General insurance licensees in B.C. first hear the term “Duty of Care” in their pre-licensing courses. The example that brings the concept to life is the landmark court case, decided nearly 50 years ago, of Fine’s Flowers Ltd. et al v. General Accident Assurance Co. of Canada et al.
The Brokers Duty of Care is introduced early in a licensee’s training because it’s at the heart of a licensee’s responsibilities and core competencies.
The concept of duty of care is simple – a broker must use the degree of care necessary to protect the interest of the client.
It’s also multi-faceted, requires the broker to know the degree of care required, and encompasses nearly all aspects of the brokers’ role as trusted advisor. This is why it’s introduced to brokers early in their training and reinforced throughout discussions of a broker’s roles and responsibilities.
Duty of Care at the Heart of Most E&O Risks
And yet, claims against brokerages’ mandatory professional errors and omissions (E&O) coverage most commonly arise from a breach of duty of care in some form.
The most frequent broker E&O claims are for:
- Inadequate coverage
- Negligent misrepresentation
- Errors in policy cancellation, description of property insured, renewal, and reporting
- Broker agreement violations
- Delays in processing coverage
- Mistakes in changes to the policy
- Insolvencies
- Dishonest acts
Human error is the primary factor in cases of negligence, and many defendants are unable to prove they were not negligent.
The Solution: Mitigate Through Education
Since 2010 ProForm has partnered with Canadian insurance brokers to prevent and defend against Errors & Omissions claims and allegations of negligence made against them.
ProForm addresses the knowledge gap surrounding The Brokers Duty of Care by educating licensees to mitigate their E&O risks and maintain the most cost-effective E&O coverage. The education is provided in online webinar modules that are accredited by the Insurance Council of BC for technical Continuing Education (CE) credits.
Fittingly, the first module starts with the court decision that established the duty brokers owe to their clients.
Decided by the Ontario Court of Appeal in 1977, Fine’s Flowers set a precedent in Canadian law by delineating the responsibilities of insurance brokers. It concluded that brokers are not merely intermediaries who passively relay information between insurers and clients. They are professionals who owe a owe a strict duty of care to clients to not only procure insurance but to provide advice, identify necessary coverage, and warn of gaps.
The Fine’s Flowers Case
Fine’s Flowers operated greenhouses in Ottawa and had a longstanding relationship with insurance brokerage Ault, Kenney, Campbell and Gallichan Ltd. Harry Fine instructed the brokerage to secure comprehensive insurance coverage for their operations, specifically requesting “full coverage” to protect against all foreseeable risks associated with their business.
The broker obtained a policy that covered certain risks such as accidents and defects, but excluded wear and tear and failures related to water pumps. Despite being aware of these exclusions, the brokerage failed to inform Fine’s Flowers of the gaps in its coverage.
During a particularly harsh winter, the water pumps in the greenhouses failed, resulting in a shutdown of the heating system. The crops sustained damage due to freezing. When Fine’s Flowers sought compensation under its insurance policy, the broker advised that he felt that the loss would be covered; however, the insurer denied the claim citing specific exclusions related to water pump failures.
Fine’s Flowers initiated legal action against the insurer and the brokerage, contending that the broker failed in his duty to secure the comprehensive coverage that had been explicitly requested. It was uncovered during the trial that the insurer had inspected the greenhouse premises and had noted that the pumps and motors were not insured. The insurer provided a quote for this additional coverage, but the broker never shared this information with the client.
Based on two primary grounds The trial court found in favour of Fine’s Flowers, holding that Ault, Kenney, Campbell and Gallichan Ltd. was liable for the losses incurred. The decision was based on two primary grounds: breach of contract and breach of duty.
The Appeal
Dissatisfied with the trial court’s decision, the defendants appealed to the Ontario Court of Appeal. The appellate court upheld the lower court’s ruling, reinforcing the principles established. Justice Wilson emphasized that when an insurance broker undertakes to secure “full coverage,” it amounts to a contractual commitment to protect the client against all foreseeable and insurable risks associated with their business operations. The court further stated that if such comprehensive coverage is not attainable, the broker bears the responsibility of informing the client about any gaps or exclusions in the policy.
