Brokers: Take Heed Of Your Obligations

"An insurance broker is retained to arrange house and contents insurance. For one reason or another he fails to do so. Yet he tells his clients he has placed the insurance. They make a small claim on the policy. Unknown to them, the broker pays the claim himself. Then disaster strikes. The clients' house is severely damaged in the September 2010 Canterbury earthquake. The broker says he is not liable for failing to place the insurance. He says the house was not insurable in the first place. That is because one of the clients has convictions for fraud, which led to his previous insurance being cancelled. The broker says these facts had not been disclosed. Had they been, insurance could not have been obtained."

This quotation forms the first paragraph of a recent judgment in the High Court of New Zealand, Marchand v Jackson [2012] NZHC 2893.

Background

The plaintiffs are the trustees of the Marchand Family Trust and owners of a five-hectare farmlet in Tai Tapu, south-west of Christchurch, New Zealand. The farmlet contains a large, modern house with a replacement value probably in excess of NZ$ 1,5 million (approximately ZAR 11 million).

In June 2009 (approximately 14 months before the Christchurch earthquake in September 2010), the plaintiffs retained the defendant, an insurance broker, Mr John Jackson, to arrange house and contents insurance.

The defendant submitted a questionnaire, completed by the plaintiffs, to the insurers, NZI, on 1 July 2009. NZI quoted and provided the defendant with an offer of cover for NZ$ 1,5 million on the house (until a valuation was obtained). The premium was NZ$ 2,215, and the excess NZ$ 500. The defendant negotiated the premium down to NZ$ 2,104 on the strength of his good reputation.

For unknown reasons, the defendant failed to arrange the insurance. No proposal form was completed and no invoice for the premium was submitted.

Despite the fact that the plaintiff knowingly failed to place the cover, he repeatedly assured the defendants that such cover was in place. In fact, in May 2010 Mrs Marchand made a claim for NZ$ 649.20 for a broken pair of spectacles. The defendant then paid the optometrist personally, or ex gratia as he put it.

On 14 September 2010 the plaintiffs' house was severely damaged by the first Christchurch earthquake.

Without informing the plaintiffs, the defendant consequently submitted an application for cover to NZI in October 2010, backdating the application to 30 August 2010 – before the...