The Nova Scotia Court of Appeal has just limited the scope of the standard of care applicable to insurance brokers
The Nova Scotia Court of Appeal recently released its decision in Marsh Canada Ltd. v. Grafton Connor Property Inc, partially reversing the lower court’s decision, which had been widely seen as expanding the scope of the standard of care applicable to insurance brokers.
The insured’s commercial property burned down in 2007. The insurer denied coverage on the basis that the insured had misrepresented material features of the building in its application for insurance. The insured claimed against its insurer and its broker, Marsh Canada Ltd.
A welcome decision for the Canadian brokerage community
The Court agreed that the insurer was entitled to void the policy for misrepresentation, but -- in an unpleasant surprise for brokers -- found Marsh Canada Ltd. liable for 50% of the insured’s loss, holding that in complex insurance transactions, the standard of care requires brokers to make inquiries as to whether or not their clients have "the necessary skill to provide accurate information" on insurance applications (Ibid at para 318). It should be recalled that the information at issue was whether the building was of masonry construction, and whether it contained sprinklers.
The Court of Appeal reversed the decision on that point of law, holding that the imposition on an agent to verify information which is in the knowledge of the insured was a “...significant departure from the law as it presently exists” (Ibid at para 116-117) and that a broker “should be entitled to rely upon the applicant’s ability to represent ... basic information correctly without further investigation" (Ibid at para 123).
While this is a welcome decision for the Canadian brokerage community, it should be remembered that the risk at issue was a commercial property risk. As the degree of sophistication of a particular risk grows, so too will the standard of care.