Summary

• Insurance brokers have a duty to exercise reasonable care and skill in obtaining the cover requested by their clients. That duty extends to making reasonable enquiries so that brokers can fully understand the risks and arrange effective and appropriate cover. There is an obligation not to delay in arranging insurance cover.

• There is a duty to arrange insurance suitable to the client’s needs and if such insurance cannot be obtained, brokers must promptly advise the client and seek further instructions. There is a duty for brokers to advise their clients of exclusions and limitations in the insurance policy.

• To “win the battle before it is fought”. and mitigate risk of litigation with the broker, always ensure that insurance brokers’ duties and responsibilities are formally agreed contractually. When choosing a broker, a client should be satisfied that the broker is credible and reliable, and has the technical ability, market knowledge and resources to deliver on promises.

• The client should be confident that the broker has a complete understanding of the business. The most effective risk financing strategy can only be achieved by a process of profiling risk and identifying risk by likelihood and consequence.

• All insurance brokers are not the same. Clients should avoid using expense reduction consultants who may simply focus on the cheapest premium rather than the right insurance protection.

• Notes

  • Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57 (CA)
  • Caparo Industries Plc v Dickman [1990] 2 AC 605 at 619.
  • Hedley Byrne & Co Ltd. V Heller and Partners Ltd [1963 HKHL 4; (1964) AC 465 at 502 – 503.
  • Cherry Ltd v Allied Insurance (1978) 1 Lloyds Rep at 280
  • The Australian / New Zealand Standard on risk management (AS / NZS 4360)
  • Claude R Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd & Ors (1973) 2 NSWLR 7 at p 30.
  • With apologies to former U.S.A. Secretary of Defence Donald Rumsfeld.
  • The image: A guide to PseudoEvents in America (1961)
  • The Insurance Contracts Amendment Bill 2010.
  • Insurance Contracts Act 1984 s 21, s 21A.
  • Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; 192 CLR 603; 154 ALR 361; 72 ALJR 937 (20 May 1998).
  • Permanent Trustee Australia Limited v FAI General Insurance Company Limited (in liquidation) [2003] HCA 25, (8 May 2003).
  • Claude R Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd & Ors (1973) 2 NSWLR 7
  • (1991) 6 ANZ CAS 61 – 066 (CA NSW).
  • Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57 (CA).
  • Brickhill v Cooke [1984] 3 NSWLR 396 (CA).
  • Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Ins Cas 61 – 012 (CA NSW).
  • McNealy v Pennine Insurance Co. Ltd [1978] 2 Lloyds Rep 18 at 20 (CA)
  • (1995) 8 ANZ Ins Cas 61 – 280 (HCNZ) at 76,097.
  • Eagle Star Insurance Co. Ltd v National Westminster Finance Australia Ltd (1985) 58 ALR 165 (PC).
  • Mitor Investments Pty Ltd v General Accident Fire & Life Insurance Corp Ltd [1984] WAR 365.
  • Ibid.
  • [2002] FCA 909.
  • Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd (unreported NSWC (1977)
  • Financial Services Reform Act 2001