BROOKLYN LANE PTY LTD V MIC AUSTRALIA PTY LTD  VSC 33
Supreme Court of Victoria – 21 February 2001
MIC was an insurance broker engaged by Brooklyn Lane, a real estate agent, to procure a series of insurance policies from Mercantile Mutual Insurance (MMI).
Although MIC was experienced in the insurance industry, it always depended on its clients’ information and instructions before procuring any insurance on their behalf.
When Brooklyn’s business premises was destroyed by a fire it claimed from MMI for the loss incurred but MMI denied liability because it alleged that the fire was deliberately caused. Brooklyn issued a proceeding (“initial proceeding”) against MMI. The parties settled the matter without proceeding to a hearing with MMI expressly denying liability.
Brooklyn claimed that as a result of MIC’s breach of contract and negligence to procure adequate insurance policies it was forced to settle with MMI for less than the amount it should have received.
Whether the duty of an insurance broker extends to ensuring that its clients’ business is protected from all aspects of loss.
MIC had always advised Brooklyn based on the information provided to it. However Brooklyn had failed to specify that it had trade debtors. It was therefore reasonable for MIC, which had extensive experience and knowledge in the insurance industry, to proceed on the basis that insurance of accounts receivable was not appropriate for Brooklyn.
In the absence of any instruction from Brooklyn to procure insurance for its accounts receivable MIC did not have any obligation to procure such policies or inform Brooklyn that it had no cover for that aspect of its business.
Balmford J said:
“MIC was at the time, and still is, of the view that insurance of accounts receivable is not appropriate for real estate business. If MIC had been instructed generally to procure a policy covering the full gamut of Brooklyn’s business it would not have been under a duty to include cover for loss of accounts receivable…
Since Brooklyn did not tell MIC that there were trade debtors MIC could not have been expected to know of the existence of the debtors and it was reasonable for it to proceed on the basis that insurance of accounts receivable was not appropriate for Brooklyn.”
An insurance broker must exercise reasonable care and skill in the performance of its duties including carrying out its clients’ instructions.
However a broker is not obligated to ensure that its client is impervious to loss or risk of loss through the absence of insurance and to explain the effect of each term of a contract of insurance.
In the absence of any instructions from a client, a broker is not under a duty to ensure that the clients’ business is protected from every aspect or to inform the client that no such cover had been obtained.
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