Client sought $200,000 saying adviser mislead him about insurance cover

However, although the adviser had all the documentation about quotes and the policies involved, he didn’t have detailed notes of the calls and meetings with the client, which could have led to the complaint being discontinued earlier or prevented a dispute being made to the FSCL in the first place.

Originally the client, who was a franchise business owner, had had a number of insurance policies (material damage, public liability and commercial vehicle cover) arranged through a previous adviser, but wanted to change insurers to reduce premiums.

He approached the adviser who was the subject of the complaint and they had a detailed phone conversation in June 2021. He also emailed the invoice schedule for his current policies and the adviser said he would arrange quotes.

The adviser obtained quotes from another insurer for material damage, public liability and commercial vehicle cover, which he passed on to the business owner. The parties met several months later to discuss the insurance.

The following day, the adviser contacted the insurer to say that the business owner wanted to proceed with cover for material damage, public liability and commercial vehicle cover. The adviser also asked for a quote for Directors & Officers insurance with cover up to $200,000. The insurer provided a quote, which the business owner accepted.

However, there were delays and the business owner didn’t become a client of the new adviser until June 2022.  The policies were set up at that point.

In October 2022, the franchisor notified the business owner that he thought he’d breached the franchise agreement. The matter couldn’t be resolved and in December 2022 the franchisor ended the franchise agreement.

In December 2022, the business owner told the adviser about the dispute and asked whether the Directors & Officers policy would cover the legal costs of challenging the franchisor’s action. The adviser said the policy wouldn’t cover these costs.

The business owner wanted to make a claim, and the adviser helped him.

The insurer told the business owner that his claim was not covered by the Directors & Officers policy. The policy provided cover for directors and officers of a business from loss in the event a legal claim was made against them while carrying out their duties for the business. No legal claim had been made against the business owner and the franchisor was not taking court action.

The business owner complained that the adviser had told him during their first conversation that the Directors & Officers policy would cover him for any dispute arising out of any legal or other problems with the franchisor. He sought compensation of $200,000 from the adviser to pay to challenge the franchisor’s decision in court.

The adviser said that the business owner had not told him of any difficulties with the franchisor, and declined to pay compensation. The business owner asked the FSCL to investigate his complaint.

Dispute

The business owner said he explained his insurance needs during the first conversation with the adviser but the adviser failed to arrange suitable insurance. He said he had explained serious problems he had had with the franchisor over several years, including a threat a year earlier to terminate the franchise agreement.

He asked for insurance in case he needed to take legal or other action against the franchisor in the future. He said the adviser told him that the Directors & Officers policy would provide the cover he wanted, and so he took out the policy.

The broker said the client did not tell him about any difficulties he had with the franchisor. If the business owner had done so, he would have told him there was no cover available for this type of situation.

Review

The FSCL was satisfied the adviser hadn’t misled the business owner about the cover under the Directors & Officers policy. There was no information to show that he had told the adviser about his difficulties with the franchisor prior to December 2022.

Further, there was no information to show that Directors & Officers cover was discussed in the first conversation. It was not until the later meeting that Directors & Officers cover was discussed, and it was the adviser who suggested the cover because the business owner was in the construction industry.

Further, while the business owner said it was important to him to get insurance cover in case he had further difficulties with the franchisor, the FSCL noted he had not disclosed these difficulties to his previous broker or insurer when he renewed his policies.