An organisation seeking more than $340,000 in compensation from Community Broker Network (CBN) has lost a claim dispute, although the dispute resolution body says poor record keeping by the broker breached its duty of care.

The Australian Financial Complaints Authority (AFCA) says standards expected of brokers were not adhered to when CBN altered its proposal to the insurer without properly documenting why and other details.

However, AFCA said this was not the cause of the loss being claimed, and so CBN was not liable pay the costs sought.

CBN had arranged directors’ & officers’ liability insurance cover commencing mid-October 2014 for twelve months. A claim was lodged on the policy in 2015 due to legal proceedings by a “Mr R” against the organisation and several of its officers.

The insurer declined it, saying the organisation failed to disclose the fact it was aware of circumstances that led to the proceedings – specifically that Mr R had issued Equal Opportunity Commission (EOC) proceedings that were being covered by a previous insurer.

The organisation, which incurred $340,434 in costs during the now-concluded proceedings, said CBN was responsible for this failure as Mr R’s circumstances had been disclosed in a proposal but this disclosure was altered by CBN.

The pair disputed what was intended to be disclosed, with CBN saying it was a “Mr C’s” circumstances and the organisation saying it was Mr R’s circumstances – though neither could produce any supporting paperwork.

“It is plain the broker’s failure to keep any contemporaneous records is a significant omission. It did not keep any record confirming it did so under instructions and the complainant has consistently maintained it did not do so,” AFCA said.

CBN affirmed it altered the proposal but explained the organisation had only disclosed to it matters relevant to Mr C – not Mr R. AFCA said this was consistent with the policy it arranged specifically excluding loss resulting from “claims by Mr C”.

“If the insurer was made aware of Mr R’s circumstances it would likely include a similar exclusion for Mr R,” AFCA said.

“It is difficult to accept … any insurer would agree to be on risk for any other claim made by Mr R given the known circumstances. It is unlikely such cover could have been sourced.”

AFCA said the other insurer covering Mr R’s EOC proceedings would have been unlikely to renew as that policy was only available through a previous broker with which the organisation’s relationship was “breaking down”.

CBN had changed the organisation’s “yes” answer to “no” to proposal questions asking whether any relevant claim or proceedings had been brought against any insured person, or if the insured had ever received a notice to attend liability risk proceedings.

AFCA said it was “concerning” CBN altered the complainant’s proposal without documenting that the complainant agreed to the alteration.

“The failure to keep any form of contemporaneous record of such a significant matter is inconsistent with a broker exercising reasonable care and skill. To this extent, a breach (of the code) has occurred,” AFCA said.

CBN said it made the changes after discussions with the client, but the organisation maintained it was never informed of the change.

However, AFCA said this was not the cause of the loss “regardless” because the insurers would have excluded any claim arising from the circumstances and it was unlikely any insurer would have agreed to offer cover for Mr R’s claims.

“Even if the broker removed any reference to Mr R’s circumstances in the proposal, the panel does not accept the available information shows this caused the complainant to suffer the loss it is now claiming,’ AFCA said.

AFCA also said the organisation’s claim CBN said it would cover its legal fees at the conclusion of the litigation was not consistent with records, and that one of the reasons the organisation remained uninsured for the legal costs was its own failure to pursue the first insurer, which may have been on risk.

“It is not clear the complainant reasonably mitigated the situation,” AFCA said.

See the full ruling here.