By Richard Giroux, Insurance Broker and Director, RCCAQ Insurance

What are insurance brokers’ obligations regarding insufficient insurance coverage in the event of a fire? To what extent are they liable for appraisals carried out by experts whose services they recommend to their clients?

A few years ago, Québec’s Superior Court ruled that a broker was liable for having sold insufficient insurance coverage for his client’s commercial building.

Fearing that the building might have been underinsured, the broker had advised the client to have the building appraised and had even recommended the services of a professional appraiser.

As in various lawsuits involving brokers, the issue of processing times was at the heart of the conflict because a claims incident took place before the insurance amount was adjusted.

Without going into all the details, this ruling has prompted us to question the practices that careful and prudent brokers should adopt.

Recommendations

• When considering such scenarios, remember that a broker’s duty is to advise clients. In all cases, you should always advise your client, preferably in writing, to have buildings or assets appraised by a professional. The broker is not an appraiser, and your clients should be reminded of that fact; a note to that effect should be placed in their file.
• If you recommend an appraiser’s services, be sure to point out that the appraiser is mandated by the insured, not the broker. Simply provide your client with the referral after verifying the appraiser’s professionalism. Never ask to receive the appraisal directly from the appraiser; instead, ask your client to provide you with it. If you know the appraiser was mandated by the insured, don’t hesitate to follow up to ensure the work was done.
• Remind yourself that if your insured agrees to have an appraisal carried out, he or she is probably aware that the coverage is inadequate. Why not suggest increasing the coverage straight away, by an amount of the insured’s choosing? You should explain to the insured that the coverage increase is subject to the insurer’s approval and that the coverage can be adjusted after the inspection report is issued. If your insured refuses and prefers to wait for the appraisal report, make him or her aware of the risks.
• As soon as you are made aware of insufficient insurance coverage, you must contact and notify your client. Swift action is the key. All too often, the argument used in the broker’s defence is that it was impossible to reach the insured to inform him or her that the coverage should be increased (“The insured didn’t return my calls…I’ll call them when I get back from vacation”, etc.). If that is the case, remind yourself that you are the insured’s agent; why not simply ask the insurer to cover the risk immediately, based on the appraisal report? If a fire breaks out, the client will never hold it against you—quite the opposite! But be sure that if your insured does not call you back after you leave a message, he or she will know how to get in touch once the endorsement—and the bill!— have been sent out! Doing things the other way around will be easier if your client is the one giving the instructions.

Any questions? Please feel free to contact us.