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INMAG DEC 13:page layouts

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lawNEWS

Business or leisure? A broker has lost a court case after a boat insured for business was used for a private trip

A NEW SOUTH WALES COURT HAS found a broker negligent for failing to make clear to a business owner that if he used his company’s boat for leisure, his policy did not provide cover. Horsell International has lost an appeal against a ruling of negligence after the client’s claim was rejected by the insurer. The NSW Court of Appeal says insurance brokers have a duty to ensure the client’s policy is suitable for the purpose for which it is bought and – even if the client gives ambiguous instructions – it is the broker’s duty to clarify the instructions and alert the client of any pitfalls. It ordered Horsell to pay the costs of Dive Two, William Todd and Liberty Mutual. Mr Todd, the sole director of scuba diving business Dive Two, was navigating a 7.5-metre aluminium dive vessel owned by the company in July 2006 when he collided with a fishing boat driven by Rian Lane. Mr Lane was seriously injured and Mr Todd later pleaded guilty in court to dangerous navigation causing grievous bodily harm. Mr Lane sued Dive Two and Mr Todd for negligence, and Mr Todd cross-claimed against his policy with Liberty Mutual and, in the event that the policy did not respond, against Horsell, which arranged the policy. Mr Lane’s claim was settled and then the cross-claims litigated. The Supreme Court dismissed the claim against Liberty on the basis that the policy did not respond, but upheld the claim against Horsell for damages for negligence and breach of contract. Horsell appealed, saying the policy did apply and that it did not act negligently or in breach of any retainer. The Court of Appeal notes the policy covers liability for claims arising “in connec60

tion with the insured’s business”, and says Mr Todd was taking his wife and four friends on a pleasure trip on the Myall River north of Newcastle when the incident occurred. It was not a business trip. Dive Two had bought the Professional Association of Diving Instructors (PADI) Asia Pacific Watertight Liability Insurance Program developed by Horsell. Liberty was the underwriter. Mr Todd testified he had been told the policy would cover him for all public liability issues and he would not need to buy any other insurance. He did not renew a hull insurance policy with Associated Marine that included public liability cover because he understood he had complete coverage under the new policy. insuranceNEWS

He said he was told the policy also covered activities associated with sightseeing, diving, swimming and fishing. But Liberty would not pay the claim because it did not arise in connection with the Dive Two business, and also because it involved a criminal act, as Mr Todd had pleaded guilty to dangerous navigation. His legal costs were not covered because he was not acting in the course of his duties at the time of the accident. The insurer said the policy was for members of a commercial organisation, PADI. Liability policies for recreational watercraft are available and are known to be different to commercial or business liability covers. Liberty said insurers have a legitimate commercial interest in distinguishing between business and private risks. Recreational use may “more readily involve distractions and inadvertence while business use is more likely to be subject to regulation and to be taken more seriously by an operator conscious of business reputation”. When the case was first heard in the NSW Supreme Court, Justice Christine Adamson ruled the policy applied to business use and the Myall River trip was for private purposes. She ruled it is incumbent on a reasonably competent broker, in circumstances where the broker has earlier advised a client that it did not need public liability insurance for its boat, to advise the client of the limitation of the policy. PADI had engaged Horsell to advise it and its members on appropriate insurance cover and, by implication, to warn where cover was inadequate or doubtful. Horsell should have advised that insurance was available to cover risks not covered by the PADI policy, so it was negligent in failing to warn Dive Two of a potential deficiency in the policy.

December 2013/January 2014

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Profile for Insurance News (the magazine)

DEC/JAN 2013/14 - Insurance News (the magazine)  

The December edition of Insurance News (the magazine) contains our annual list of the 20 most influential people in the insurance industry....

DEC/JAN 2013/14 - Insurance News (the magazine)  

The December edition of Insurance News (the magazine) contains our annual list of the 20 most influential people in the insurance industry....