Disclosure

Disclosure ‐ Issues for Brokers

October 2008

The current state of the law with respect to brokers is clear; what you know, your client will be deemed to know. This may seem a simple concept but when the broker is aware of information/facts or circumstances that are unknown to or different from that held by the client, things can get tricky, as detailed further below.

In general, the agency relationship means that a statement made by a broker on behalf of an insured, even if it is a misstatement, is deemed to have been made by the insured. This can ultimately have significant consequences for the insured if underwriters seek to avoid the policy for non‐disclosure, while also exposing the broker to a potential claim by their client.

Similarly, if a broker fails to disclose information to an insurer which is relevant to the insurer providing cover, the insurer may be able to decline indemnity or avoid the policy (see section 21 of Insurance Contracts Act). This can be significant where information is obtained from sources outside of the broker's direct dealing with their client as such information is still imputed to the insured, and is still required to be disclosed to Underwriters. The difficulty is found when determining what information should be disclosed by a broker to an insurer when seeking cover for their client. The case below provides some guidance on this issue.

In Permanent Trustee of Australia Co Ltd v FAI General Insurance Co Ltd (2003) 214 CLR 514, the High Court held that there are different categories of knowledge held by a broker. The High Court determined two categories of information that may be known by brokers, the first being information relevant to an insurers acceptance of risk, and the second being information of a commercial nature. Only one of these categories must be disclosed. Briefly, the facts of the case are that part of Permanent's professional indemnity cover was held with FAI.

A decision was made by Permanent and its brokers not to renew cover with FAI. While arranging cover for the following period, Permanent's brokers sought an extension of cover for a period of 30 days with Permanent's then insurers, including FAI. FAI granted the extension, however, when Permanent made a claim within the 30 day period, FAI declined indemnity on the basis that it would not have granted the extension had it known that Permanent did not intend to renew with FAI. This was a fact which was known by Permanent's brokers at the time that the extension was sought, but was not passed on to FAI.

In this case, the brokers were held not to have failed in their duty to disclose information relevant to FAI's acceptance of risk, as the knowledge that Permanent was not intending to renew was deemed to be information of a commercial nature, and therefore it did not need to be disclosed, as it was unrelated to the substance of the risk covered.

CBP are insurance specialists, with recognised expertise in claims defence, policy drafting and general advice to a wide range of underwriters and brokers both locally and internationally. Don’t hesitate to call the authors below should you have any questions about this article or your business generally on (02) 8281 4555.

Gavin Creighton Partner

Debbie Kaminskas Solicitor

 

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