The laundry company’s fire claim will be covered after the Australian Financial Complaints Authority (AFCA) ruled that the broker had not done enough to ensure policyholders knew the cover would be voided if smoke detectors and thermal scanning were not installed.
The broker sent an email with the requirements in an attachment, but in the absence of a response, did not follow up verbally or in writing, the AFCA says. The policy was canceled on November 26, 2021 and the laundry was destroyed by fire on January 25 of last year.
The plaintiffs filed five claims from 2017 to 2021, four for merger and one for engine replacement. When the current insurer wouldn’t renew coverage, the McLardy McShane Partners broker contacted 11 insurers about a new policy.
Only one insurance company agreed and was ordered by the mediator on October 25, 2021 to tie the cap from October 28. The policy was conditional on installing the smoke detector within 30 days and performing a thermal scan, which detects overloaded circuits or defective switch components.
The moderator sent an email outlining the new cap on Oct. 28, but the complainants said it had not been received, and they did not respond.
The AFCA panel was satisfied with the balance of probabilities that had been emailed and advised that the policy had “strict clauses with respect to fire risk”. But the email contained eight attachments and details of the terms and deadline were on the last page of a five-page document.
“The commission believes that the email did not clearly convey the seriousness of the situation,” says the AFCA. A competent and experienced broker will also expect a client to respond to an email stating that they are at imminent risk of losing insurance coverage.
“When the complainants did not respond to the email, the mediator had to call them to make sure they understood the severity of the situation,” she says.
The mediator says he believes the complainants did not respond because they had “secured their own cover”.
“The broker cannot reasonably consider this,” says the AFCA. “The broker has acted on behalf of the complainants for the past 10 years. The plaintiffs never said they wanted to end the relationship, or that they would arrange their own cover.”
The complainants say the broker called them and said the insurance company wanted a heat scan and smoke detectors, but that was the owner’s responsibility, and it led them to believe the broker would have contacted the owner.
The broker told the insurance company that the laundry was rented and might not be able to meet the requirements in a timely manner and would need to ask the landlord for a “subsidy”. The mediator asked if the requirements could be waived, but was told that the measures were non-negotiable, although the time could probably be extended if genuine attempts were made to comply.
The AFCA says the mediator never asked the complainants if they could meet the requirements, never contacted the landlord, or advised the complainants to contact the landlord to see if the requirements could be met.
On January 5, 2022, the insurance company sent an email to the broker saying the policy had been cancelled, according to the cancellation notice issued on November 26.
The broker did not tell the complainants to cancel the policy. The broker says he regrets it,” says the decision.
The AFCA says the mediator did not take all reasonable steps to ensure that the complainants understood they would lose the cover if they did not meet the fire safety requirements, did not ask if they could meet the requirements, or advise them to do so if reasonably possible, and did not tell them that the policy had canceled.
The decision stated: “For the reasons mentioned above, the mediator breached his duty towards the complainants.”
The AFC said the broker must pay the amount that the insurance company would have paid if the policy had been valid on January 25 and the conditions were met. Premiums and any thermal survey, surplus and smoke detector costs can be deducted.
Complainants can contact the AFCA again if the parties do not agree to compensation.
The resolution is available here.