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Civil Litigation

How insurance brokers can protect themselves against lawsuits

Insurance brokers can't be too cautious when it comes to keeping notes on their clients, says Toronto civil litigator Natalie Leon.

It’s crucial for brokers to keep complete records of discussions to be able to prove that the client was offered the best available coverage — even it if means recording telephone conversations and sending confirmation letters or emails about them, says Leon, partner with Forbes Chochla LLP.

She tells AdvocateDaily.com she’ll be at an insurance brokers' seminar on Oct. 3 in Toronto offering guidance on professional liability and how to avoid lawsuits. She’ll also talk about how to develop a robust defence if they get sued, and review recent case law redefining the standards expected of brokers. 

"They obviously have their duties set out by their governing body, the Registered Insurance Brokers of Ontario," Leon says. "But there are civil actions where people are suing brokers for under-insuring or lack of insurance, and my firm has been defending insurance brokers in those kinds of cases for a couple of decades."

Despite the rules brokers must follow, she says she encounters brokers who don't keep their notes in order, which is especially important since so much business is now done on cellphones.

"It’s not that they're not explaining policies and products, but maybe it's not being understood as well as they think or the broker hasn't made a note of it, and it's difficult to go back and confirm it," Leon says.

"We're seeing many claims and judges are coming down hard on brokers, increasing the standards," she says. "They're being held to high standards and basically becoming responsible for their clients' insurance shortfall, which wasn't the case before."

The law has branched into two areas, she says. The first involves claims against brokers who may not have advised clients fully about any gaps or shortcomings in requested coverage.

"It's in this area that many brokers expose themselves to risk," Leon says.

It's imperative that they alert clients to any relevant exclusions in their commercial general liability policy. They must also point out optional policies to expand coverage, depending on the business, she says. This also applies to auto insurance.

Another concern involves a person who simply says, "I need insurance," which imposes a "very high duty" on brokers to fully understand their clients' needs, advise them of the products available and determine which ones are recommended, Leon says.

"Your job as a broker is to fully assess the insurance requirements of the client, recommend products that would be appropriate and explain those areas where no coverage is available for certain risks," she says.

The general brokerage principles apply to all types of property and causality insurance, she says.

Since the amendments to Ontario auto insurance liability coverage in 2016, the onus is even higher on brokers to clarify policies, coverage and the changes to benefits, Leon says.

Brokers can protect themselves if they get into a dispute with clients by recording conversations and keeping track of written messages, she says.

"I'm finding there are many insurance brokers who are recording every phone call that comes in to their office, but the problem with that method is that much of their dealings are done on cellphones and not in the office," Leon says.

She says brokers should followup phone conversations with letters and emails confirming details of the discussion, including the acceptance or rejection of policy improvements.

"It is time-consuming, but you're ultimately protecting yourself and your reputation," Leon says. "Even if clients are in the office, make a quick note and get the person to initial or sign it.

"That's about as thorough as you can be. You can't always avoid a claim, but that gives you about as strong of a defence as you can mount."

Leon recommends using checklists as a standard procedure in dealing with clients to ensure all the areas of discussion were covered. It will be part of the defence in terms of fulfilling their duty to a client.

"There used to be a strong emphasis on the insured to read their policy — and there still is," she says. "But I think judges accept the reality that when a client gets a 50-page booklet with small type through the mail, chances are they wouldn't have read every single word and understood it."

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