Home Team Advantage

Habitational insurance was the order of the day at the Insurance Brokers Association of B.C. (IBABC)’s 62nd annual Annual Conference & Trade Show, held in Victoria, B.C. in June.

The B.C. brokers’ association has been front and centre in publicizing issues around the insurance to value (ITV) issue. Several brokers used the seminar as an opportunity to raise their concerns with a representative of the Insurance Bureau of Canada (IBC) about the dilemmas associated with using several different cost calculators to evaluate the reconstruction costs of homes.

Also, a B.C. lawyer brought to the brokers’ attention a recent case that deals with a broker’s duty of care to advise about gaps in a client’s home insurance coverage. The case involves an innocent co-insured who was listed on a home insurance policy that included an intentional act exclusion for criminal activity.

A BROKER’S DUTY TO ADVISE

A February 2010 B.C. Supreme Court case, Beck v. Johnston, Meier Insurance Agencies Ltd., spells out the onus on brokers to advise clients of gaps in homeowners’ coverage, particularly in situations when the client has changed dwellings.

Krista Prockiw of Clark Wilson LLP referred to the case in her presentation during the IBABC’s home insurance seminar. The case is currently under appeal.

The case involved a tragic set of circumstances that led the court to consider whether the broker had sufficiently advised a client about an intentional act exclusion in her homeowners’ policy.

Richard Beck murdered his wife, Karen Beck, in November 2007 and then set fire to the house she owned, which had been their family home and where Richard Beck had resided since his wife had moved out in 2005. Richard Beck then killed himself.

The Becks were co-insured on the home. The insurance policy contained an intentional act exclusion, meaning the policy did not cover damage arising out of any intentional criminal acts.

After settling a claim with the insurer, Canadian Northern Shield, for 50% of the value of the home, Karen Beck’s son, representing her estate, went after the broker for the balance of the home’s value. The estate argued the broker had failed to advise Karen Beck of an opportunity to change her coverage — i.e., to a policy that did not contain an intentional act exclusion — once the broker had found out she no longer lived in the family home.

The court found three different occasions when the broker could have — and should have — reviewed Karen Beck’s homeowners’ insurance with her.

“On September 1, 2006, Mrs. Beck went to the defendant’s Chilliwack office and purchased a tenant’s insurance policy for her new residential address, an apartment she was renting,” the court stated of the first occasion. “Despite this being a clear indication that Mrs. Beck was living somewhere other than the home for which she had home insurance, the broker asked her no questions about her insurance needs for her own home, and gave her no advice in this regard.”

On the second occasion, in January 2007, Karen Beck contacted the brokerage’s Maple Ridge office, and cancelled her tenant’s insurance policy because she had moved in with her parents.

On the third occasion, the broker called Karen Beck in May 2007 to speak with her about her policy renewal. The broker did not get in touch with Karen Beck, who did not return the broker’s call.

Subsequent to these three separate contacts with the brokerage, Karen Beck’s home insurance policy automatically renewed, the court found.

The broker argued that even if the alternative tenant’s package had been offered to Karen Beck, she would have declined it, since the alternative coverage was more expensive and she did not have the money to pay for it. Ultimately the court found that had the broker advised Karen Beck of the more expensive coverage, she would have made the switch to escape the intentional act exclusion in her home insurance. She would then have been covered for her husband’s (or any other tenant’s) illegal acts.

“I find that if Mrs. Beck had received proper advice from the defendant’s brokers, she would have been advised that her homeowner’s policy showed Mr. Beck as a co-insured, that one of the exclusions in the policy meant that she would not have coverage for any intentional acts by him, and that she could obtain on the market a rented dwelling policy that would not have a similar exclusion, but it might be more costly,” Supreme Court of B.C. Justice Susan Griffin wrote for the court. “I find that if Mrs. Beck had received this advice, it is more likely than not that she would have chosen to obtain a rented dwelling policy without an exclusion for intentional acts of a tenant, whether the tenant be Mr. Beck or someone else.”

WHY INSURERS WILL NEVER REQUIRE BROKERS TO USE A SINGLE COST CALCULATOR

Canada’s Competition Act is the main reason why the Insurance Bureau of Canada (IBC) will have nothing to do with the idea of insurers requiring brokers to use a single cost calculator for the purpose of calculating the reconstruction costs of a home.

The idea of insurers governing the brokers’ use of a single calculator was raised several times during an insurance-to-value (ITV) panel discussion at the IBABC conference.

During the question-and-answer session, one broker cited the consequences of three or four different cost calculators in B.C. “People are using the calculators for shopping,” he said.

For example, brokers could potentially use several different calculators to calculate the reconstruction cost of the same home, and then submit the lowest reconstruction cost estimate to the insurer in order to guarantee the lowest insurance quote for the consumer insuring the home.

Lindsay Olson, IBC’s vice president of B.C., Saskatchewan and Manitoba, said IBC’s best practices guide for ITV discourages a broker’s use of multiple cost calculators to shop for the least expensive insurance quote.

Upon hearing this, one audience member pressed Olson further on the point of whether insurers would go so far as to require brokers to use just a single cost calculator, thereby effectively abolishing the potential to comparison shop.

“The only way this [situation] is going to improve is if the insurance companies have the balls to say:’We’re not going to take multiple copies. You have to pick one and stick with it,'” the broker said.

Prior to this comment, Olson said that when push comes to shove, the Competition Act prevents insurers from enforcing a broker’s use of a single calculator.

“As for choosing a single tool…one of the things we [an IBC committee investigating such a possibility] bumped into [years ago] were issues around competition,” Olson said. “We have a thing in Canada called the Competition Bureau. There is this legislation called the Competition Act. And if we restrain competition by limiting the options that are available for choosing a specific supplier [against] another supplier, you are in contravention of the act. And there are some pretty severe penalties that go with that.

“So choosing between going to jail or not, we prudently decided we would not go there. That’s a non-starter.”

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A February 2010 B.C. Supreme Court case, Beck v. Johnston, spells out the onus on brokers to advise clients of gaps in homeowners’ coverage, particularly in situations when the client has changed dwellings.