Chief Justice Estey, in his concurring opinion, highlighted the negligence aspect of the case. He noted that the broker’s failure to notify Fine’s Flowers of the lack of coverage for critical components constituted a breach of the duty of care owed to the client. The negligence was particularly egregious given the essential role that the water pumps played in the greenhouses’ heating system and the foreseeable consequences of their failure. The broker must have known about the existence and importance of the pumps, so it is understandable that Fine’s Flowers would assume that the boiler insurance covered these pumps.
The judge went on to say that the broker, with a minimum of thought and attention, would have realized the critical importance of the pumps and the impact of failure during the winter months in Ottawa, where the greenhouse was located.
The defining statement in the reasons for judgment was:
“The solution lies in the intelligent insurance broker who inspects the risks when he insures them, knows what his insurer is providing, discovers the areas that may give rise to dispute, and either arranges for the coverage or makes certain the purchaser is aware of the exclusion.”
The E&O Landscape is Expanding
The definition of a broker’s duty of care has expanded beyond placement, and it continues to grow with every lawsuit that makes it to court.
As the court established nearly a half century ago: The intelligent insurance broker inspects the risks, knows what the insurer is providing, discovers the areas that may give rise to dispute, and either arranges for the coverage or makes certain the purchaser is aware of the exclusion.
Increasing Litigation Trends
The trend toward increased litigation doesn’t just apply to complex commercial risks like Fine’s Flowers.
The shift to a no-fault (“Enhanced Care”) insurance model by the Insurance Corporation of B.C. (ICBC) in May 2021 has changed the risk landscape for insurance brokers in the province. Under the previous tort system, brokers focused on third-party liability coverage to protect clients from being sued.
But because only basic coverage is standardized, brokers must carefully advise clients that additional coverages such as excess underinsured driver protection and higher third-party liability is still necessary. Failing to properly advise on the continued relevance of these products could increase a broker’s professional liability risk.
And while the no-fault model reduces premiums, it also restricts the ability to sue for damages. Law firms can no longer take action against ICBC – a cornerstone of profitability.
The result? In an increasingly difficult economic environment, front-line brokers become the first line of attack for nuisance claims.
Best Practices More Important Than Ever
The Enhanced Care changes to Autoplan insurance illustrates the timeless lessons from Fine’s Flowers. Things change constantly, and brokers have a duty to reassess risk. Policies may on the surface look like a straightforward renewal is in order, but in fact the risks should be reviewed in light of changes in the risk profile, the coverage, and the marketplace.
Not only did the Fine’s Flowers case codify and define a broker’s duty of care, it has provided a “teachable moment” for generations of licensees to learn about the best practices that can mitigate coverage gaps and lawsuits. The webinar presents these best practices in a manner that can assist learning in an individual or a group setting.
All aspects of a brokerage’s workflow must include the necessary duty of care to the highest professional level:
1. Accuracy
- Verify information.
- Be specific and thorough.
- Document everything.
2. Communication
- Be clear and concise.
- Listen actively and remain attentive to your client’s needs.
- Document all phone or in-person conversations and instructions in writing immediately.
3. Consistency
- Align messaging to build trust and prevent confusion.
- Establish regular routines so clients, insurers, and colleagues know when to expect information.
- Standardize formats for emails, reports, and presentations to maintain a consistent voice and structure.
4. Follow-up
- Send timely follow-ups.
- Close the loop on conversations or tasks by confirming outcomes and next steps with all parties.
Protect, educate, and advocate
The legal obligation to act competently and in the client’s best interest is the foundation of the broker’s role, and the first thing that will be examined in a legal dispute. Duty of care-focused education for all staff is a priority for every brokerage.
ProForm provides industry-leading E&O coverage, CE-accredited online educational courses, and dedicated claims advocacy from incident through litigation to settlement. We go beyond insurance to Protect, Educate, and Advocate.
For more information, please contact:
ProForm Insurance
Michelle Loupret
Chief Operating Officer
Phone: 604-910-0695
Email: michelle@proforminsurance.com
