*Since the writing of this blog the decision has been reversed (overturned).
In his May 2016 decision (2016 ONSC 2567) Justice Dow heard and granted a Summary Judgment motion brought by Aviva seeking to dismiss a subrogated action brought by an insurance broker’s errors and omissions (E&O) insurer. The subrogated claim sought recovery from Aviva and a declaration that the insurer had a duty to defend and indemnify for any person injury claim arising from the subject collision. Justice Dow found that the Brokerage Agreement, which governed the relationship between the broker and insurer, contained terms that functioned as a complete defence to the subrogated claim. Justice Dow also found that the insurer had no duty of care to the broker to determine the customer/insured’s requirements. Frankly, based upon the clear provisions found in the Brokerage Agreement it would appear that the subrogated claim was simply a desperate move advanced by the E&O insurer.
The subrogated claim arose because in June 2013 WZ requested that his insurance broker, RC, change his insurance for a Mercedes Benz CL-320 insured with Jevco to a 2010 Mercedes Benz CL-350 he had acquired. RC issued a new liability insurance card to WZ but failed to process the changed with the insurer. In March 2014, when the policy was to be renewed RC arranged for insurance with Aviva on behalf of WZ, and purportedly bound Aviva to (erroneously) insure a 2008 Mercedes CL-320. WZ paid premiums to Aviva, but on the wrong vehicle. WZ was involved in a collision on October 2, 2014, with his 2010 Mercedes CL-350, resulting in significant property damage and exposure for a personal injury claim. Aviva took the position it did not cover the loss, and voided the policy, refunding WZ his entire policy premium. RC’s E&O insurer paid WZ’s property damage claim and brought a subrogated claim against Aviva seeking recovery of monies paid to date, and a declaration of Aviva’s duty to defend an indemnify for any bodily injury claims in accord with the terms of the policy issued for the (non existent) 2008 Mercedes CL-320, which was not involved in the subject collision.
It was known that if the proper vehicle (2010 Mercedes CL-350) were insured, then WZ would have had to pay a slightly increased premium. It was established that the relationship between RC and Aviva was governed by a Brokerage Agreement of June 15, 2011 between Aviva and Prolink Broker Network. The case turned on the provisions of the Brokerage Agreement.
Justice Dow addressed three issues at the summary judgment motion: 1) duties owed by the insurer arising from the contract(s); 2) any duty in tort owed by the insurer; and 3) Whether the equitable remedy of recoupment was available to RC from Aviva.
Duties Arising from Contract:
Justice Dow found that WZ’s automobile insurance policy did not give rise to any duty between Aviva and RC. RC was not a party to that contract, and thus it did not apply.
Justice Dow examined the broker agreement between RC and Aviva, and found that it contained clauses that placed the situation outside the jurisprudence relied upon by RC’s E&O insurer. Justice Dow specifically noted clauses in the brokerage agreement governing duties to defend and indemnify, and concluded that the contract was a complete defence to the claim advanced by RC. In short, the Brokerage Agreement had a clear term that the insurer was not responsible for claims that arose from RC’s own negligent acts/omissions.
Duties Arising in Tort:
Justice Dow also examined whether there was any duty of care (in tort) owed by Aviva to RC. There was no such duty.
Dow J. noted, as per Justice Lofchik in Boudreau v. Ontario Soccer Assn. (at para 25), “When dealing with an experienced broker, the insurer owes no personal duty directly to the insured; the insurer’s only obligation to the insured is to issue a policy in accordance with the application submitted.”
Justice Dow also noted that as per Justice Stinson in Ostenda v. Miranda (at para 44-48), insurance brokers are a regulated industry, wherein they assess an insured’s needs and procure policies for same in order to be paid. Justice Stinson found that if the law imposed a duty on the insurer to also determine an insured’s needs then the duplication of effort would result in increased expense for an insured. Picking up on these notions it was agreed that there should not be such an additional duty imposed upon Aviva with respect to its independent broker.
Justice Dow found that while it may be attractive to find that where an agent has been negligent in its dealings with an insured, an insurer is not entitled to indemnity as against the agent except for the premium if the risk would have been accepted in any event. The brokerage agreement, was a complete bar to such an argument.
Justice Dow’s conclusion was supported by the fact that WZ had been fully indemnified for his losses by the E&O insurer, and opined that to find in favour of the E&O insurer would mean ignoring the terms of the brokerage agreement, meaning there would be little need for RC to have E&O insurance.
If there is one lesson to take away from this Summary Judgment motion it is simply that when debating questions of coverage one must first look to the terms of the contract governing the agreement between parties. Clear provisions outlining one’s duties and obligations can and will act as a complete defence when a party tries to get around a contract and find a duty to defend/indemnify through other means. This decision is timely as it will likely be a precursor to much litigation between insurers and brokers in the coming months and years over automobile insurance coverage. In light of the vast changes to the auto product, the drastic reduction of mandatory accident benefit coverage, with added optional coverages, and offsetting increased tort exposure, brokers will be sued by insureds much more regularly, and brokers will in turn likely be looking to share the heat they will be enduring with the insurers with whom they do business. A clearly written brokerage agreement will help define who bears these increased risks.