By Richard Giroux, Insurance Broker, Director, Courmark Inc.

What are insurance brokers' obligations when it comes to insufficient fire insurance coverage? To what degree are brokers liable for appraisal work performed by an expert whose services they recommend to a client?

In a recent Superior Court of Quebec ruling, an insurance broker was found guilty of having sold a policy with insufficient coverage for a client's commercial building.

Fearing that the building might be under-insured, the broker had recommended that the client have it appraised and recommended the services of a professional appraiser.
As in several other broker-related disputes, the issue of processing time was key since a loss occurred before the insurance amount was modified.

Without going into the details of the case, we took time to consider various practices that careful and prudent brokers should implement.

Here are some recommendations:

1- In such a scenario, bear in mind that brokers have an advisory duty. In any event, you should always suggest to your clients (preferably in writing) that they have their buildings or property appraised by a professional. Brokers are not appraisers, and clients should be reminded of that fact.

2- If you recommend the services of an appraiser, it is important to point out that the mandate they receive comes from the insured, not the broker. Simply give them the referral and make sure that they are professional. Never ask to receive the appraisal directly from the broker; instead, ask the insured to provide it to you. If you know that the appraiser has been given the mandate, don't hesitate to follow up to ensure that the work has been done.

3- Bear in mind that if the insured agreed to an appraisal, it probably means that he or she is aware that the insurance amount may be insufficient. Why not suggest that your client increase the insurance amount by an amount of his/her choosing? You could also explain that changes to the insurance amount are subject to the insurer's approval and that the amount could be adjusted after the inspection report is issued. If your client refuses and would prefer to wait for the appraisal report, make sure that he/she is aware of the risks at stake.

4- As soon as you become aware that the insurance amount is insufficient, you must contact and inform your client. The key is to act without delay. All too often, brokers argue in their defence that it is impossible to reach insureds to inform them that increased coverage is required ("He never returns my calls!" "I'll call her when I get back from vacation", etc.). If that is the case, why not simply ask the insured to cover the risk based on the appraisal report? If a fire were to occur, the client would not hold it against you; in fact, he or she would appreciate your professionalism. But you can be sure that even if your clients don't return your calls, they'll be in touch with you in no time when they receive the insurance rider… and the invoice! It is simpler to reverse the process by having the client give you the instructions.