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The Obligation to Speak to All Co-insureds

Publication date: July 15, 2021

Accent Déonto receives many questions from professionals seeking to act in accordance with their ethical obligations. Situations can sometimes get complicated. Here are a few real-life cases that focus on the same breach: failing to speak to all the insureds named on the contract.

A woman who owns a home with her spouse calls an agent to purchase home insurance. After completing the needs analysis, the agent issues a contract in the names of both owners.

A couple separates. The wife keeps the house. She asks the broker to remove her ex-spouse’s name from the home insurance contract even though he is still a co-owner.

Whether you are quoting for a new contract, making changes during the term of the contract, adding or withdrawing coverage at renewal time, or removing an insured, terminating the contract, or making a claim, the ChAD is there to remind you of your obligations when several insureds are named on the contract.   

Who is named on the contract?

Unless a power of attorney or a note in the file specifies that the person you have contacted is mandated to manage the insured’s file, make sure to speak to the insured or, if there are several insureds, to all those named on the contract.

Even if it is a mother shopping around for her child’s car insurance or a grandson helping his grandmother with her home insurance, you must always avoid third-party interference in your client’s file.[1]   This means that you must gather the necessary information from the named insureds in order to identify their needs and offer them the product that meets their needs [2]. You must then describe the proposed product and the nature of the coverage before they enter into a contract[3] .

Moreover, be careful if you are contacted by an occasional driver mentioned in the contract or a person living in the same household: although they are identified and covered by the contract, only insureds named on the declarations page may request changes or give instructions.

When Making a Quote

A client is purchasing automobile insurance for the family car. The agent offers him insurance based on the instructions he received and lists both owners of the vehicle as named insureds. She only sends a confirmation to the client. 

Regardless of the type of insurance (home, auto or business), if more than one insured is named on the policy, the agent or broker must obtain consent from each one of the co-insureds. That said, a spouse or business partner may wish to designate one person to be responsible for the file. In such cases, a written power of attorney should be put in the file, or verbal consent noted in the client-file. You should also inform the co-insureds that this power of attorney will allow the person responsible to make changes to the coverage provided for in the contract. The power of attorney can be withdrawn at any time.

A real estate investor provides financing to new homeowners and offers turnkey service that includes purchasing home insurance. On behalf of the homeowners, he purchases insurance coverage from a broker [4].

The broker must not simply rely on the investor’s instructions: he must obtain the information and instructions from the insured homeowners named on the insurance contract. The same would hold true if a car dealership contacted an agent or broker to change the vehicle in their client’s automobile insurance contract.  

Remember that you must avoid any third-party interference in your client’s file [5], as this could influence the needs analysis, especially if they provide inaccurate or incomplete information. If you do not speak directly with the insured, you might fail to send the necessary information to the insurer, or misunderstand and improperly analyze the insured’s needs, which would affect the underwriting conditions and possibly cause significant prejudice to the insured.

You can find another story illustrating section 37(3) in the illustrated code of ethics of  agents and brokers.

 

A vehicle owner contacts his broker to purchase an automobile insurance contract. In keeping with the instructions he received, the broker adds the owner’s spouse as a named insured, even though she has no insurable interest, being neither the owner, the driver, nor the creditor [6].

The broker should not have drawn up the contract without contacting the insured named on the contract and obtaining her consent. He failed to act as a conscientious advisor by neglecting to inform the insured of her rights and obligations [7] . In particular, he should have gathered the necessary information from the spouse and described the proposed product to her in relation to her needs[8] .

Request for Changes to the Contract

Following a separation, a man continues to live alone in the house although his ex-spouse remains a co-owner. He asks his broker to cancel his insurance contract so that he can go to another insurer and purchase a contract as the sole owner. His spouse refuses to sign the contract cancellation since the house is still in both their names.    

The broker cannot cancel the contract without the wife’s consent since she is also named on the home insurance contract. Even if the husband submits proof showing that he is now the sole owner of the residence in question, the broker must verify with the co-insured whether any of her belongings remain in the house before removing her name.

Two business partners own a fleet of delivery trucks. One of the co-insureds calls to add his personal car to their commercial-lines automobile insurance contract. 

