This document summarizes a presentation on brokers' errors and omissions exposure. It discusses the duty of care brokers have and to whom - the insured, insurer, and third parties. Case law examples illustrate that courts increasingly hold brokers to a high standard of care, requiring them to proactively inquire about client needs, point out coverage gaps, ensure adequate coverage is in place, and review coverage at renewal. However, to be liable for a loss, a broker's breach of their duty of care must have actually caused the loss. The presentation emphasizes brokers should proactively advise clients, inquire about their situations, review policies, and ensure proper insurance is in place.

1. Errors & Omissions Insurance
Update: Brokers’ E&O Exposure
Presented by Samantha Ip
Insurance Institute of British Columbia
September 9, 2014

2. Duty of care: To whom is a broker responsible?
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3. Duty of care: To whom is a broker responsible?
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• To the Insured
– Contract
– Negligence
– Fiduciary Duty
– Fraud
– Misrepresentation
• To the Insurer
– Contract
– Fiduciary Duty (if
agents)
– Negligence
• To Third Parties
– Contract (Third party
beneficiary)
– Negligence

4. Standard Of Care
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• To the Insured
– Negligence
Issue: What is standard of care owed by insurance brokers
owe to their clients?

5. 5
Background to Liability- Standard of Care
• “Standard of care” :
– The degree of care owed
– It is what the “reasonable person” or “reasonable
broker” would do in similar circumstances.
– The standard of care owed is dependent on the
circumstances, both in terms of the situation and the
individuals involved.

6. 6
Standard of Care – “Reasonable Broker”
• What is the standard of care owed by a “reasonable
broker”?
– Traditionally, courts viewed brokers as “salesmen”. The
salesmen’s obligation was to sell the product
requested by the client.
– Recently, the trend has been to hold brokers to the
standard of a professional, which imports additional
responsibilities and obligations.

7. 7
Standard of Care – “Reasonable Broker”
• Why does a higher standard of care apply to brokers?
– The insurance industry and brokers have become more
specialized.
– Brokers are commonly experts in the products they
sell.
– Clients can be novices and will defer to a broker’s
opinion.
– Being underinsured can cause severe loss.

8. 8
Bronfman v. BFL Canada Risk and Insurance Services Inc., 2013
ONSC 5372
• Plaintiffs were wealthy individuals whose house was
broken into.
• Thieves removed a 310 pound safe that held expensive
jewellery and $50,000 in cash.

9. 9
Bronfman v. BFL Canada Risk and Insurance Services Inc., 2013
ONSC 5372
• Plaintiffs discovered that their insurance policy contained
several restrictions, including a coverage limit of $10,000
for jewellery and $1,500 for cash.
• Plaintiffs argued that the broker failed to advise of the
coverage limits, and if they had done so, they would have
obtained higher limits.
• The broker’s position: Plaintiff has an obligation to read
their policy, and voice any concerns because they are in
the best position to determine their needs.

10. 10
Bronfman v. BFL Canada Risk and Insurance Services Inc., 2013
ONSC 5372- Decision
• Held: The broker did not maintain a reasonable standard
of care.
• A reasonable standard of care imposes an obligation on a
broker to explain the extent of coverage and to point out
any relevant gaps.
• Key fact: By being aware of the plaintiff’s wealth and the
coverage limits, the broker breached the standard of care
by not advising on, or even addressing, greater coverage.

11. 11
Bronfman v. BFL Canada Risk and Insurance Services Inc., 2013
ONSC 5372
• Brokers must be diligent in assessing the needs of their
clients – a positive obligation.
• Risk management lesson: If a client relies on an agent to
ensure that he or she is protected, then the broker has an
obligation to inform himself of the client’s business or
situation in order to assess the foreseeable risks to the
client.

12. Keizer v. Portage LaPrairie Mutual Insurance Co., 2013 NSSC 118
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• Plaintiffs sued insurance brokerage for breach of contract and
negligence for failing to obtain and confirm the proper
insurance coverage the plaintiffs needed, based on the
information they provided.
• The plaintiff was a retired carpenter
who (1) set up a woodworking shop
in his garage and (2) performed
contract work installing cabinets
and countertops.
• The plaintiff contacted a broker and
informed him that he was seeking
insurance for these activities.

