The complaints ombudsman has rejected accusations that a broker who arranged insurance for a play centre group and its franchisees breached its duty of care and provided false information.

The complaint against Midland Insurance Brokers was made by one of the franchisees after he sold his business and tried to obtain from the franchisor a $157,000 refund relating to the group’s insurance.

He was referred to legal advice, obtained by the franchisor, outlining the need to retain the funds for a period, and he then sought to recover his contributions from the broker.

The franchisee said the sum represented his contribution to an aggregate deductible buydown insurance – one of three covers arranged by Midland – and a related reserve fund to help franchisees in the event of a claim.

The broker arranged aggregate deductible buydown cover because sourcing of insurance had been difficult and expensive. The insurance came with aggregate deductible amounts of $750,000 to $850,000, due to the high risk of operating play centres.

The buydown cover would meet most of the aggregate deductible in the event of a claim, leaving a franchisee out of pocket by about $150,000.

To ensure $150,000 was available in case a claim was made against any network member, the franchisor created an aggregate deductible contributions fund, to which franchisees, at their discretion, agreed to contribute.

Midland helped to design, organise and collect contributions for the fund, which was in a private account managed and controlled by the franchisor.

The franchisee told the Australian Financial Complaints Authority the broker should reimburse his contributions because in 2018, at a group conference, it misled franchisees by providing incorrect information about the possibility of obtaining refunds from the pot.

He said there was no proper governance of the payments or the fund.

However, AFCA says the franchisee failed to provide “persuasive” information to back his claims about the broker’s conduct.

It says Midland provided the required information to the franchisee in a “clear and detailed” manner at every renewal period.

“The [AFCA] panel is not satisfied there is any evidence of the broker making any representation to the complainant (or any other franchisee) that can reasonably be understood to indicate it had anything to do with the running, management or control of the [aggregate deductible] fund.

“This includes any representation that it would be responsible for or could arrange refunds from the … fund, whether this be at the conference or otherwise.

“Rather, the panel accepts the broker appears to have utilised reasonable care and skill in procuring financial products suitable and beneficial for [the franchisor] and the franchisees network.

“This is despite the fact, given the nature of [the franchisor] and the franchisees’ business being considered high-risk, insurers were reluctant to accept the risk.”

See the ruling here.