Any change to an insurance contract requires the consent of all the named insureds, except if a note in the file indicates that the person who contacted you has been mandated to represent the other insureds. For example, the partner responsible could request that a truck used for business be added to the commercial-lines automobile insurance contract. However, if this person requests that his personal vehicle be added to the contract and that the premiums be paid by the two partners, the broker could question the existence of an insurable interest and would have to obtain the consent of the other co-insured.

On the other hand, a request to cancel the contract could be made by the person mandated to be responsible for the insurance. A confirmation would nevertheless have to be sent to all the co-insureds named on the contract.     

Removing a Co-insured from the Contract

An insured calls his broker to request that the coverage of a second home be removed from his home insurance contract since this home now belongs to his former spouse. The man provides a notarized document proving that he gave up the house and explains that his ex-wife has purchased her own insurance policy for this house. 

The broker must obtain consent from the ex-wife named on the contract, failing which he cannot remove the coverage.  This action could cause considerable harm to the insured ex-spouse if she has not yet purchased her own insurance for the house. However, if the broker receives confirmation that she has the required coverage for the house, he may proceed with his client’s request.  

A five-partner dental clinic holds a commercial-lines insurance contract. One of the dentists is mandated to take care of the clinic’s insurance. This partner would like to remove one of the dentists from the insurance contract.   

Even though one person has been designated to manage the insurance contract, when it comes to removing a co-insured, the agent or broker must obtain the consent of the co-insured in question before removing him from the contract.

An insured who owns a tanning salon decides to suspend her business and put her eight tanning beds into storage. When she contacts her broker to adjust the coverage in her contract, she realizes that one of the tanning beds listed in the contract belongs to a partner who has left the business. She asks to have this person removed from the contract [9] .

Since the bed is listed under the name of another insured named on the contract, the broker must notify this person before removing the insurance coverage on their property [10] .

Who can make a claim?

At renewal time, the manager of a housing co-op notices that the home insurance contract’s deductible has increased significantly. Her broker tells her that a member/tenant made a claim during the year. This surprises her, since she believes that she is responsible for the co-op’s affairs and is therefore the only person who can make a claim.  

A syndicate of co-ownership notices water damage in a co-owner’s unit. Since the cost of repairs barely exceeds the deductible, the syndicate decides not to make a claim. Unhappy, and fearing the damage will worsen, the co-owner calls the syndicate’s insurer himself to start the claims process.    

Anyone who has an insurable interest may report a loss and make a claim for damages. However, the person responsible for the file must be notified. It is therefore essential for the agent or broker to indicate in the client-file the mandated person(s) who are responsible for dealing with claims, so that they may be notified in due course. Should a loss occur, the claims adjuster assigned to the file will make sure to contact the individuals named on the contract in order properly follow up and receive instructions on how to proceed with the file.   

What should you do if you cannot find a co-insured named on the contract?

You must do the necessary research to find the client, such as checking with contacts in the file (financial institution, creditor, spouse, employer, references) or conducting an Internet search. If you have the co-insured’s contact information but they do not respond to your attempts to reach them, send them a written message with an acknowledgement of receipt in which you explain the reasons for the steps you have taken and the importance of contacting you.

If you fail to obtain the insured’s approval before making changes to the contract, ensure your decision limits any potential harm to him. For example, if a recently divorced man wants to remove his former spouse’s car from his automobile insurance contract, you must obtain the ex-spouse’s consent before ending her coverage since she is a co-insured. Even if you are unable to reach a named insured, never cancel a contract without taking reasonable steps to mitigate any potential harm and avoid leaving the insured without coverage.

In sum, you must demonstrate that you have taken reasonable precautions and been diligent in avoiding potential harm to the co-insureds; this includes making a serious effort to find the person in question and insisting on obtaining their consent or the required information.

Do not forget to make a note in the client-file of all the steps you took and the results of your research to show that you have taken all the necessary steps and actions.

[1] Section 37(3) of the Code of ethics of damage insurance representatives. 

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

[3] Section 28 of the Act respecting the distribution of financial products and services.

[4] Chambre de l’assurance de dommages v. Filion, 2020-08-14(B)

[5] Section 37(3) of the Code of ethics of damage insurance representatives.

[6] Chambre de l’assurance de dommages v. Michaud, 2019-04-03(B).

[7] Section 37(6) of the Code of ethics of damage insurance representatives.

[8] Section 28 of the Act respecting the distribution of financial products and services.

[9] Read Listen Carefully, Advise Properly – Chambre de l’assurance de dommages (chad.ca)

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