The facts of the case
The applicant was an Owners Corporation that used the services of an insurance broker to secure a residential strata policy covering three units. The Owners Corporation consisted of three unit
owners, two of whom were owner-occupiers and the other a landlord.
The unit owner of the leased property lodged a claim directly with the insurer for property damage caused by tenants. The Owners Corporation objected on the basis it had given the unit owner ample forewarning of the tenants’ conduct and the owner had the opportunity to mitigate the loss.
The Owners Corporation did not want its no-claims bonus affected by the claim and requested the insurance broker inform the insurer to withhold paying the claim.
However, as the unit owner was a policyholder and had established an insured event, the insurance company did not require the consent of the rest of the Owners Corporation to pay the claim.
There were some inconsistencies in discussions which took place between the broker and the Owners Corporation regarding the settlement of the claim, whereby the insurance broker allegedly confirmed to the Owners Corporation that the claim was put on hold when in fact the insurer had already arranged a payout to the claimant.
The Owners Corporation lodged a dispute against the insurance broker with FOS, which referred the matter to the Insurance Brokers Code Compliance Committee to investigate an alleged breach of the Code of Practice.
The Committee determined that in respect of the claim, the unit owner of the leased property was the claimant and client of the broker. As a result, the broker was obligated to act on behalf of that unit owner in regards to the claim. This case highlights the complexities brokers face when arranging cover for Owners Corporations and subsequently assisting members of an Owners Corporation with a claim. Such situations can involve competing interests as well as relationship breakdowns between the members of the Owners Corporation.
Under the Code, brokers subscribing to the Code have general obligations to transparently manage conflicts of interest that may arise (Service Standard 2) and to discharge its duties diligently, competently, fairly and with honesty and integrity (Service Standard 5). In these circumstances, brokers must proactively engage with all its clients to ensure it is effectively keeping its clients informed of any claims and the progress of such claims so as to manage client expectations, making the maintenance of detailed file notes of client interactions good industry practice.