongoing duties of care subsequent to the last renewal of 12 December 2010. They also say that the grounds for postponement and/or late knowledge have not been made out. It is further said that the plaintiff’s claim for ongoing duties of care subsequent to the last renewal, as yet not pleaded, constitutes a fresh cause of action and that this too must fail on limitation grounds.

An expansion of duties of care?

The Court identified the following four issues in deciding not to strike out Ms Brinsdon’s claims:

1. Duty of care

Is there an arguable case that the defendants owed ongoing duties of care, after the last renewal of the policy in December 2010, to keep Ms Brinsdon informed?

The Court found that Ms Brinsdon was asserting the existence of a novel duty of care, but acknowledged the rule that courts should be slow to rule on novel categories of duty of care at the strike-out stage. The Court also saw the timing of the alleged breaches of duty as relevant, as they occurred between the September 2010 and February 2011 earthquakes. The Judge said that, while there might be merit in the defendants’ objections to the imposition of the alleged duties, that was a matter for trial.

The Court then held that Ms Brinsdon had (our emphasis) “…established a tenable case that the defendants owed ongoing duties of care to ensure and/or advise about the adequacy of insurance cover.”

2. Limitation extension

Had Ms Brinsdon demonstrated an arguable case for an extension or postponement of the limitation period under s 28(b) of the 1950 Limitation Act, on the grounds of equitable fraud? Was there an arguable case that the defendants had a duty of disclosure and that the failure to disclose was wilful?

The Court concluded that Ms Brinsdon had established a tenable basis for postponement of the limitations period on the grounds of equitable fraud. The Court held that it was:

… reasonably arguable that the defendants knew that Ms Brinsdon was under a misapprehension as to the scope of the cover. They also knew that she had not been advised as to the scope and adequacy of cover prior to or subsequent to the renewal in December 2010, and in particular during the period following the first Canterbury earthquake (September 2010).

And that:

There is a tenable claim that the defendants knew Ms Brinsdon was not aware of the limitations of her policy and they delayed taking action to inform her of the correct position when they knew that the policy would not cover the full cost of repairs or that there was a real risk of that occurring.

3. Late knowledge claim

Had Ms Brinsdon established the grounds for late knowledge under s 11(2) of the 2010 Act?

The Court found that Ms Brinsdon:

… did not have knowledge, and it was not reasonable for her to have knowledge, until March 2015 of: 

1. the omissions by the defendants to advise her about the adequacy or otherwise of her insurance cover that she says have occurred (she believed that she had full replacement cover and understood the defendants had not made any omissions); 

2. the fact that the omission was attributable to the defendants; and 

3. the fact that she had suffered damage or loss in the sense that she would be out of pocket for any costs in excess of the total sum insured limit.

4. Fresh cause of action issue

Was Ms Brinsdon’s claim for ongoing duties of care a fresh cause of action that ought to have been brought by 26 March 2018 (three years after the late knowledge date of 26 March 2015)? The Court found that the amended pleading of an ongoing duty of care post-renewal in December 2010 would be a fresh cause of action. However:

The essence of the plaintiff’s existing claims against the defendants in negligence is that, over a substantial time period, during which there is an alleged ongoing relationship with Mr Beazley, the defendants were under continuing obligations to act reasonably and with care in relation to advising Ms Brinsdon about insurance cover. The proposed amended claim is in substance the same kind of claim. The proposed amended claim will not be a substantial change (it is a question of degree) and in essence the legal basis for the claim remains the same.

The Court rejected the defendants’ submission that the proposed amended pleading would be out of time.

Conclusion

While the precedent value of this case is limited, as it was a preliminary strike-out application, it is an interesting indication that the Court was prepared to accept that brokers and insurers may owe novel duties of care that extend beyond policy inception or renewal.

Brokers and insurers should watch this case with interest.

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