Brokers negligence: An overview

In Ontario, there is an important distinction between an insurance agent and an insurance broker. While case law employs the terms insurance agent and broker interchangeably, and at times loosely, the distinction between agent and broker is in licensure. Agents are licensed through the Financial Services Commission (“FSCO”), and work for one insurance company at a time selling only their product, while brokers are part of a self-regulated, professional organization (i.e. Registered Insurance Brokers of Ontario (“RIBO”)) and can offer policies from multiple insurers. Further, confusion can be caused by the terms, public and private, however, these terms simply refer to whom the agent or broker is working for. Private brokers and agents represent individuals and are held to a more stringer professional standard, as explained further below. Conversely, public brokers and agents work for insurance companies primarily representing their interests save for requirements pressed upon them by legislation or case law. While it is certainly more common to find a public insurance agent and private insurance broker, it is less common, but certainly possible, to find a private insurance agent or a public insurance broker. 

What is the RIBO?

RIBO maintains a code of conduct for its members and further direction about licensing and regulation is provided in the Registered Insurance Brokers Act, RSO 1990, cR19, which specifically excludes insurance agents. In fact, the aforementioned legislation provides the following definitions for the two distinct positions at section 1 of the act:

“Insurance Agent” means an agent within the meaning of the Insurance Act, (“agent d’assurances”).

“Insurance Broker” means any person who for any compensation, commission or other thing of value, with respect to persons or property in Ontario, deals directly with the public and,

1. Acts or aids in any manner in soliciting, negotiating or procuring the making of any contract of insurance or reinsurance whether or not the person has agreements with insurers allowing the person to bind coverage and countersign insurance documents on behalf of insurers,
2. Provides risk management services including claims assistance where required,
3. Provides consulting or advisory services with respect to insurance or reinsurance, or
4. Hold himself, herself or itself out as an insurance consultant or examines, appraises, reviews or evaluates any insurance policy, plan or program or makes recommendations or gives advice with regard to any of the above (“courtier d’assurances”).

While a broker can also act for both insurer and insured their primary duty is to the insured, who is often the least informed party to the insurance contract. This disparity in negotiating power has led to the gradual expansion of responsibilities owed by licensed brokers to potential insured individuals.

When dealing with insureds, brokers have positive obligations to:

• Assess the risks requiring insurance;
• Provide advice on what the proper coverage would be for those risks;
• Advise the insured if a particular kind of coverage is not available to them in the circumstances;
• Secure the appropriate coverage;
• Explain, document, and evidence any exclusions in coverage; and,
• If coverage is rejected by the insured or the insurer, document same, and find the best available alternative, explaining shortfalls to the insured.

Brokers must also understand the nature of the insured’s needs, whether those are specific requests for contents insurance, or the nature of a complex business being insured. While brokers must protect the insured against foreseeable, insurable risks, they are not required to be omniscient. When selling a particular insurance product, brokers should be fully informed of all insurable risks pertaining to same.

What does the caselaw say?

The Supreme Court of Canada and the Ontario Courts have expanded these obligations further. The modern story of brokers negligence begins with Fine’s Flowers Ltd. v General Accident Assurance Co. of Canada^[1].

Mr. Fine operated a greenhouse business and sought insurance from a brokerage with whom he had held insurance for a long time. When a water supply pump failed, leading to a shut-down of the boilers and substantial consequent loss to the business, Mr. Fine contacted his insurer for indemnity. Mr. Fine’s insurer informed him that because wear-and-tear was excluded from the definition of “accident” and a water supply pump was not defined as an “object”, he was not covered. Although the Ontario Court of Appeal found that the insurer did not have to pay, it concluded that Mr. Fine’s broker was negligent in failing to keep, “the plaintiff covered for all foreseeable, insurable, and normal risks…”^[2]

While the entire Fine’s Flowers Ltd. decision is pertinent to the point of this article, particularly interesting is Justice Wilson’s reasoning surrounding “full coverage”. Mr. Fine asked his broker to provide full coverage, which the trial judge interpreted as:

Needless to say, when I speak of being fully covered I do not mean it in the literal sense but in the sense of covering all insurable risks likely to arise in connection with the properties and business in question.^[3]

Justice Wilson, on appeal, elaborated that where the existence of a contract is established, the onus shifts to the broker to show either that coverage was not available or could not be obtained^.[4]

In Fletcher v. Manitoba Public Insurance Co^[5], the Supreme Court of Canada reinforced the findings in Fine’s Flowers Ltd, adding:

In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers. They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers… It is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice.^[6] [Emphasis Added]

