The Winds of Change: BCCA addresses the Insurance Brokers Duty of Care

In the recent decision of Beck v. Johnston, Meirer Insurance Agencies Ltd. 2011 BCCA 250 the British Columbia Court of Appeal unanimously upheld a trial court’s finding that an insurance broker breached their duty of care and that the plaintiff sustained damages as a result.

This action arises out of the tragic circumstances. In November 2007 Richard Beck Sr. murdered his estranged wife, Karen Beck, before setting fire to the house and committing suicide.  The house was insured under a homeowner’s policy (the “Policy”) with both Richard and Karen Beck being named insured’s. The Policy contained the oft found exclusion for intentional acts “by named insureds”.  As a result, the Policy’s insurer initially denied the claim entirely but then compromised it’s position and paid Karen Beck’s estate 50% of the loss to the house, but nothing for the contents.

Karen Beck’s estate brought an action against her insurance broker, Johnston, Meirer Insurance Agencies Ltd. (“the Broker”) for the difference in the value of the house and the payment made by the insurer.

The evidence preseted at trial was that Richard Beck had remained in the house, which had been the family home, after Karen Beck moved out in June 2005. Despite no longer residing there, Karen Beck continued to pay the insurance premiums on the house. In addition, Karen Beck purchased from the Broker, tenants coverage for an apartment she was renting. When insurance for the house came up for renewal in July 2007, the Broker was unable to contact Karen Beck directly (having left voice mail messages) and therefore simply renewed the Policy.

The trial judge held that the Broker had clear notice that Karen Beck was no longer residing in the house and that they did not have any discussions with her about the impact of this change on her insurance needs. The trial judge concluded that the Broker fell short of the necessary standard of care in failing to appreciate the change in Karen Beck’s insurance needs and in not advising her of the “intentional act exclusion”. The trial judge further held that had Karen Beck been given the proper advice she would have obtained a rented dwelling / landlord policy which would provide coverage in the face of an intentional act on the part of the tenant [ie: Richard Beck]. As such, the Broker’s breach of the duty of care caused Karen Beck’s loss and the estate was entitled to the damages sought.

In front of the British Columbia Court of Appeal (“BCCA”), the Broker argued that Karen Beck’s Estate had failed to prove that it was forseeable that Richard Beck would intentionally damage the home. The BCCA held that it was unnecessary to prove that Karen Beck foresaw a real or actual risk that Richard Beck would intentionably damage the house. They noted the Broker’s employee had agreed that when insuring property jointly there is always an additional risk that an intentional act by a named insured would void coverage of the other.  BCCA  then held that this was a sufficient basis in which to ground the foreseeablility required of the Broker in this case such that Karen Beck’s change in circumstances presented a forseeable new risk to be considered in respect of her insurance needs.

The Broker also argued that they had not breached the duty of care of a reasonably prudent broker. The nature of a broker’s duty of care has long been set out by the courts in a series of cases starting with Fines Flowers Ltd. v. General Accident, (1977) 17 O.R. (2d) 529 an Ontario Court of Appeal decision that was cited with approval by the Supreme Court of Canada in Fletcher v. MPIC [1990] 3 S.C.R. 191. The BCCA noted with approval that the trial judge referred to these decisions and accepted that there was a duty on an insurance broker to a client to provide relevant information about the types of coverage available to the client, and about which forms of coverage are required to meet that client’s needs.  The BCCA also noted that the trial judge was clearly of the view that:

… when a renewal of insurance coverage is required, the broker similarly has a duty to provide relevant information about the types of coverage available to the client, to meet any change in needs that the client may have as a result of any changes in his or her circumstances of which the broker is or should be aware. …

The BCCA  held that there was ample evidence upon which the trial judge could make the finding that this duty of care was not met by the Broker. In particular the BCCA noted that:

  •  The Broker had sufficient information that should have led to the conclusion that Karen and Richard Beck were separated. In particular, the issuance of a tenant policy for Karen Beck. Despite this information, the Broker simply renewed the homeowner’s policy without ever speaking with Karen Beck.
  • The Broker sent an invoice for the insurance premiums on the house (to the separate address where Karen was residing) without explaining that she should follow up as there might be some concerns about coverage giving her living situation had changed.
  •  The Broker failed to advise Karen Beck about the implication of having Richard Beck as a named insured or to advise her of other options to this state of affairs when Karen Beck attended at their office to pay the insurance premiums on the house.

Finally, the Broker argued that the trial judge erred in finding a causal connection between the Broker’s breach of the duty of care and the damage in this case, namely the shortfall in insurance coverage by virtue of the intentional act exclusion.   In this regard, the Broker argued that even had Karen Beck been property advised, she would not have made any changes to the insurance coverage on the house. The trial judge had held that the better coverage, namely a rented dwelling / landlord policy, would have been available albeit at more cost than her existing policy.  The trial judge further held that the evidence supported the inference of fact that Karen Beck would have incurred this additional expense as; she had demonstrated a willingness to pay additional monies for insurance coverage when she purchased a tenant’s policy; she paid her insurance premiums before they were due; and she had concerns about potential tenants Richard Beck might have live with him in the home.

The BCCA held that they were unable to conclude that the trial judge’s inferences of fact in this regard were unreasonable and thus dismissed the appeal.

The key factor in the finding of negligence on the part of the Broker was their knowledge Karen Beck’s change in circumstance (moving out of the family home) and their failure to advise her of the impact of these changes might have on her insurance coverage.
In short this decision emphasizes that when the winds of change blow it is a broker’s responsibility to advise their clients as to the impact such change has or may have on their existing insurance coverage and needs.