When is enough, enough?

Broker and insurer’s duties to inform insureds

The Court held that there is arguably a positive ongoing duty on brokers and insurers to:

• make sure that the insured knows:
  • and understands the extent of their insurance cover; and
  • if the insurance cover becomes inadequate; and
• inform the insured if they are aware that:
  • the insured is mistaken about the extent of their cover; and
  • the insurance will in fact not cover the insured for what they are seeking to cover.

The homeowner of a property damaged by the September 2010 and February 2011 Canterbury earthquakes (Ms Brinsdon) sued her insurance broker (Mr Beazley) for negligent advice because she is under-insured.  She alleges that Vero Insurance (Vero) is vicariously liable for Mr Beazley’s failures.

Ms Brinsdon arranged home insurance cover with Vero through Mr Beazley in December 2001.  Her property was insured on a sum insured basis for the initial and subsequent periods of insurance.  Vero sent Ms Brinsdon renewal/expiry notices setting out key policy details, including the expiry date, applicable policy wording and the sum insured premium.  The last renewal date was 12 December 2010.

Following the Canterbury earthquakes, Ms Brinsdon submitted a claim under her policy for earthquake damage to the property.  That claim was assessed as over the EQC cap.  After obtaining a scope of works and costings for the repairs, Vero made Ms Brinsdon a formal offer to cash settle the claim, being the sum insured figure less the EQC contributions and policy excess.  However, the total sum insured figure was less than the estimated repair costs for the property.  Ms Brinsdon was under-insured.

On 1 September 2017, Ms Brinsdon filed a proceeding against Mr Beazley. She amended the claim a few months later to join Vero as a defendant.  Ms Brinsdon alleges that Mr Beazley failed at inception, and on each renewal, to advise her that she had a sum insured policy.  The Statement of Claim includes three causes of action against Mr Beazley.  They are:

1. Breach of an implied term of the contract to use reasonable care and skill on inception and on each renewal of the policy.
2. Negligence.
3. Breach of Consumer Guarantees Act 1993.

Ms Brinsdon alleges that as Mr Beazley’s agent, Vero is liable for his failings.

Mr Beazley and Vero brought applications to strike out the pleadings on the grounds that each claim is time barred.  The Defendants argued that the last renewal, 12 December 2010, and the Canterbury earthquakes, were more than six years before the proceeding was commenced, so it ought to be struck out.

Opposing the strike out, Ms Brinsdon argued that the limitation period ought to be postponed, on grounds of equitable fraud (if the Limitation Act 1950 applied), and for late knowledge (if the Limitation Act 2010 applied).

For the purpose of these proceedings, the Court had to determine whether, as Mr Beazley and Vero argued, that the claims were so clearly time barred or unarguable, that they should be struck out.

In determining the applications, the Court considered four critical issues.  These are:

Issue 1:

Is there an arguable case that Mr Beazley and Vero owed ongoing duties of care, subsequent to the last renewal of the policy in December 2010, to keep Ms Brinsdon informed?

Ms Brinsdon claimed that Mr Beazley had a continuing duty of care (after the last renewal of the policy, 12 December 2010) to ensure that she had adequate insurance cover.  Ms Brinsdon alleged that Mr Beazley had a duty to tell her that she was in fact under-insured, so that during the period of aftershocks following the Canterbury earthquake sequence, she would know that she had inadequate cover, and could elect to remedy that situation

These allegations give rise to a novel duty of care.  The Court referred to the Supreme Court decision of Couch v Attorney-General, which held that Courts should be slow to rule on novel categories of duty of care at the strike out stage.¹ Therefore, the Judge left this issue to be determined at trial. The Judge concluded that Ms Brinsdon established a tenable case that Mr Beazley and Vero owed ongoing duties of care to ensure and/or advise her on the adequacy of her insurance cover.

Issue 2:

Has Ms Brinsdon shown an arguable case for an extension of the limitation period under the 1950 Act, on grounds of equitable fraud?

The 1950 Act extends the start date of the limitation period until the Plaintiff has discovered the “fraud”, or could, with reasonable diligence, have discovered it.²

In opposition to the strike out application, Ms Brinsdon alleged that Mr Beazley and Vero concealed and/or failed to disclose to her that her home insurance policy was subject to a monetary sum insured and, subsequently, any settlement of the claim would be limited to the sum insured.

Mr Beazley and Vero argued that there was no “air of reality” to Ms Brinsdon’s claim that they concealed (deliberately or otherwise) from her that there was a sum insured limit on her policy.

The Associate Judge found that Ms Brinsdon established that there was an arguable special relationship that gave rise to a fiduciary duty and/or a special duty of disclosure.  Therefore, Mr Beazley and Vero’s failure to disclose that her policy was subject to a monetary sum insured was a breach of their duty.

The Associate Judge also concluded that it is at least arguable that there was wilful concealment.  He held it was reasonably arguable that Mr Beazley and Vero knew that Ms Brinsdon was under a misapprehension as to the scope of her cover prior to, or subsequent to, the last renewal in December 2010.  He held that Mr Beazley and Vero arguably knew that Ms Brinsdon did not fully understand the implications of a sum insured policy.  The Associate Judge agreed that there is a lack of clarity in the policy wording, especially to the ordinary reader, about the extent of the insurance cover.  He found that it is at least arguable that the concealment was wilful in the sense that “the defendant must be shown to have known the essential facts constituting the cause of action.  It is, after all, the right of action which must be concealed by the fraud”.

The Judge held that Ms Brinsdon had established a tenable basis for postponement of the limitation period on the grounds of equitable fraud under the 1950 Act.

