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Listen Carefully, Advise Properly

Publication date: April 28, 2020

This column discusses a Syndic’s Office investigation that led to the filing of a formal complaint before the Discipline Committee. Its purpose is to encourage you to reflect on best practices you should implement in order to comply with your ethical obligations.

A Real-Life Case

The insured runs a tanning salon in a rented commercial space. When the building owner evicts her, she decides to suspend her business activities and store her equipment and tanning beds in her garage.  

The insured decides to rent a truck to move her equipment. The counter clerk at the rental agency suggests she notify her insurer. The insured immediately contacts her broker to advise him of her plans.  

The broker asks her where she intends to store her equipment. She responds that she has rented a 20-foot truck and that she will be hiring experienced people to dismantle the equipment and load it onto the truck. She adds that she herself will be driving the truck to her garage and gives the broker the address where the equipment will be stored.  

The broker then tells her that he will notify the insurer that “the property will be at this location temporarily until such time as she decides to either relocate her business or sell her equipment.”[1]

At the same time, the insured asks to change certain aspects of her insurance coverage, including her third-party liability coverage, which is no longer needed, as well as the number of machines insured. She requests that one machine, belonging to another insured who is also named on the contract, be removed from the contract.

Before the move, the insured signs a document that the broker has prepared entitled “Confirmation of a Request for a Change.”

The Loss

Once the rental truck is loaded, the insured sets off. While driving along, she swerves to avoid a dog in her path and loses control of the vehicle, which rolls over on its side.

The insured calls the broker to declare the loss. According to her, the equipment (computer, printers and other IT equipment), as well as the tanning beds that she was transporting, are a “total loss.”

During the conversation, the broker admits to having understood that the specialists were responsible not only for dismantling and loading the equipment, but also for transporting it to its destination. The broker begins the claims process with the insurer.

Shortly afterwards, the insured learns that her loss will not be covered, since her contract does not include freight insurance; in fact, her contract only covered her property once it had arrived at the new address.

The broker had mistakenly understood that the insured was doing business with professional movers, and failed to propose that she purchase coverage to protect her property in transit.

The Investigation: Identify the Needs

Essentially, the Syndic’s Office took the broker to task for not having correctly identified the insured’s need to cover her business property during transport.  

Insurance representatives must personally gather the information that is necessary to assess a client’s needs, in order to propose the insurance product that best meets those needs.[2]

Yet the insured had given the broker very clear information: the professionals she had hired were not movers, but rather people who had been hired to dismantle the tanning beds and the other equipment and load everything onto the truck, which the insured would then drive. The broker was therefore negligent.

A damage insurance broker must always carefully listen to the information and details his client gives him in order to properly identify the client’s needs. Why? In order to offer him insurance coverage that is relevant to his needs under the circumstances.[3] [unofficial translation]  

The Investigation: Follow Up on the Instructions

The Syndic’s Office also criticized the broker for having acted negligently by not following up on the insured’s instructions to check the possibility of cancelling the business’s third-party liability insurance, owing to the temporary interruption of her business activities.

A damage insurance representative must, without delay, follow up on the instructions that he receives from a client or notify him that he is unable to do so. He must also inform his client of any impediment to the continuation of his mandate.[4]

The insured had made sure to tell her broker that the third-party liability insurance was definitely no longer necessary, since the business was no longer in operation.

Although the broker mentioned that he would follow up with the insurer, it appears he did not verify with the latter whether or not it was possible to cancel the third-party liability insurance coverage.

Furthermore, a professional who is unable to carry out a client’s instructions must notify the client of this as soon as possible.

The Investigation: The Duty to Report

Lastly, the Syndic’s Office criticized the broker for having failed to report to the other insured named on the contract that the insurance coverage for her property had been removed.

The fact that a damage insurance representative acts contrary to the honour and dignity of the profession constitutes a breach of Code of ethics, including:

[…]

(4) failing to report on the carrying out of any mandate;[5]

In fact, when the insured called the broker, she realized that nine tanning beds appeared on the contract although one of them belonged to a partner who had left the business.  

The broker should have notified the other insured named on the contract that her equipment was no longer covered.  

In terms of strict liability, as is the case here, a defense of due diligence is permissible. This defense rests on the shoulders of the offender who must prove, on a balance of probabilities, that he took all reasonable precautions to avoid the event in question.[6] [unofficial translation]

The Syndic’s Office did not believe that the broker made any serious effort to find the former partner’s contact information, nor did he impress upon the insured that she needed to give him this information. In short, he did not show that he had taken every reasonable precaution to contact the owner of the tanning bed that had been removed from the insurance contract.

Guilty of Three Charges

After a thorough, confidential investigation, the Syndic’s Office filed a formal complaint with the Discipline Committee against the damage insurance broker. After the hearing to determine guilt, the Discipline Committee found the respondent guilty of the following three charges:

  • Having failed to identify the insured’s needs by not providing her with insurance coverage for her property while in transit.[7]
  • Having failed to follow up on the insured’s instructions to verify the possibility of cancelling her third-party liability insurance since her business had ceased operations.[8]
  • Having failed to report to the other insured named on the business lines insurance contract that coverage for her property had been removed.[9]

The Sanction

The Discipline Committee considered that the offences committed lay at the very heart of the profession, and that the insured had suffered harm.  

The lawyers for the two parties made a joint recommendation regarding sanctions that was accepted by the Discipline Committee,[10] which fined the respondent a total of $8,000.

 

[1] Chambre de l’assurance de dommages v. Lachapelle-Couturier, conviction 2018-02-01(B).

[2] Previous version of section 27, the Act respecting the distribution of financial products and services. The offense was committed before June 13, 2018, the date at which Bill 141 was passed. See p. 37 to learn more about this topic

[3] Chambre de l’assurance de dommages v. Lachapelle-Couturier, conviction 2018-02-01(B).

[4] Section 26 of the Code of ethics of damage insurance representatives.

[5] Section 37(4) of the Code of ethics of damage insurance representatives.

[6] Chauvin v. Beaucage, 2008 QCCA 992 (CanLII) ruling.

[7] Section 27 of the Act respecting the distribution of financial products and services.

[8] Section 26 of the Code of ethics of damage insurance representatives.

[9] Section 37(4) of the Code of ethics of damage insurance representatives.

[10] Chambre de l’assurance de dommages v. Lachapelle-Couturier, decision on a sanction 2018-02-01(B).