13. Keizer v. Portage LaPrairie Mutual Insurance Co., 2013 NSSC 118
• Broker then contacted the insurer and arranged for
insurance to cover the cabinet and countertop installation
aspect of his business, but not the home woodshop.
• Upon renewal, the broker filled out the renewal without
calling the plaintiff to confirm the currency of the
information. Again, the broker only provided the insurer
with information pertaining to the insured cabinet and
countertop installation, and not the woodshop.
• Shortly after the renewal a fire occurred in the woodshop.
After investigating, the insurer denied coverage on the basis
that operating a woodshop in the garage constituted a
material change in risk under the homeowners policy.
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14. Keizer v. Portage LaPrairie Mutual Insurance Co., 2013 NSSC 118-
Decision
• Brokerage was found liable for negligence
• Held: Court found that standard of care owed by broker was to
place the insurance policies needed by the plaintiffs to cover the
home based carpentry and furniture repair business activities.
• Broker was negligent in two respects:
• 1) The broker who placed the insurance was negligent in
failing to inform the insurer of the home based woodshop.
• This would have alerted the insurer to the insured’s
intention to do have the woodworking shop.
• 2) The broker who renewed the insurance was negligent in
failing to confirm with the insured the currency of the
information regarding the insured’s business activities.
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15. Keizer v. Portage LaPrairie Mutual Insurance Co., 2013 NSSC 118-
Risk management lessons:
• If a broker is informed by a client about a business, it is
important for the broker to ask questions about it, including
the nature and extent of the intended business activity.
• At placement and on renewal
• Brokers must avoid taking shortcuts -
in this case broker failed to ask
clients about any possible changes
during the policy renewal process.
• Brokers must be diligent and proactive
in taking instructions to provide proper
coverage.
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16. Veert Landscaping Inc. v. Ranger Insurance Brokers Ltd., 2013
MBQB 117
• Action for negligence by two corporate plaintiffs against
their insurance brokerage.
• Action brought after a fire occurred at the main shop of the
plaintiffs’ business premises.
• One of plaintiffs suffered a loss; the building and its
contents were underinsured.
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17. Veert Landscaping Inc. v. Ranger Insurance Brokers Ltd., 2013
MBQB 117
• Plaintiffs claimed that broker was negligent by failing to give
proper advice and to ensure adequate insurance and
coverage.
• Broker denied any breach and asserted that the insurance
values and coverage provided were in accordance with the
instructions of the plaintiffs’ owner.
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18. Veert Landscaping Inc. v. Ranger Insurance Brokers Ltd., 2013
MBQB 117- Decision
• Held: Court dismissed plaintiffs’ action.
• Court found that plaintiff owner was the person most closely
associated with his business and in the best position to know the
value of his property.
• In the absence of expert opinion, the court was not prepared to
accept that the defendant broker had an obligation to advise the
plaintiffs to obtain an appraisal of the building and to create a
complete inventory list of contents to ensure they had sufficient
replacement cost insurance.
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19. Veert Landscaping Inc. v. Ranger Insurance Brokers Ltd., 2013
MBQB 117-
Risk Management Lessons
• So far, brokers generally not required to retain other experts.
• While this court did not impose a duty to advise an insured to
obtain appraisals or to create complete inventory lists, it may
be wise for brokers to do so – good risk management.
• Courts may recognize such a duty in the future based
on appropriate expert opinion evidence.
• Brokers can defer to clients if clients have specialized
knowledge in determining the replacement cost of their
property.
• HOWEVER, the safest course of action is to proactively
determine the client’s needs.
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20. Breach of Duty Of Care Does Not Mean Broker Is Liable
• Failure to meet standard of care does not necessarily mean
liability for a loss.
• The breach of standard of care must actually cause the loss
• Test: “But For” the breach would the insured’s loss have
occurred?
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21. McIntosh v. Royal Sun Alliance Insurance Co. of Canada, 2007 FC
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• Insured sees broker for insurance for a new boat.
• Broker is told that the insured plans to use the boat for
commercial purpose at some point in the future.
• Broker suggests the insured insure the boat for personal use
until he uses it for “commercial activities”.
• Broker tells the insured that