As it concerns public brokers or agents however, the Supreme Court clarified that while the bar is not as onerous as the one placed on their private counterparts, it is also not as lenient and akin to “selling groceries”, as the respondent in Fletcher suggested. Contrasted with the above language concerning private brokers, public insurers, “[have] the responsibility of seeing to it that the information is provided to [the client] in a reasonably intelligible fashion.”^[7] The information that must be provided was identified as, “all relevant information available… in an explicit and readily comprehensible manner if they are to make intelligent decisions about how much risk they are prepared to bear.”^[8]

However, the Court was quick to clarify that because the individuals that service customers in the public insurance sector do not hold themselves out to be “specialists in risk assessment and insurance advice”, they are not required to “sit down with their customers and inquire their personal, family and business affairs so as to provide individualized insurance advice.”^[9]

More recent case law stays true to the path set forth in Fine’s Flowers and Fletcher, summarizing the requirements to establish the negligence of an insurance broker as:

1. Proving that the broker owed a duty of care;
2. That the broker breached the standard of care;
3. That the breach caused insured to incur damages, which must be proven; and
4. That the insured’s reliance on the insurance broker, which was to their detriment, was reasonable in the circumstances.^[10]

Understandably, the Court is alive to the fact that brokers cannot be or become experts in every field, and where they are transparent about their lack of expertise, the Court has granted them grace. The Ontario Court of Appeal in 2049390 Ontario Inc. v Leung^[11] found that when the private broker, Ms. Leung, advised the insured that, “she was not in a position to provide accurate advice on the replacement cost value of the building… and that he should obtain a professional opinion if he wanted an accurate assessment” the broker was not negligent when the insured failed to follow Ms. Leung’s recommendation to seek an expert opinion and was consequently underinsured.

Insurers can assume responsibility for an insurance quote or coverage from a broker, but such an undertaking has to be evidenced and not implicit. Stewart et al. v Bay of Quite Mutual Insurance et al.^[12] dealt with a fact scenario where the broker obtained inadequate replacement cost value (“RCV”) insurance for the insured, and following a loss, the insured sought to recover from the insurance company directly. The insured alleged that the insurer owed him a duty of care and displaced the broker when they investigated the RCV without involving the broker. The insurer argued that it simply arranged for an employee to attend at the property after the policy was issued to determine if it was an acceptable risk. In concluding that the primary obligation rests with the broker, the Court emphasized that the insured did not rely upon the valuation of the insurer’s employee, nor was there any evidence to suggest that the insurer assumed or intended to assume the legal responsibilities of the broker. The Court provided clarity on relationships involving insurer, insured, and broker as follows^[13]:

If the insurer decides, after the policy has been issued, to inspect the insured property and do its own calculation of RCV, it should communicate any material findings to the broker so that the broker can review them with their client. In this case, that is what BOQ did. This is, in my view, the appropriate standard of care for an insurer that issues a policy to an insured who has retained a broker.

A balance of obligations

While the majority of this article dealt with brokers’ duties to insured persons, where brokers act for both insured and insurer, they must carefully balance the obligations they owe to each party. When dealing with a broker, it is important to keep in mind that they owe a duty of good faith to the insurance company, and must:

• Make efforts to discover relevant information regarding the insured’s insurability and risk level;
• Convey important information from the insurance company to the insured;
• Uncover and convey all material information from the insured to the insurance company required for the insurance product; and
• Must not compromise the insurer’s right to deny coverage or rely on applicable exclusions and defenses.

Brokers are important intermediaries between insurance companies and individuals seeking insurance coverage. Unquestionably, there is a substantial imbalance of power between the insurer and insured, and brokers are vital in helping bridge that gap. Luckily, brokers negligence law has remained stable and evolved steadily over many decades in Ontario, providing a good amount of clarity in navigating disputes. As the Court in Fletcher pointed out, brokers are not simply selling groceries. Their mistakes can cost millions, and while the obligations placed on them may seem onerous, they are a necessary underpinning to the consumer protection objectives guarding against predatory insurance practices or functionless policies and pointless premiums. 

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Representing exclusively plaintiffs since the start of his career, Lazar Andjelkovic is a civil litigator focused on restoring the independence, dignity, and well-being of his clients. Lazar is experienced with matters involving serious motor vehicle accidents, long term disability (LTD) claims, premises liability, municipal liability, product liability, property loss, and other complex injury and insurance claims.

Lazar is compassionate and listens to the needs and concerns of his clients, who he represents at all levels of Court in Ontario, and before various Tribunals. Believing that a well-informed client is a successful client, Lazar enjoys staying up to date with the most recent developments in his fields of interest and works closely with his clients to develop novel strategies and legal arguments. Lazar is fluent and can provide services in Serbian and Croatian.

Lazar earned a Bachelor of Arts with Distinction in Criminology at Simon Fraser University and went on to complete his Juris Doctor degree at Osgoode Hall Law School. He was called to the Bar in Ontario in 2019.