Going For Broke(er): A Broker’s Obligation to Disclose the Limits of its Expertise

In 2049390 Ontario Inc. v. Leung, 2018 ONSC 5759, the Ontario Superior Court of Justice considered whether or not a broker owes a duty to advise their clients to obtain an estimate of the cost of reconstruction from a professional to ensure that they have sufficient insurance coverage to replace commercial premises in the event it is destroyed by a covered loss.

The case involved a commercial property owned by the Plaintiff that was destroyed in a fire. Following the fire, the Plaintiff was advised that the building was underinsured. The insurer paid out the face value of the insurance policy and the Plaintiff started an action against its insurance broker for an alleged failure to advise it that it should obtain an estimate of reconstruction costs to ensure adequate coverage had been placed.

The insurance broker and the Plaintiff both retained experts to opine on the standard of care of a broker. The experts provided substantially the same opinion. The only real disagreement between them was whether or not this was necessary in the circumstances of this case. As summarized by the court:

[40] … there is no dispute between the parties that insurance brokers are not qualified to give replacement cost advice to clients. They also both agree that it is, at the very least, a best practice to advise clients about the need to obtain expert advice on this point. The disagreement between them appears to be whether recommending the services of a cost consultant is necessary in all circumstances.

Ultimately, the court accepted the evidence of the broker that she had advised the Plaintiff that she was not an expert and that she had recommended that the Plaintiff obtain an expert opinion on replacement costs. The case was therefore dismissed.

However, this case provides useful guidance to brokers placing coverage for replacement of property. The dicta indicates that the Court likely would have accepted the opinion of both experts that brokers have a duty when placing coverage for premises to: 1) advise clients that brokers are not experts in assessing replacement cost; and 2) recommend that clients retain an expert to provide an opinion on replacement cost to ensure appropriate coverage is placed. Although the court did not make a determination whether or not these duties apply in all circumstances, brokers would be well served to take these steps and document that they have done so in writing in order to defend these types of claims.