An insurance broker was liable for failure to provide the applicants with adequate advice as to their insurance requirements for pool related businesses they were conducting, with the result that they were inadequately insured in respect of a fire at their manufacturing factory.
In Issue
- Whether the Respondent breached its contractual obligations and/or duty of care owed to the Applicants in the advice given and insurance obtained on their behalf.
The background
The first to fifth applicants are corporate entities, referred to collectively as the ASA Group or ASA. The sixth applicant, Timothy Elliott, was a director and shareholder of each of the first to fifth applicants, and the controller of the ASA Group. The applicants were businesses involved in pool manufacture, sale, fencing, and heating.
The respondent is an authorised representative of OBI Services Pty Ltd and its principal, Mr Gary Olbrich, was the insurance broker of the applicants.
On 29 January 2010, a fire occurred at the applicants’ factory, causing extensive damage to the factory and the majority of its contents, including a number of unique fibre glass moulds used to manufacture the pools.
Olbrich took out insurance for the applicants under an ‘Industrial Special Risks Policy’ in 2009, however the policy did not sufficiently cover the majority of the contents and stock contained within the factory, leaving the applicants significantly underinsured.
Following the fire, Elliott made numerous unsuccessful attempts to revive the businesses, including by sourcing pools from Western Australia and Darwin, whilst also attempting to obtain funds to rebuild the factory (which was not possible with the insufficient cover obtained by Olbrich). In September 2012, the first, second & third applicants were placed into voluntary administration, with the remaining two businesses (fourth and fifth applicants) ceasing to trade due to their reliance upon the first three applicant entities.
At trial Elliot gave evidence in relation to his reliance upon Olbrich for all matters regarding insurance and his total trust in the respondent’s ability to acquire adequate insurance for the businesses.
The decision at trial
The court found in favour of the applicants on the basis that the respondent and its representative, Olbrich, owed a general duty to exercise ‘skill and care of a reasonably competent insurance broker’, and breached that duty by failing to provide adequate advice regarding the declared value for the factory, the indemnity period, value for gross profit, and the sub-limits for the additional increase in cost of working and claims preparation costs.
The court also found that the applicants did not sufficiently make out a further contractual duty to obtain ‘full insurance’ by the respondent. In addition, the court declined to make findings that Elliott failed to mitigate his losses through his post fire actions, and although the court found that Olbrich owed the applicants a tortious duty of care, no additional recoverable loss was established, and no further award made in that regard.
The court determined that if the applicants were sufficiently insured, they would have recovered an additional $3,200,000 in proceeds. Arguments in relation to interest on this sum, the additional potential heads of consequential loss that the parties agreed should be the subject of subsequent consideration, the form of the judgment, and costs are yet to be considered by the court.
Implications for you
This case highlights the importance for insurance brokers to ensure that their clients understand the insurance coverage which they are obtaining, and the significance of both the broker and insured client being satisfied that all necessary items are adequately covered under that policy.