In reaching his conclusion, the Associate Judge recognised that he was only making an assessment as to whether a position is reasonably arguable and whether Ms Brinsdon has discharged the persuasive burden that the claim ought not to be struck out.  Ultimately, all these issues will need to be tested at trial.

Issue 3:

Has Ms Brinsdon established the grounds for late knowledge under the 2010 Act?

For the late knowledge provisions of the 2010 Act to apply, Ms Brinsdon needed to show that the acts or omissions on which her claim is based occurred after 31 December 2010.  The Associate Judge had already determined that there is an arguable case for ongoing duties of care owed and breached by Mr Beazley and Vero which extends after 31 December 2010.

He also found that Ms Brinsdon had established a credible and arguable case that she did not have knowledge of the under-insurance until 26 March 2015, the date when Vero made the formal offer to cash settle the claim (Late Knowledge Date).  He found that it was not reasonable for her to have had that knowledge until the Late Knowledge Date.  This was because of Mr Beazley and Vero’s omissions to advise her of the adequacy of her policy cover and that she would be out of pocket for costs that exceeded the total sum insured limit.

This meant that Ms Brinsdon had until March 2018 (three years after the Late Knowledge Date) to bring proceedings.  They were filed within time.

Issue 4:

If so, is the claim for ongoing duties of care a fresh cause of action that had to be brought within three years after the Late Knowledge Date?

The High Court Rules provide that an amended pleading introducing a fresh cause of action is only allowable where the cause of action is not statute-barred.³

The Associate Judge held that the proposed amended pleading alleging an ongoing duty of care by Mr Beazley and Vero to advise Ms Brinsdon about the adequacy of her insurance cover is in essence the same kind of claim as had already been pleaded.  The proposed amendment did not change the legal basis of the claim.  Therefore, the proposed amendment was held not to be out of time.

For these reasons, the Associate Judge dismissed the strike out application.

He said, she said – Relying on affidavit evidence to show wilful concealment

For strike out applications the pleaded facts, whether admitted or not, are assumed to be true.⁴  As a result, it is not for the Court at the strike out stage to resolve factual disputes.  This does not extend to pleaded allegations which are entirely speculative and without foundation.⁵

Courts are entitled to receive affidavit evidence on a strike out application when required to do so to determine the strike out.⁶  As the Courts are not attempting to resolve genuinely disputed issues of fact, they will generally limit evidence to that which is undisputed and will not consider evidence inconsistent with the pleading.⁷ The exception is where an essential factual allegation is so demonstrably contrary to indisputable fact that the matter should not be allowed to proceed further.⁸

In this case, it is clear that the facts in relation to the critical issues were in dispute.  But because the persuasive burden shifted to Ms Brinsdon to show that there was an arguable case for an extension of the limitation period, she needed to establish something by way of pleadings, particulars or evidence which gave “an air of reality” to her claim that the extension of time she sought was justified.⁹

The Court therefore relied on Ms Brinsdon’s affidavit for evidence that it was arguable that Mr Beazley and Vero’s concealment of her cause of action was wilful.  Her affidavit asserted that she was unaware that her insurance cover was limited to a sum insured value. She believed she was getting full replacement insurance.  However, the Associate Judge used Ms Brinsdon’s affidavit evidence to conclude that Mr Beazley would have known that Ms Brinsdon did not fully understand the extent and implications of her cover and that Mr Beazley wilfully did not inform her about her true coverage.  It is difficult to understand how the Associate Judge could determine what Mr Beazley knew from Ms Brinsdon’s evidence alone.

The Associate Judge does, however, recognise that these issues will be tested at trial and that there are documents that might contradict some of Ms Brinsdon’s contentions.

How far does your duty of care extend?

An intriguing aspect of this case is that Ms Brinsdon’s allegations could, if successful at trial, give rise to a novel duty of care for insurance brokers and insurers.  This will be a point of interest for both.

Some interesting points that were raised by the Defendants in this case were that Ms Brinsdon received renewal notices which set out the sum insured limit in her policy.  They also referred to various references in the renewal notices that made it clear to Ms Brinsdon that she needed to check to ensure the information in the notice was correct.  She needed to check that the amount of the sum insured was adequate.  How much further should brokers and insurers go to ensure that their customers fully understand their insurance policy and whether it adequately insures the property they seek to cover?

Mr Beazley argued that it did not make sense for him to conceal the extent of Ms Brinsdon’s cover from her, because it would have been a simple matter for the type of cover she belatedly said she wanted to be obtained.  He said there was no specific event that he could refer to that alerted him or Vero to the fact that Ms Brinsdon might have a different belief about the extent of her cover to that which, on the face of the documents given to her, was obvious.  He argued that he was simply unaware that she did not know that her policy was a sum insured policy.  Given that the policy schedule stated it was a sum insured policy, one must have some sympathy for Mr Beazley’s position.

If the Plaintiff establishes that Mr Beazley and Vero owed her an ongoing duty of care to reassess her policy and ensure that it continued to meet her needs, this arguably enlarges the obligations on brokers and insurers to their insureds, which seems difficult to justify.

It will be interesting to see how this issue is determined at trial.

1. Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] and [123].
2. Limitation Act 1950, s 28(b).
3. High Court Rules 2016, r 7.77.
4. Attorney General v Prince [1998] 1 NZLR 262 at 267.
5. At 267.
6. Attorney General v McVeagh [1995] 1 NZLR 558 (CA) at 566.
7. At 566.
8. At 566.
9. Brinsdon v Beazley [2019] NZHC 808 at [37], citing Stephen Todd, Tort – A to Z of New Zealand Law, Limitation (online ed, WestLaw, New Zealand) at [26.5.09].