“commercial activities” means
taking paying customers on the
boat.
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22. McIntosh v. Royal Sun Alliance Insurance Co. of Canada, 2007 FC
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• Broker tries to obtain commercial coverage, but is unsuccessful.
• Insured incorporates a business for the purposes of running a
charter. He creates business cards and begins to advertise his
services. The insured does not take any paying customers in the
first year.
• Policy comes up for renewal. Policy added a provision that the
policy would be void if the insured concealed or misrepresented
a materials fact relating to the “previous, current or future use of
the boat”.
• At time for insurance renewal, the broker did not have any
communication with insured about the use of the boat. Broker
sends the renewal to the insured and asks him to confirm he
wants the same coverage.
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23. McIntosh v. Royal Sun Alliance Insurance Co. of Canada, 2007 FC
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• Boat is stolen after policy renewal.
• The insurer denies coverage due to material
misrepresentation and claims that the insured engaged in
“commercial activities” thereby voiding the policy
• Insured brings an action against insurer and broker.
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24. McIntosh v. Royal Sun Alliance Insurance Co. of Canada, 2007 FC
23– Decision
• Held: The policy was void
• Court interpreted “commercial purpose” to include more than
taking paying customers – broker interpretation incorrect.
• Key finding of fact: The insured did take paying customers on
his boat.
• Held: Broker failed to meet his standard of care in two ways:
1) Broker has a duty to ask questions: Knowing that the
insured intended to take customers on his boat for charters,
the broker had an obligation to explore the insured’s
business plans. This included what the timeline was for the
creation of the business, and any business activities the
insured might undertake.
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25. McIntosh v. Royal Sun Alliance Insurance Co. of Canada, 2007 FC
23– Decision
2) Duty to give accurate advice: The broker’s advice that
“commercial purpose” only meant taking paying customers,
was incorrect. The broker had an obligation to determine
what the insurer considered “commercial activities” in light
of the fact that the insured intended on operating a
business.
• However– the broker was not liable to the plaintiff on this claim:
• the broker’s failure to meet the standard of care did not cause
the insured’s loss:
• Despite the incorrect advice, the insured did not rely on it to
his detriment. Instead, the insured chose to take paying
customers knowing full well that it could void his insurance.
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26. McIntosh v. Royal Sun Alliance Insurance Co. of Canada, 2007 FC
23– Risk Management Lessons
• Insurance brokers owe a standard of care to the insured to
ensure they have adequate coverage in place in the event of a
loss:
– Ask the necessary questions in
order to assess the risk to the
client.
– Obtain appropriate coverage to
insure the client against those risks.
– Understand the limits of the
coverage and properly convey
those limits to the insured.
• However, to be liable, a breach of
standard of care must actually
cause a loss.
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27. Summary - Risk Management Lessons
1) The recent trend in the case law - courts are placing an increasingly
higher standard of care on brokers to carry out proactive inquiry
and to ensure appropriate coverage for their clients.
2) Generally, the more reliance on a broker by an insured, the higher
the standard of care imposed on the broker.
3) If an insured is relying on a broker to obtain sufficient coverage
then the broker has a positive obligation to:
• Ask questions about the insureds circumstances;
• Point out gaps in coverage;
• Alert insureds to any changes in a renewal policy; and
• Review the insured’s needs at renewal time to ensure the
coverage is adequate.
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28. Summary - Risk Management Lessons
4) Courts generally do not require brokers to go beyond their own
area of expertise. However, a broker should not mislead an
insured regarding their abilities.
5) Courts continue to show a tendency to try and “do justice” in
each case.
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29. BROKERS REMEMBER PAIR:
P ROACTIVE
A DVISE
I NQUIRE
R EVIEW
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30. Presented By:
Presented by Samantha Ip, Clark Wilson LLP
ssi@cwilson.com | 604.643.3172
www.cwilson.com
THANK YOU

31. These materials are necessarily of a general nature and
do not take into consideration any specific matter, client
or fact pattern.
Please direct inquiries or comments to:
Samantha Ip, Clark Wilson LLP
ssi@cwilson.com | 604.643.3172
www.cwilson.com
THANK YOU