Businesses always strive to have sufficient insurance cover for all and any possible perils. For this, they are willing to spend a lot of money. It is for this reason that when an insured peril occurs, they realistically and reasonably expect their insurers to pay out and/or repair the damage. Unfortunately, this is not always the case. In fact, the opposite is usually the case i.e. their claims get repudiated. Even if not repudiated, the claiming process may become an absolute nightmare. This is so despite numerous court judgements warning insurers against making the claiming process a horrible experience for the insureds. That said, there are instances where insurers repudiate claims on reasonable and legally sound grounds. In these instances, the insureds find themselves in an unfortunate position in that they have no cover in place where they reasonably believed they are sufficiently covered. This reasonable expectation usually stems from the discussions and engagements that they had with their brokers. For this reason, when an insurer validly repudiates an insurance claim, there is ordinarily a possibility of holding the broker legally responsible. Insurance brokers owe various legal duties towards the insureds. The insureds are not necessarily always aware of these duties and, as a consequence, when insurance claims are validly repudiated by the insurers, they believe that that is the end of the road, and they have no legal recourse. This is not the case. It is therefore auspicious at this juncture that some of these duties are explored; the kind of evidence that is necessary in these cases; etc.
BROKERS’ LEGAL DUTIES
Brokers, as intermediaries, between the insureds and the insurers owe various legal duties to the insureds which, if they fail to properly discharge, may attract legal liability. These duties are common law – based. There is no exhaustive list of these duties, as each case is determined on its own peculiar facts and circumstances. Likewise, the applicability of each duty is entirely bound upon the merits of each case.
In the process of advising and assisting clients take out or renew their insurance policies, brokers need to take reasonable steps to:
- Identify and advise on type and scope of cover the client needs by using information readily available and obtaining relevant information from the client;
- Arrange cover that should be suitable to meet those demands;
- Advise the client of the duty to disclose all material circumstances / make a fair presentation;
- Explain to the client the consequences of failing to give disclosure / make a fair representation;
- Explain to the client what sort of matters ought to be disclosed as being material (or arguably material);
- Elicit matters which ought to be disclosed but which the client might not think it is necessary to mention by asking appropriate questions a competent broker might ask in the circumstances. [i]
TYPE OF EVIDENCE
Once more, the complexity, facts and circumstances of each case will dictate the kind and nature of evidence that has to be adduced, for an insured to succeed. Ordinarily, documentary evidence becomes key evidence. Over the years, our courts have developed legal principles which should be utilised when interpreting the relevant documentation. Witnesses also do play a significant role in assisting the court reach its conclusion. There are some inherent natural risks with witnesses such as being intimidated by a court room; fading memory of the relevant events and facts; etc. Also, prominently used evidence is the use of an expert witness. As already explicated, the facts of the case will determine the suitable type of evidence, however, these are the prominent ones.
Most insured businesses, particularly in South Africa, seldom go against insurance brokers even where circumstances may justify doing so. This is mainly due to the fact that businesses heavily rely on the information that they get from their brokers about insurance. Obviously, it is unlikely that a broker would advise the insured, where they may have acted negligently, that they may be legally held responsible. As such, the insureds must (in the best interest of the business) always seek legal advice whenever their insurance claims have been repudiated. This is so even when a broker advises the insured that the claim has validly been rejected. This is because the brokerage may, itself, be legally responsible.
[i] See “What are the chances? Recent brokers cases on breach, causation and loss” by Neil Hext QC and Miles Harris, 4 New Square, February 2019