Underinsurance: Quebec Superior Court Holds Broker Liable

Quebec's Superior Court recently ordered a broker and his insurance firm to pay damages for negligence by the broker when renewing insurance for a building.1

The context

The insured owns a building in which it runs a show bar on the ground floor and rents out apartments on the upper floors. It had insured its building through the same insurance broker firm (Firm) since 2006.

On June 1, 2010, the insurance policy expired. The amount of insurance on the building was $424,000. Two business days before the expiration of the insurance policy, the Broker in charge of the insured's file (Broker) met with the insured to discuss the renewal. During the meeting, the Broker mentioned that the amount of insurance might not be enough in the event of a loss. The Broker and the insured agreed that the building should be appraised and that the Broker would hire a chartered appraiser to do so. The cost of the appraisal was to be shared by the Firm and the insured. In the interim, the insurance policy for the building was renewed for the same amount of insurance ($424,000).

It took almost a month before the chartered appraiser's services are retained to appraise the building. The Broker received the appraisal report a month and a half after the policy was renewed on June 1, 2010. The appraiser recommended that the building's reconstruction value be increased to $565,000. The Broker read the report briefly on July 20, 2010. He left on vacation two days later without contacting the insured or asking the insurer to increase the amount of insurance on the building.

On July 23, 2010, the building was destroyed by fire without the amount of coverage being increased. The cost of demolishing and reconstructing the building amounted to $1,003,708.

The insured sued the Broker and the Firm for $224,701, representing the difference between the amount suggested by the appraiser and the amount of insurance as well as damages for loss of income. It also claimed from the Broker, the Firm and the appraiser the amount of $233,865, representing the difference between the replacement value the appraiser should have suggested and the value he in fact suggested, plus the demolition costs.

The insured alleged the Broker's lack of prudence and diligence, in particular:

His lateness in taking steps to renew the insurance policy; Failing to follow up on the file to obtain an appraisal quickly; Failing to analyse the appraiser's report when he received it and to take the necessary...