Coulda, Woulda, Shoulda: Duty of Insurance Brokers to Explain Optional Coverage
Insurance brokers have further incentive to try to sell optional benefits coverage to consumers with their auto insurance as a result of a recent court decision.
In Zefferino v. Meloche Monnex Insurance, [2012] O.J. No. 57 (S.C.J.), the Ontario Superior Court of Justice reminds brokers that they may be held liable if they fail to adequately describe available optional coverage to a client. In that situation, liability will be found against the broker if the client can prove that he or she would have purchased the coverage had it been recommended.
An insurance broker acts as an intermediary between the insured and the insurance company. In Ontario, insurance brokers are governed by the Registered Insurance Brokers Act. The Registered Insurance Brokers of Ontario maintains a code of conduct, enforcing it through a discipline committee. Brokers are also required to maintain errors and omissions insurance to protect themselves against professional negligence lawsuits.
The leading case regarding the liability of insurance brokers is Fletcher et al v. Manitoba Public Insurance Co. (1991), 74 D.L.R. (4th) 636 (SCC) in which Madam Justice Bertha Wilson confirmed that brokers owe their clients a duty of care.
In Fletcher, the Supreme Court of Canada held that the broker ought to have recommended family protection coverage to a client when applying for auto insurance. It provides coverage to the insured in the event that they are injured by a negligent motorist who does not have adequate insurance to pay the claim. The court concluded that the family protection coverage was inexpensive and important and that it ought to have been recommended but was not.
In the years since Fletcher, virtually all new auto policies that are issued in Ontario contain family protection coverage. It is generally only excluded in cases where a client specifically asks the broker not to purchase it. Zefferino suggests that a similar change may be about to occur with respect to optional no-fault statutory accident benefits coverage.
In September, 2010, the Ontario government introduced dramatic changes to the Statutory Accident Benefits Schedule that severely reduce the no-fault accident benefits available to the vast majority of motor vehicle accident victims in Ontario. For example, someone injured in a car accident tomorrow who suffers from two broken legs and a mild head injury would now only be entitled to $50,000 in medical and rehabilitation benefits. This amount is inclusive of assessment costs. Prior to September, 2010 assessment costs were payable out of a separate part of the policy and the accident victim had $100,000 available for treatment. Therefore, if assessment costs approach $15,000 in a typical case, the amount of money available for treatment today is in reality only $35,000. Optional coverage exists to increase the available medical and rehabilitation costs to $100,000 or $1-million.
In addition, the standard income replacement benefit in the SABS has stayed level at a maximum of $400 a week since 1996. Many injured plaintiffs, who cannot return to work because of their injuries, find they are unable to cover all of their household expenses on $400 a week. As long as the insured person earns enough income to qualify, optional coverage can be purchased, which increases the SABS benefit up to $1,000 a week.
In Zefferino, the plaintiffs sued their insurance broker, alleging that optional increased income replacement benefits were not explained to them. The plaintiffs brought a summary judgment motion, which was argued before Justice Robert B. Reid last September.
Justice Reid held that the broker did owe the plaintiffs a duty of care and that it had breached the standard of care by failing to “offer” the optional coverage to the plaintiffs in any meaningful way. He suggested that the broker might have met the standard of care by providing clients with hypothetical loss scenarios and asking them to draw their own conclusions about whether the level of income replacement benefits would be adequate.
However, Justice Reid concluded that the evidence indicated no hint of any interest on the part of the plaintiffs in coverage greater than the statutory minimum in any area. He therefore concluded that the plaintiffs chose to purchase the least expensive form of insurance available and that they cannot now change that bargain. As a result, he dismissed the claim.
While the plaintiffs in Zefferino were not successful in their action against the broker, we believe that brokers will take notice of this decision. A finding that it is a breach of the standard of care by failing to meaningfully offer optional accident benefits coverage to a client is significant. As a result of the September, 2010, changes we see many people hurt by inadequate SABS benefits; therefore, we hope that the Zefferino decision causes brokers to make a real effort to ensure that optional benefits are explained, offered and sold to the public.
