February 1, 2012 by James Dunn and Brendan Lanigan
It has now been more than a year since the most recent auto insurance reforms were implemented in Ontario. The changes only apply to policies renewed after September 1, 2010, so claims under these new automobile policies have only started to trickle in. However, the number of claims under the new policies can only grow from now on. In making the changes legislators in Ontario had to face a question that insurance brokers face on a regular basis: How does one balance the insurance consumer’s desire for inexpensive insurance rates with the concern about maximum coverage in the event of an accident? The government of Ontario chose to download that difficult question to brokers and consumers, providing more options and more risk to insurance consumers, as well as brokers and agents.
Ontario, like many provinces, supplements its tort system in motor vehicle accident cases with first party, no-fault “accident benefits” coverages. These benefits include set coverages for medical, rehabilitation, attendant care, housekeeping, income replacement, death and funeral, and caregiver benefits for people injured in accidents, regardless of fault. In response to public complaints about excessive premiums, Ontarians now have lower “standard” benefits in many of the above categories, but are able to purchase additional coverages equal to, or exceeding, the previous standard coverages. The insurance client in Ontario is now able to pay less and get less in terms of accident benefits, or pay more and get more.
The Standard Auto Insurance Policy now provides about half the medical, rehabilitation, and attendant care benefits for “non catastrophic” injuries than it did prior to September 1, 2010 and assessment costs are now included in this significantly lower number. An insurance client now has the option to purchase a second million dollars of medical, rehabilitation, and attendant care benefits in the case of catastrophic injuries. These benefits can be rapidly exhausted in serious or highly contentious cases of either non catastrophic or catastrophic injuries. The pot of additional optional benefits is large and likely to be needed by seriously injured claimants. These circumstances combined, are likely to provoke litigation. A number of other coverages are also significantly changed. For example, under the new standard coverage, only catastrophically injured insureds are able to claim housekeeping or home maintenance expenses.
While tort defendants and their insurers will undoubtedly be forced to pick up a portion of the bill now left unpaid by the decrease in accident benefits, some plaintiff’s lawyers will look to insurance agents and brokers to compensate insureds who cannot obtain the benefits they would have had under the old system. When a seriously injured claimant is facing an extended and uncertain tort claim, and when money is quickly running out under the new accident benefits coverage, a claimant or their lawyer may wonder why they were not advised to purchase additional coverage. The broker or agent who sold or renewed the policy may appear to be a good target for a lawsuit.
From the insurer’s perspective, courts generally seem to find ways to compensate significantly injured plaintiffs, even those who failed to adequately protect themselves with optional insurance and those who were to blame for the accident which injured them. This is especially the case when an insured professional, such as a broker or agent, has been added to an action.
After the reforms were implemented, insurance providers began an extensive education campaign to inform their clients of the changes to their policies and their new options to buy additional coverages. Insurance companies and brokers alike mailed information to existing and prospective clients, drafted scripts for client contacts, and played pre-recorded messages over telephones in an effort to inform their clients about the changes. But what about the customer who slipped through these educational gaps? Does their their broker or agent become a target for litigation?
Plaintiff’s lawyers have been aware of the fact that the changes in legislation have meant that their clients could face damages without recompence and have long been looking at whether their clients’ brokers and agents should be included.
This additional risk provides an excellent opportunity to review a broker’s common law duty to the client. In 1990, in a case called Fletcher v. Manitoba Public Insurance, the Supreme Court of Canada said that brokers and agents were:
… more than mere salespeople. [Instead they are] licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client. Subtle differences existing in the form of coverage available are frequently difficult for the average person to understand. Agents and brokers are trained to understand these differences and to provide individualized insurance advice.
This decision was not just about telling brokers and agents how important they are because the Supreme Court also described the duties that brokers and agents have to their clients. Part of that duty is not just to provide the best deal to the client, but also to provide information about available coverage and advice about which forms of coverage the client requires in order to meet the client’s needs. This duty is described in Fletcher as a “fairly stringent one for the agent”.
A recent Ontario Superior Court case called Shaheen v. Meridian Insurance Group interpreted the Fletcher case as requiring an insurance agent to provide detailed advice tailored to the client’s specific needs.
Unfortunately, where there are stringent duties, there is the potential for errors and ommissions liability. Brokers and agents in Ontario may want to keep the client by marketing the new options on the basis of reduced cost, but a broker or agent should never stop the sales process as soon as the client opts for the cheapest product. This point was re-emphasized in a recent case called CIA Inspection Inc. v. Dan Lawrie Insurance Brokers, which stipulates the broker or agent must educate the client as to the specifics of the coverages available and give accurate advice and assistance in addressing coverage gaps. The change in Ontario accident benefits coverages, resulted in a changed insurance landscape. Brokers and agents are required to provide careful expert guidance to help their clients navigate their new options.
In the CIA Inspection action, the broker was dealing with a knowledgeable client, but not all brokers will have the luxury of dealing with sophisticated insurance consumers. When dealing with the average Joe, there is an even greater expectation that a broker will take the time to understand the needs of their clients, and advise them according to those individual needs.
This does not mean that a broker or agent is liable whenever a client chooses not to fully insure themselves. A plaintiff alleging broker’s negligence must prove both that the broker failed to provide adequate information and advice and must prove that this failure actually caused the client’s loss. This will typically mean that the plaintiff will have to show that he/she would have purchased the additional coverage had the broker or agent provided adequate and proper advice. Only when the plaintiff can prove both of these elements, will he/she be able to recover from a broker or agent.
It is not easy being a broker or an insurance agent. Each client has their own particular insurance needs. In order to avoid a negligence claim, a broker should ensure that proper time is taken to assess a client’s insurance needs. The broker will have to advise and educate the client on all options, especially when those options have changed, and a broker will then have to carry out the client’s instructions. Ontario’s accident benefits changes have increased the risk for brokers and agents by adding options for motor vehicle insurance consumers. The fallout from this added risk will only begin to be seen over the coming months and years.
James Dunn is a senior partner in the law firm of Blouin Dunn LLP, and Brendan Lanigan is an associate with the law firm of Blouin Dunn LLP. Both specialize in all areas of insurance defence litigation.
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the December 2011 edition of Canadian Insurance Top Broker magazine.
This story was originally published by Canadian Insurance Top Broker.