Elilade v. Nonpareil
This case considered whether an insurance broker owed a duty to inform a client about the availability of flood cover and of the existence of a flood exclusion clause in an insurance policy.
DMC Category Rating: Developed
Case note contributed by Penny Taylor, lawyer at Ebsworth & Ebsworth Lawyers, Sydney. Ebsworth & Ebsworth Lawyers are International Contributors for Australia.
"Material Damage (Fire and Extraneous Risk)" the
Severe tropical rainstorms deluged the Katherine area from 25 January 1998. On 26 and 27 January, water flowed into Elilade’s premises, damaging the business’ stock and plant. Elilade made a claim under its insurance policy for loss and damage to its property. The insurer relied on the flood exclusion clause to contend that it was not liable to indemnify Elilade in respect of the damage caused by the flood.
Elilade also claimed that Nonpareil, as its insurance broker, failed to exercise reasonable care towards Elilade in contract and tort by failing to advise Elilade about the availability and desirability of flood insurance.
Mansfield J found that Elilade was entitled to indemnity under the policy for the damage to its stock, plant and equipment which had occurred up to 6am on 27 January 1998, that is, up until the time of the second inundation. Once the river broke its banks the event transformed into a flood, triggering the flood exclusion clause.
In the view of Mansfield J, the broker’s duty in contract and tort was to take reasonable care to inform Elilade as to the availability of certain types of insurance cover, so as to ensure that Elilade considered and then gave considered instructions to the broker about what types and levels of insurance cover it wished to secure. That engagement obliged the broker to provide Elilade with advice and assistance to enable it to make an informed decision about itsinsurance requirements, and to instruct the broker about what insurance cover to procure on its behalf.
Mansfield J said that the broker, in the proper performance of its duty, was required to raise expressly with Elilade whether it required flood insurance, and to make it aware that flood was exempted from the defined events under the policy. The broker, through its previous dealings with representatives of Elilade, was aware that it was not well experienced in addressing the insurance requirements of the business. It knew that there was not an insignificant risk of flooding in Katherine. Indeed, it sought to inform its clients of that risk by displaying in its office the brochure "Flooding Katherine".
Mansfield J found that the broker did not discharge its duty to Elilade, as it did not raise the specific matter of insurance against flood. Instead the broker made a business judgment on Elilade’s behalf and then notified it in writing of the terms of the policy. Mansfield J found that Elilade’s directors, by reading with any degree of care any of the schedules of insurance sent to them, had the opportunity to learn the flood cover was not included in their insurance. However, the directors’ failure to read the documents outlining the insurance cover did not discharge the broker’s duty to advise on the availability of flood insurance.
Mansfield J then considered whether Elilade would have in fact instructed the broker to secure flood cover over its business and assets had it been properly informed or advised. Mansfield J concluded that Elilade would not have taken out flood cover. The reference in materials sent to Elilade did not register with its directors as a matter requiring attention.
Mansfield J found the directors had not been concerned about securing flood cover. He also had regard to the budgeted amount for insurance of $2500, this being significantly less than the sum required for a policy including flood insurance.
The judge relied on the conclusion of Kirby P in Provincial
Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR
Mansfield J concluded that Elilade’s claim against the broker must fail because it had not proved that it would have obtained insurance cover without a flood exemption if it had been properly advised.
These Case Notes have been prepared with care, but neither the Editor nor the International and other Contributors can guarantee that they are free from error, nor that they contain every pertinent point. Reliance should not therefore be placed upon them without independent verification. The Editor and the International and other Contributors disclaim all liability for any loss of whatsoever nature and howsoever arising as a result of others acting or refraining from acting in reliance on the contents of this website and the information to which it gives access. The Editor claims copyright in the content of the website.