A FOS ruling on a broker dispute illustrates the importance of reacting quickly to changes in client circumstances.

The applicant was a tradesman who used a broker to arrange and renew a tools of trade policy. The premium was payable annually through a premium funder. The policy was renewed on 17 December 2013.

As the applicant defaulted paying his January instalment to the premium funder, the policy was cancelled from inception on 29-30 January 2014.

Code of Practice infographicThe applicant’s tools were stolen while he was on holiday between 29 January and 13 February. As his policy had been cancelled, he sought reimbursement from his broker for the loss.

On 23 January that year, the premium funder informed the broker that his client had defaulted on his instalment, adding that if this was not rectified in the next six days, it would cancel the policy.

The instalment remained unpaid and on 29 January, the premium funder instructed the broker to cancel the policy, which happened the next day.

The first time the broker attempted to warn the applicant was in a phone call made at 4.58pm on 29 January.

He was unable to get through, as the applicant was overseas at that time. He tried again a couple of times the following morning before cancelling the policy, shortly before 10am.

FOS findings

FOS found the broker failed to exercise reasonable care and skill as he waited until late afternoon on the sixth day to warn the applicant. Instead, FOS considered the broker ought to have attempted to warn the applicant by either phone or email within a day or two of being aware of the premium funder’s intent.

The fact the premium funder also sent a letter to the applicant was not sufficient, particularly given the applicant stated he did not receive it before going overseas. FOS considers a broker exercising reasonable care and skill would have attempted to communicate more immediately and directly to his or her client, particularly given the limited timeframe and significant consequences of the content of the premium funder’s letter.

FOS also accepted that if the broker had acted in this manner, the applicant would have received his communication, given he would have been in Australia at the time. Further, he would have undertaken action to ensure the policy remained active given he had a conversation with the broker on 21 January stating he intended to keep this policy.

For more on the Insurance Brokers Code of Practice, click here.