Minding the gap: A cautionary tale for insurance brokers

The Ontario Superior Court of Justice recently allowed a motion for summary judgment against an insurance brokerage and the individual broker for failing to meet their duty of care to arrange adequate insurance coverage.¹

The insured was involved in a motor vehicle accident while operating his leased vehicle. The vehicle carried $1 million in primary limits under a policy issued to the lessor. The insured alleged that he had also provided a clear mandate to his broker to ensure that there was umbrella coverage on the vehicle. Although the broker had arranged umbrella coverage with limits of $15 million, the policy language contained an exclusion for long-term leased vehicles. The umbrella insurer had advised the broker about this exclusion but the broker had failed to advise the insured. After the motor vehicle accident, the umbrella insurer relied on this exclusion to deny coverage.

As a matter of contractual interpretation, the court held that the exclusion applied and that coverage was not available. The court then turned to a broker’s duty of care and confirmed that they are obligated to advise an insured as to any gaps in coverage and to make all reasonable efforts to ensure that the insured was properly protected. The court rejected the assertion that the breach of duty had not caused the insured any damage, finding it inconceivable that the insured would not have taken alternative steps to ensure the vehicle was properly protected had it known of the gap in coverage. 

Critical to the court’s analysis was an admission in the statement of defence, which indicated that the brokerage had always intended that there would be umbrella coverage. The court found that this admission was inconsistent with the position taken regarding the duty of care issue. 

Insurance brokers who take an active approach in discussing any known or potential insurance gaps with their insured will minimize the likelihood of liability should their insured suffer any uninsured loss. In addition, this decision illustrates the importance of having a cohesive plan in defending insurance coverage claims. Insurance brokers (and their lawyers) should develop a cohesive and consistent defence at an early stage in an action.