A NSW broker must reimburse a business that found it was not covered by its insurance policy after a train derailed in February last year, its shipping container was damaged and the belongings it was transporting interstate on behalf of two men were destroyed.

The Australian Financial Complaints Authority (AFCA) said the broker – JDI (Young) Pty Ltd – had not always managed the complaint “reasonably or empathetically,” and its error caused the two men significant stress and inconvenience.

AFCA said the broker had a duty to make reasonable enquires to ascertain the insurance remained suitable prior to each renewal and it was “not sufficient for a broker to simply send complex insurance documents to a client and ask that the client notify it of any changes that needed to be made”.

In setting up the policy, AFCA said the broker had a duty to undertake reasonable enquiries to ascertain the complainant’s needs, and that “even a limited investigation would have made it clear the complainant needed cover for goods in transit”.

“They moved interstate only to arrive with almost no possessions. The cost of replacing the items caused them financial hardship. The communications by the broker concerning the claim and then the complaint were at times sporadic with long periods of intervening silence. Further, a number of the broker’s communications were argumentative and lacked empathy,” AFCA said.

"The main cause of the loss was the broker’s failure to ensure the relevant renewal was appropriate to the complainant’s needs,” it said. “Overall the broker has acted unreasonably. Its conduct has had a profound impact.”

Originally, the policy stated the firm’s activity was “hiring &/or leasing of shipping containers” for almost a decade from 2010. In April 2019, the description in documents from the broker was changed to “plant hiring or leasing” and this was the occupation recorded with the insurer.

This was not noticed by the policyholder, who had never changed the activity of his business, which was to relocate customers in Australia by delivering a shipping container for them to pack with belongings and transport it to the new address. The name of the business included the term “container services”.

Parts of the freight train derailed near Nana Glen on February 25 last year after tracks were flooded by torrential rain in NSW's mid north coast.

When the claim was lodged, the insurance policy did not respond as the activities nominated did not include transportation of shipping containers.

The broker said it was up to the business to review policy renewal documents each year and check that the details set out were correct, and there was no substantive difference between describing business activity as ‘Hiring &/or Leasing of Shipping Containers’ and as ‘Plant Hiring or Leasing’ because neither encompassed transportation.

AFCA said the business had a “legitimate basis” to believe the policy encompassed transportation and the ‘Hiring &/or Leasing of Shipping Containers’ description in the many documents the broker sent “did not reflect the occupation recorded by the insurer and was misleading”.

The broker “failed to exercise the care and skill expected of a competent insurance broker,” AFCA ruled, and must pay $96,888 to the business, which it would split and pass on to the two men. That was the $100,000 cost of goods replacement, minus $3112 in premiums paid for insurance that was suitable.

The broker was also instructed to arrange and pay for removal and disposal of the container’s damaged contents and the cost of relocating the container, which was stored far from the location of the business.

"The broker’s errors and delays have caused (the two men) significant stress, inconvenience and financial hardship,” the ruling said. "The broker was responsible for setting up the policy with the complainant’s occupation as ‘Plant Hiring or Leasing’. That nominated occupation was the reason the claim was denied.

“The broker’s duty is to undertake reasonable inquiries to ascertain the client’s needs.”

See the full ruling here.