Anything but fine: a Look at errors & omissions

Over the coming weeks, we are going to write about Error & Omissions (E&O). What can create a claim, how to possibly reduce them, and how their effect can be mitigated?

Most people recognize the value of a broker to counsel and to offer solutions when dealing with risk. In part, the broking community has become successful due to the high level of expertise and competence it serves the public. This was not always the case.

Prior to a single significant event in 1976, almost anyone could obtain, without training or knowledge, an insurance agent’s license and sell insurance.

Most brokers, at one time or another have come across the “Fine’s Flowers vs General Accident of Canada” case-study. I also suspect, however, that most brokers don’t recall its importance. It’s difficult to overstate the impact that this had at the time. 

To quickly re-cap, Fine’s Flowers had asked its insurance agent, as they were known at the time, to arrange policies to provide full coverage for its entire greenhouse operation. A loss occurred and was denied because of inadequate coverage. Fine’s Flowers sued the company and the agent on the basis that the agent failed to provide the requested coverage but they lost when the lower court found that the actions of the agent, as incomplete as they were, were entirely consistent with the standard expectations of insurance agents at the time. 

Fine’s Flowers appealed the decision and won. The Ontario Court of Appeal decision created a sea change in the insurance industry. It declared that being consistent with the industry standard doesn’t mean that those standards are consistent with the agent’s obligation to an uninformed client.

The opinion has become known as the “intelligent [Broker] test”:

“The solution lies in the intelligent insurance [broker] who inspects the risks when he insures them, knows what his insurer is providing, discovers the areas that may give rise to dispute and either arranges the coverage or makes certain the purchaser is aware of the exclusion”.

A concise and accurate job description for a broker.

The public may not be aware of this “test”, but they have come to trust that if a broker holds themselves out to have competence and expertise, they will, in fact be competent and be an expert. If the broker fails to meet these reasonable expectations and if a loss ensues, there will likely be an E&O claim filed by the client.

In fairness, clients generally sue only as a final option. It is often brought about by a break down in trust or lack of communication or both.

Part two of this series will deal the issues of communication since the ability to communicate effectively is the single most important skill for a broker.