A broker that did not keep a record of discussions with a business client has breached its duty of care, the Australian Financial Complaints Authority says in a dispute ruling.

However, the ombudsman has stopped short of awarding compensation because the breach did not cause the client loss.

The dispute arose after the client claimed under its management liability policy but was rejected on grounds of non-disclosure by its insurer, identified as AG in the AFCA ruling.

The broker, Steadfast IRS, had been engaged in August 2018. It arranged cover through two insurers – one providing indemnity protection from August 31 2018 to August 31 2019, and AG from 2019 to 2021.

AFCA says the broker was made aware in August 2018 of possible legal action by an employee in relation to his termination. The employee was a former shareholder who had sold his stake in the business under a 2016 share sale agreement. The worker’s wife had also sold a stake.

“The panel also accepts that the broker ... notified [the insurer] of the potential claim, based on which [it] agreed to accept the complainant’s risk commencing August 31 2019.”

The complainant said it also told the broker at an in-person meeting on July 23 2019 about the likelihood of legal action from the ex-employee’s wife, but the broker denied being informed about it.

“The panel accepts the broker was provided further details of the potential legal action by [the ex-employee] in relation to his termination, when the complainant met with [the broker] on July 23 2019,” the ruling says. “However, there is no contemporaneous information to show what discussions the complainant had with [the broker] … on July 23 2019.”

The client said the broker took notes throughout the meeting, and an email from the broker to the client dated July 29 showed a meeting took place.

“However, the email does not convey what the nature of the discussions were in the meeting,” AFCA says.

The individual broker involved no longer works with Steadfast IRS and the brokerage said it could not find notes relating to the discussion.

“The panel is satisfied that the broker’s failure to keep notes of its discussions with the complainant is a breach of its duty, as it does not meet the standards required of a professional in these circumstances,” AFCA says.

“The broker’s obligation is not simply to provide advice regarding the best insurance for the complainant. The broker’s obligation extends well beyond the correct insurance policy and includes appropriate advice regarding disclosure obligations concerning potential claims.

“It may be that the advice provided by the broker regarding insurance policies and/or advice concerning disclosure of potential claims was correct, but we cannot know as there is no contemporaneous record of the discussions.”

AFCA says it is “prepared to accept that at the July 23 2019 meeting, the complainant also disclosed to the broker the potential legal action” by the wife.

“The panel notes that the complainant had previously made fairly prompt disclosure of known issues.”

But it finds “there is no evidence of a claim being made by the complainant against either insurer for loss arising from the legal action of [the wife]”, so no loss arose from the breach of duty.

Click here for the ruling.