Broker fined after backdated coverage confusion

A veteran Manitoba broker who had no binding authority was fined $2,500 by the provincial regulator for confirming a client’s coverage before he had even sent an application to the insurer, apparently on the assumption that the insurer would backdate coverage.

“Council believes it is not the usual practice of property insurers to backdate coverage,” the Insurance Council of Manitoba wrote in the decision, released May 4. “The [broker] expressed the notion that the insurer might have backdated coverage here, even when it knew that this would mean it had to indemnify the complainant for a loss which had occurred before the insurer had even received an application for coverage. In Council’s view, this was highly unlikely.”

On May 11, 2017, broker Erling Harris sent an email to confirm that a client’s boat was covered. Eight days later, the boat and motor were stolen from a gated storage facility.

On May 23, the client paid the premium associated with the policy he thought he had. The following day, the broker sent the insurance application form to the client. The application was signed that day with the requested effective date of May 11.

On June 1, the client emailed the broker to report the loss of his boat, providing an RCMP investigation file number. At that point, the client told his broker that he would be submitting a claim.

The broker sent the application to the carrier on June 2, at which time a commencement date was issued.

Weeks later, on July 19, the client informed the broker that an adjuster working on the claim said the broker did not have the authority to immediately bind coverage on May 11 – or at all. Two days later, the adjuster formally advised the client by letter that the insurer denied coverage because the loss had occurred before the policy came into effect.

The broker acknowledged that neither he nor his employer had the authority to bind coverage. He told Council that he had delayed submitting the application to the insurer because he was very busy and because of confusion related to a recent change of ownership at the agency. “He claimed there was, in his mind, a real chance the insurer would backdate coverage to May 11, 2017,” the decision said, adding that the broker felt it was unfair to penalize him for this error after an unblemished 28-year record.

Council found that “it was incumbent on the [broker] to expeditiously submit the application to the insurer. Instead, it was not submitted for more than a month, and only after an intervening loss.” As well, the broker did not inform the insurer that the client had sustained a loss before the submission of the application. When he submitted the claim for the client on June 16, he put that the loss occurred on June 3, one day after the policy came into effect, the council decision notes.

Council said there was certainly nothing wrong with the broker attempting to persuade the insurer to cover the loss, but that he “should not have been surprised at the position taken by the insurer, or that the initial denial of coverage was not reversed.”

The regulator said it recognizes that any broker may err, but in this case the broker’s conduct and communications after the initial errors compounded and magnified the problems. In addition to the fine, the broker was ordered to complete a code of conduct quiz and ethics course within one year.