The ex-broker of a plumber who failed to disclose 22 prior claims has been found not liable in a dispute over $220,000 in lost income, although he must pay $5400 in compensation for breach of duty and improper advice. 

In March last year, the broker became aware of the client’s history during a motor claim, which all related to his personal insurance policies – a home claim and 21 motor claims made by the plumber and his family. 

The broker advised the plumber that his commercial insurance policies – for business and public liability – be withdrawn and new policies sourced with full disclosure of his personal insurance history.  

After emailing to confirm the commercial policies had been cancelled, saying “the best way I believe is to start fresh and advise the insurers of all information,” and providing a partial premium refund, he resigned as his broker. 

The plumber told the Australian Financial Complaints Authority (AFCA) he had not agreed to cancel his policies, which had 10 months of cover remaining, and had been unable to obtain alternate commercial insurance since, losing clients and contracts as a result.  

AFCA agreed this had caused “considerable stress and inconvenience” and said it was “significant” the broker had made no enquiries with the existing insurers about the implications of his prior personal insurance claims.

"I am not satisfied that there was any basis to cancel the commercial insurance policies,” the ombudsman said. “The broker prematurely and incorrectly recommended to the complainant that he cancel. Accordingly, the broker breached his duty of care, failed to make proper enquiries … and therefore failed to properly advise.” 

AFCA said it was possible the complainant’s personal insurance history would “not have been relevant” and there was nothing to show the plumber would have been an unacceptable risk, that the insurers would have cancelled his commercial insurance policies, or that they would have varied the terms.   

“This is a failure on the part of the broker. The broker was not privy to the insurers’ underwriting guidelines and could not of itself determine the implications of the prior claims history,” the ruling said.

“The broker failed to act in the complainant’s best interest.” 

However, AFCA also ruled the plumber had “not established any causally connected loss” between that breach of duty and lost income. 

The plumber said he had been unable to complete work on nine fast food cafes due to the insurance withdrawal, costing him $220,000 in lost income. 

AFCA said he needed to establish the lost clients/contracts has occurred as a result of the unavailability of insurance and not for some other reason, “including, for example, uncompetitive pricing”.

The broker said public liability insurance was readily available on the market and if no insurer was offering him cover it was not because of his cancellation action, which was “not a matter which is known to the market”. 

Emails from the plumber’s new broker listed lower underwriter capacity and other factors as behind his inability to obtain insurance. The plumber also failed to provide sufficient evidence of awarded contracts or to quantify the income they would have generated.

“The complainant has not established a direct loss of income due to the withdrawal of insurance,” the ombudsman said.

His 22 prior claims came to light two years after the plumber engaged the broker – the director of brokerage “ARI”, a member of Community Broker Network (CBN) – when he lodged a motor claim in March last year.  

Hollard declined it on the basis of misrepresentation, stating the businessman had not disclosed seven of the claims he had in the three years prior. An Individual Insurance Enquiry from Hollard disclosed that there had been a total of 22 claims made by the plumber. The plumber made a complaint to AFCA regarding Hollard’s conduct.

In June last year, Hollard overturned its declinature and offered $50,550 for his car. Its email did not say why the original decision was overturned, AFCA said.  

See the full ruling here.