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Negligence finding: brokerage faces big compensation bill

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A Gallagher-owned brokerage which failed to advise a client of a copyright infringement risk must compensate the business for the $250,000 in losses it suffered, the Federal Court of Australia has ruled.

It’s not clear whether Instrat Insurance Brokers will be able to pay, as the Victorian business was wound up in January 2018.

A spokesman for Gallagher told the company does not comment on court cases involving its businesses. Instrat was established in 1999 and was acquired by the US-based broking giant in December 2014.

PC Case Gear (PCCG), an online business selling and distributing computer hardware and software, commenced court action against Instrat in March 2018, two years after it was forced to pay Microsoft $250,000 as part of a settlement for installing Windows operating systems onto computers it had sold without having the proper licences.

The business said it thought the licences it had acquired from a Microsoft sub-distributor allowed for the installation of Windows on new computers. It was not aware those licences applied only to second-hand or refurbished computers.

In January 2016 PCCG received a copyright infringement notice from the US software giant.

At that time Instrat had been arranging PCCG’s insurance on a retainer basis, with a broker meeting with the business each year to advise and make recommendations on the necessary policies.

The policy arranged by Instrat covered PCCG for defence costs in respect of the Microsoft claim, but not for the copyright infringement.

In its legal action PCCG accused the Instrat broker of acting negligently and breaching its contractual obligation when it failed to advise the business that it faced copyright infringement risk.

Instrat countered that PCCG had “negligently contributed” to its own loss when it did not flag the risk of copyright infringement with the broker during the insurance renewal process.

But Melbourne-based Federal Court Justice Stewart Anderson disagreed, ruling that Instrat had “breached its contractual and tortious duties” by failing to take into account the risk of copyright infringement.

“My conclusion… is that Instrat acted negligently by failing to properly advise PCCG of its exposure to copyright infringement so as to enable PCCG to make an informed decision regarding that exposure,” he said in his ruling last week.

“A reasonably competent insurance broker in the position of Instrat would have discerned a risk of copyright infringement from the nature of PCCG’s business and raised that risk, and options to address that risk, with PCCG.

“However, Instrat failed to do so. If that risk had been raised by Instrat, my view is that PCCG would have taken out relevant insurance cover, which was readily available for businesses in PCCG’s position.”

Justice Anderson says there is insufficient evidence to establish that PCCG’s original use of the Windows licences was negligent.