The Ontario Superior Court of Justice's recent decision in a case called Ostenda v. Miranda 2012 ONSC 7346 will be of interest to insurers which use brokers as their distribution channel. The court had to grapple with the issue of whether an insurer is independently or otherwise liable for its broker's negligent insurance advice given to an insured client. It also had to address the issue of whether an annual "risk assessment" conducted by the insurer and resultant report exposed the insurer to liability to the insured for inadequate insurance coverage. The court decided on the particular facts of this case that the insurer, Zurich, was not liable for its broker's failure to recommend that the auto policy be endorsed with an OPCF 44R Family Protection Endorsement nor did the risk assessment conducted by Zurich expose it to any liability to its insured.

The plaintiff Ostenda was a truck driver for Synergy Transportation. He was catastrophically injured in a motor vehicle accident in Illinois which was caused by a third party who had "very modest insurance coverage" which would be insufficient to cover the anticipated tort damage award. Synergy's fleet automobile insurance coverage was provided by Zurich. This policy was underwritten through a broker. For some inexplicable reason, that policy was not endorsed with an OPCF 44R endorsement. Accordingly, Ostenda would not have access to any underinsured motorist coverage from which to seek recovery of his tort damages not paid for by the third party's insurance coverage. Ostenda sued the broker for its negligent advice. He also sued Zurich. He alleged that Zurich owed him a duty of care independent of the broker to ensure that Synergy and its employees' insurance needs were met. He also alleged that Zurich was liable to him because it had commissioned several risk assessment reports over the years which failed to point out the lack of underinsured motorist coverage.

The court dismissed the claims against Zurich. It made the following points:

  • Although a broker owes a duty of care to its clients to procure adequate insurance coverage (as recognized by the courts in the Fine's Flowers and Fletcher cases), an insurer acting through a broker owes no similar and independent duty of care to those clients. The insurer's only obligation to the insured is to issue a policy in accordance with the application submitted by the broker. The only exception to this principle would be if there was evidence that the insurer knowingly and willingly undertook the responsibilities of a broker in the same fashion as a broker. There was no evidence of this in this case.
  • The court also pointed out that, to impose a similar duty on insurers as that imposed on brokers to advise on a client's insurance needs, would result in considerable duplication of effort and lead to unnecessary expense which would be passed on to the client.
  • Finally, the annual risk assessments which were conducted by Zurich were done from the perspective of understanding and assessing the risk from an underwriting standpoint, i.e. to reduce the potential for claims and reduce the insured's insurance costs. The fact that the insurer commissioned these risk assessment reports did not create any liability to Zurich. The court also placed specific reliance on the disclaimer clauses contained in the risk assessment reports which clearly indicated that Zurich was not assuming any responsibility for discovery, notification or elimination of hazards or risks.

This decision is important for all insurers which employ independent brokers as their distribution channel or who commission risk assessment reports for their insureds. Insurers do not owe a duty of care to the insured to advise as to adequacy of insurance coverage where a broker is involved on behalf of the client. Further, the fact that an insurer may perform risk assessments of their insured's property or business or other activities will not necessarily mean that the insurer will be liable for failing to identify gaps or inadequacies in insurance coverage. In this regard, it is important that insurers employ appropriate exculpatory clauses in the risk assessment reports provided to their insureds.

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