May 25, 2020, Kitchener, Ontario
Posted by: Robert Deutschmann, Personal Injury Lawyer
Broker Not liable in case of “I told you to do that” - 2049390 Ontario Inc. v. Leung, 2020 ONCA 164 (CanLII)
Date of Decision: March 3, 2020
Heard Before: Doherty, Brown and Thorburn JJ.A.
Heard on appeal decision by Thorburn J.A.
DUTY OF CARE: insurance brokers owe duty of care to clients; no breach in duty of care by the broker; they made it clear that the valuation of the property was a rough estimate; onus to provide accurate up to date valuation was on insured;
2049390, the appellant, appealed a trial judge’s dismissal of a claim for negligence and breach of contract. The appellant is the owner of a commercial property that was destroyed by fire in 2012.
The appellant’s insurer refused to cover the cost of rebuilding the property because it was underinsured and the insurer opted to pay out the value of the building limit under the policy. It also charged a co-insurance penalty because the property was underinsured by more than 10% of its value.
As a result of the under payment, the appellant sued its insurance brokers Pacific Insurance Broker Inc. and one of Pacific’s licensed insurance brokers, Doris Leung alleging that they had failed to secure adequate reconstruction cost insurance for the building and were liable for their ensuing losses.
The appellant claims the respondents were negligent and/or breached their contract with the appellant. The respondents defended on the basis that they met their duty of care and contractual obligations to the appellant.
The trial judge dismissed the action. On appeal, the appellant claims the trial judge erred by:
- “refusing to enforce the [respondents’] promise to provide adequate coverage”;
- “excusing the [respondents] for having given an estimate of building costs they were unqualified to give”; and
- “relieving Leung of admissions that she did not qualify her advice.”
The appellant further claims that the trial judge adopted a flawed approach to causation and damages. Finally, the appellant claims that the trial judge’s reasons gave rise to a reasonable apprehension of bias.
For the reasons that follow, the appeal is dismissed.
Until 2009, the property was insured through ING Insurance. In 2006, the property had a policy building limit of $484,531. In 2008, it was insured with a building limit of $550,000. The building limit increased to $924,000 after the appellant refinanced the property.
In January 2009, ING Insurance issued a policy with a building limit of $984,060. The appellant did not renew the policy. He contacted brokers to find a new insurer. The trial judge found that there was a sense of urgency in securing the insurance. Kan contacted Leung on January 20, 2009 by late night email and indicated that the policy was going to expire in February 2009. Several email exchanges between Kan and Leung also note the urgency to secure insurance for the property.
Leung asked Kan for the property’s current insurance policy. Kan provided her with the original 2008 policy with a building limit of $550,000 but did not provide her with the revised 2008 policy in the amount of $924,000 or the 2009 quote for renewal in the amount of $984,060.
The respondents provided the appellant with a quote from The Dominion of Canada General Insurance Company with a building limit of $850,000 for 2009, to increase each year thereafter. The appellant purchased the insurance.
The trial judge found as a fact that Kan, the appellant’s principal, was a sophisticated client who was “in a good position to assess whether his insurance coverage was sufficient” on the basis of his occupation (realtor and mortgage broker) and position in the company.
The trial judge accepted Leung’s evidence at she used a “rule of thumb” of $200 per square foot to arrive at the $850,000 estimate. The trial judge also accepted Leung’s evidence that, when they met in person on January 29, 2009, Leung advised Kan:
… about the need to insure the full value of the property to avoid a penalty … [S]he also told Mr. Kan that the [respondents] were not cost consultant professionals and that he should consult a cost consultant or professional appraiser to get an accurate estimate of the cost of rebuilding the property.
After their meeting, Leung sent a letter to the appellant on February 23, 2009 which included the following warning: “[I]f you have not insured your property up to the amount of insurance required, you may become a CO-INSURER”. She also enclosed with the letter a “Guide to Co-insurance” which reiterated the importance of obtaining an accurate appraisal of the property’s value:
A regular and careful review of the value of your insured property is essential if Co-Insurance penalties are to be avoided. We recommend your insurable values be frequently reviewed by a competent, independent appraisal company.
Leung testified that she had similar conversations with Kan each time the 2009 policy was renewed and that she would have provided him with documents advising him to review the value of his property upon renewal. She testified at trialabout the advice she gave the appellant and her reasons for the advice that she gave:
We are not contractors, we are not involving in constructions, I don’t know. I’m providing a coverage like against fire, against water damages … The limit we are – we would not be able to appraise the building limit on the client’s behalf [sic].
- Did the trial judge err by invoking the wrong test to determine whether there was a breach of the broker’s duty to the insured?
In respect of the first three grounds of appeal, the appellant submits that the central issue is whether the trial judge applied the wrong legal test to determine the respondent brokers’ obligation, resulting in an erroneous conclusion that the respondents did not breach their duty of care or contractual obligations in providing insurance.
Several issues were determined to be resolved before the appeal. These were the remaining arguments.
The appellant submits that the respondents represented that the estimate would ensure adequate insurance coverage. They were thereby in breach of their duty of care and/or made a negligent misrepresentation. Alternatively, the appellant submits that the respondents had a contractual obligation to provide “adequate insurance” and failed to do so, resulting in damages to the appellant.
The appellant submits the trial judge should not have distinguished an “accurate” estimate to be acquired through a professional appraiser from the “rough estimate” provided by the broker because the broker had contracted to provide “adequate” insurance.
The appellant submits this is so, regardless of whether the respondents advised the appellant to seek expert advice if they wished to obtain an accurate assessment.
In her reasons, the trial judge accepted that insurance brokers owe a duty of care to their clients to provide information and advice about “which forms of coverage they require in order to meet their needs” and found that the respondents discharged their duty to the appellant by advising Kan that the appellant should obtain adequate coverage, that the respondents did not have the expertise to provide an accurate estimate of the appellant’s reconstruction costs, and that the appellant should obtain expert advice.
Both the appellant’s and respondents’ experts agreed that insurance brokers are not qualified to give replacement cost advice to their clients and that it is a best practice to advise clients about the need to obtain expert advice.
The trial judge held that the respondents met the standard of care
- Leung provided a quote based on industry norms,
- made it clear that she was not qualified to provide an accurate value, and
- advised the appellant to obtain an opinion from a qualified expert.
As such, she strove to provide suitable insurance.
The trial judge did not err when she concluded at para. 81 that the respondents met their obligations toward the appellant:
Did the trial judge’s reasons give rise to a reasonable apprehension of bias?
The appellant submits that the trial judge did the following things in her reasons for judgment which create a reasonable apprehension of bias:
- Deliberately writing the decision in such a way as to avoid assessing damages for reconstruction;
- Drawing a faulty distinction between accurate and rough estimates; and
- Reversing the motives of the insured and the broker.
A party alleging bias has a “high burden” to meet given the “strong presumption of judicial impartiality”. The Court of Appeal did not agree that the burden was met in this case. The trial judge’s approach to liability and damages was sound. The reasons for judgment give no indication that she engaged in backward reasoning and every reason to believe she decided the case based on the evidence and argument.